** **

**UNITED STATES SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

----

 

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

 

**American Restaurant Group, Inc.**

(Exact name ofregistrant as specified in its charter)

 

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

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 
|   | Yes   ý |   | No   o |
|--------|-----------------------------|--------|-----------------------|

 

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

 

 

----

 

**AMERICAN RESTAURANT GROUP, INC.**

 

**INDEX**

 

 
| **PART I.**  | **FINANCIAL INFORMATION**                                                                   |
|--------------|---------------------------------------------------------------------------------------------|
|         |                                                                                        |
| ITEM 1.      | FINANCIAL STATEMENTS:                                                                       |
|         |                                                                                        |
|         | 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.      | CONTROLS AND PROCEDURES                                                                     |
|         |                                                                                        |
| **PART II.** | **OTHER INFORMATION**                                                                       |
|         |                                                                                        |
| 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**

 

**ITEM 1.       FINANCIALSTATEMENTS:**

 

AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATEDCONDENSED BALANCE SHEETS

 

DECEMBER 31, 2001AND SEPTEMBER 30, 2002

 

(unaudited)

 
|                                                                                                                                                                                                                       |   | **December  31,  2001** |       | **September  30,  2002** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|--------------------------|--------|
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| ASSETS                                                                                                                                                                                                                     |   |                    |       |                     |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| CURRENT  ASSETS:                                                                                                                                                                                                           |   |                    |       |                     |   |
| Cash                                                                                                                                                                                                                       |   | $                       | 10,053,000 |                     | $      | 10,076,000 |   |
| Accounts  and notes receivable, net                                                                                                                                                                                        |   | 4,071,000               |       | 4,533,000                |   |
| Inventories                                                                                                                                                                                                                |   | 3,040,000               |       | 2,864,000                |   |
| Prepaid  expenses                                                                                                                                                                                                          |   | 3,002,000               |       | 2,122,000                |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| Total  current assets                                                                                                                                                                                                      |   | 20,166,000              |       | 19,595,000               |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| PROPERTY  AND EQUIPMENT:                                                                                                                                                                                                   |   |                    |       |                     |   |
| Land  and land improvements                                                                                                                                                                                                |   | 2,598,000               |       | 2,598,000                |   |
| Buildings  and leasehold improvements                                                                                                                                                                                      |   | 69,858,000              |       | 72,368,000               |   |
| Fixtures  and equipment                                                                                                                                                                                                    |   | 48,914,000              |       | 48,589,000               |   |
| Property  held under capital leases                                                                                                                                                                                        |   | 7,293,000               |       | 7,293,000                |   |
| Construction  in progress                                                                                                                                                                                                  |   | 2,517,000               |       | 641,000                  |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| Property  and Equipment                                                                                                                                                                                                    |   | 131,180,000             |       | 131,489,000              |   |
| Less  – Accumulated depreciation                                                                                                                                                                                      |   | 80,077,000              |       | 82,299,000               |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| Net  property and equipment                                                                                                                                                                                                |   | 51,103,000              |       | 49,190,000               |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| OTHER  ASSETS, NET:                                                                                                                                                                                                        |   | 18,435,000              |       | 17,856,000               |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| Total  assets                                                                                                                                                                                                              |   | $                       | 89,704,000 |                     | $      | 86,641,000 |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| LIABILITIES AND COMMON STOCKHOLDERS’ DEFICIT                                                                                                                                                                          |   |                    |       |                     |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| CURRENT  LIABILITIES:                                                                                                                                                                                                      |   |                    |       |                     |   |
| Accounts  payable                                                                                                                                                                                                          |   | $                       | 12,528,000 |                     | $      | 11,631,000 |   |
| Accrued  liabilities                                                                                                                                                                                                       |   | 12,849,000              |       | 9,007,000                |   |
| Accrued  insurance                                                                                                                                                                                                         |   | 3,232,000               |       | 3,800,000                |   |
| Accrued  interest                                                                                                                                                                                                          |   | 3,447,000               |       | 7,937,000                |   |
| Accrued  payroll costs                                                                                                                                                                                                     |   | 4,853,000               |       | 5,320,000                |   |
| Current  portion of obligations under capital leases                                                                                                                                                                       |   | 796,000                 |       | 773,000                  |   |
| Current  portion of long-term debt                                                                                                                                                                                         |   | 402,000                 |       | 3,541,000                |   |
| Liabilities  from discontinued operations                                                                                                                                                                                  |   | 525,000                 |       | 0                        |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| Total  current liabilities                                                                                                                                                                                                 |   | 38,632,000              |       | 42,009,000               |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| LONG-TERM  LIABILITIES, net of current portion:                                                                                                                                                                            |   |                    |       |                     |   |
| Obligations  under capital leases                                                                                                                                                                                          |   | 1,799,000               |       | 1,233,000                |   |
| Long-term  debt, net of unamortized discount                                                                                                                                                                               |   | 157,272,000             |       | 155,239,000              |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| Total  long-term liabilities                                                                                                                                                                                               |   | 159,071,000             |       | 156,472,000              |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| DEFERRED  GAIN                                                                                                                                                                                                             |   | 3,990,000               |       | 3,839,000                |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| COMMITMENTS  AND CONTINGENCIES                                                                                                                                                                                             |   |                    |       |                     |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| CUMULATIVE  PREFERRED STOCK, MANDATORILY REDEEMABLE:                                                                                                                                                                       |   |                    |       |                     |   |
| Senior  pay-in-kind exchangeable preferred stock, $0.01 par value; 160,000 shares  authorized; 58,883 shares outstanding and accrued at December 31, 2001 and  65,630 shares outstanding and accrued at September 30, 2002 |   | 58,219,000              |       | 65,265,000               |   |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| COMMON STOCKHOLDERS’  DEFICIT:                                                                                                                                                                                        |   |                    |       |                     |   |
| Common  stock, $0.01 par value; 1,000,000 shares authorized; 128,081 shares issued  and outstanding at December 31, 2001 and September 30, 2002                                                                            |   | 1,000                   |       | 1,000                    |   |
| Paid-in  capital                                                                                                                                                                                                           |   | 7,279,000               |       | 233,000                  |   |
| Accumulated  deficit                                                                                                                                                                                                       |   | (177,488,000            | )          | (181,178,000             | )      |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| Total  common stockholders’ deficit                                                                                                                                                                                   |   | (170,208,000            | )          | (180,944,000             | )      |
|                                                                                                                                                                                                                       |   |                    |       |                     |   |
| Total  liabilities and common stockholders’ deficit                                                                                                                                                                   |   | $                       | 89,704,000 |                     | $      | 86,641,000 |   |

 

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

 

1

----

 

AMERICAN RESTAURANTGROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTSOF OPERATIONS

 

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

ANDSEPTEMBER 30, 2002

 

(UNAUDITED)

 

**EXPLANATORYNOTE:**As described in Note 2 to the financial statements —Restatement of Quarterly Financial Statements, the Company changed its policyfor accounting for advertising costs in its interim periods to conform to theaccounting applied at its fiscal year end. Management believes this accounting more accurately reflects thematching of costs and benefits during the interim periods.  Accordingly, the quarterly prior periods of2001 and 2002 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.

 

 
|                                             |   | **Thirteen  Weeks Ended** |       | **Thirty-Nine  Weeks Ended** |   |
|--------------------------------------------------|--------|---------------------------|------------|------------------------------|--------|
|                                             |   | **September  24,  2001**  |       | **September  30,  2002**     |   | **September  24,  2001** |   | **September  30,  2002** |   |
|                                             |   | **(as restated)**         |       |                         |   | **(as restated)** |   |   |   |
|                                             |   |                      |       |                         |   |   |   |   |   |
| REVENUES                                         |   | $                         | 68,331,000 |                         | $      | 70,051,000 |   | $ | 226,808,000 |   | $ | 226,522,000 |   |
|                                             |   |                      |       |                         |   |   |   |   |   |
| RESTAURANT  COSTS:                               |   |                      |       |                         |   |   |   |   |   |
| Food  and beverage                               |   | 22,449,000                |       | 23,267,000                   |   | 75,602,000 |   | 75,388,000 |   |
| Payroll                                          |   | 20,661,000                |       | 21,651,000                   |   | 64,923,000 |   | 68,362,000 |   |
| Direct  operating                                |   | 16,187,000                |       | 17,947,000                   |   | 56,495,000 |   | 56,748,000 |   |
| Depreciation  and amortization                   |   | 2,148,000                 |       | 1,864,000                    |   | 6,478,000 |   | 5,527,000 |   |
|                                             |   |                      |       |                         |   |   |   |   |   |
| GENERAL  AND ADMINISTRATIVE EXPENSES             |   | 2,428,000                 |       | 2,717,000                    |   | 7,198,000 |   | 7,538,000 |   |
|                                             |   |                      |       |                         |   |   |   |   |   |
| Operating  profit                                |   | 4,458,000                 |       | 2,605,000                    |   | 16,112,000 |   | 12,959,000 |   |
|                                             |   |                      |       |                         |   |   |   |   |   |
| INTEREST  EXPENSE, net                           |   | 4,310,000                 |       | 5,451,000                    |   | 12,801,000 |   | 16,358,000 |   |
|                                             |   |                      |       |                         |   |   |   |   |   |
| Income (loss) before  provision For income taxes |   | 148,000                   |       | (2,846,000                   | )      | 3,311,000 |   | (3,399,000 | ) |
|                                             |   |                      |       |                         |   |   |   |   |   |
| PROVISION  FOR INCOME TAXES                      |   | 21,000                    |       | 9,000                        |   | 183,000 |   | 66,000 |   |
|                                             |   |                      |       |                         |   |   |   |   |   |
| Income  / (loss) from continuing operations      |   | 127,000                   |       | (2,855,000                   | )      | 3,128,000 |   | (3,465,000 | ) |
|                                             |   |                      |       |                         |   |   |   |   |   |
| NET  (LOSS) FROM DISCONTINUED OPERATIONS         |   | 0                         |       | (225,000                     | )      | 0 |   | (225,000 | ) |
|                                             |   |                      |       |                         |   |   |   |   |   |
| Net  Income (Loss)                               |   | $                         | 127,000    |                         | $      | (3,080,000 | ) | $ | 3,128,000 |   | $ | (3,690,000 | ) |

 

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

 

2

----

 

AMERICAN RESTAURANTGROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTSOF CASH FLOWS

 

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

 

(UNAUDITED)

### ** **

|                                                                                                                                       |   | **September  24,  2001** |        | **September  30,  2002** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-------------|--------------------------|--------|
|                                                                                                                                       |   | **(as  restated)**       |        |                     |   |
|                                                                                                                                       |   |                     |        |                     |   |
| CASH  FLOWS FROM CONTINUING OPERATING ACTIVITIES:                                                                                          |   |                     |        |                     |   |
| Cash  received from customers                                                                                                              |   | $                        | 226,056,000 |                     | $      | 226,060,000 |   |
| Cash  paid to suppliers and employees                                                                                                      |   | (212,900,000             | )           | (210,835,000             | )      |
| Interest  paid, net                                                                                                                        |   | (16,936,000              | )           | (10,468,000              | )      |
| Income  tax paid, net                                                                                                                      |   | (183,000                 | )           | (66,000                  | )      |
| Net  cash provided by (used in) continuing operating activities                                                                            |   | (3,963,000               | )           | 4,691,000                |   |
|                                                                                                                                       |   |                     |        |                     |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                                                                     |   |                     |        |                     |   |
| Capital  expenditures                                                                                                                      |   | (1,876,000               | )           | (2,491,000               | )      |
| Proceeds  from disposition of assets                                                                                                       |   | 25,000                   |        |                     |   |
| Net  (increase) decrease in other assets                                                                                                   |   | 14,000                   |        | (544,000                 | )      |
|                                                                                                                                       |   |                     |        |                     |   |
| Net  cash (used in) investing activities                                                                                                   |   | (1,837,000               | )           | (3,035,000               | )      |
|                                                                                                                                       |   |                     |        |                     |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                                                     |   |                     |        |                     |   |
| Borrowings  (Payments) on indebtedness                                                                                                     |   | 3,705,000                |        | (294,000                 | )      |
| Payments  on capital-lease obligations                                                                                                     |   | (520,000                 | )           | (589,000                 | )      |
|                                                                                                                                       |   |                     |        |                     |   |
| Net  cash provided by (used in) financing activities                                                                                       |   | 3,185,000                |        | (883,000                 | )      |
|                                                                                                                                       |   |                     |        |                     |   |
| NET  INCREASE (DECREASE) FROM CONTINUING OPERATIONS                                                                                        |   | (2,615,000               | )           | 773,000                  |   |
|                                                                                                                                       |   |                     |        |                     |   |
| NET  (DECREASE) FROM DISCONTINUED OPERATIONS                                                                                               |   | (2,067,000               | )           | (750,000                 | )      |
|                                                                                                                                       |   |                     |        |                     |   |
| NET  CHANGE IN CASH, CURRENT PERIOD                                                                                                        |   | (4,682,000               | )           | 23,000                   |   |
|                                                                                                                                       |   |                     |        |                     |   |
| CASH,  at beginning of period                                                                                                              |   | 8,532,000                |        | 10,053,000               |   |
|                                                                                                                                       |   |                     |        |                     |   |
| CASH,  at end of period                                                                                                                    |   | $                        | 3,850,000   |                     | $      | 10,076,000 |   |
|                                                                                                                                       |   |                     |        |                     |   |
| RECONCILIATION  OF NET INCOME (LOSS) FROM CONTINUING OPERATIONS TO NET CASH PROVIDED BY (USED  IN) CONTINUING OPERATING ACTIVITIES:        |   |                     |        |                     |   |
|                                                                                                                                       |   |                     |        |                     |   |
| Net  income (loss) from continuing operations                                                                                              |   | $                        | 3,128,000   |                     | $      | (3,465,000 | ) |
| Adjustments  to reconcile net income (loss) from continuing operations to net cash  provided by (used in) continuing operating activities: |   |                     |        |                     |   |
| Depreciation  and amortization                                                                                                             |   | 6,478,000                |        | 5,527,000                |   |
| Amortization  of deferred gain                                                                                                             |   | (155,000                 | )           | (151,000                 | )      |
| Amortization  of non-cash interest expense                                                                                                 |   | —                   |        | 1,400,000                |   |
| (Increase)  decrease in current assets:                                                                                                    |   |                     |        |                     |   |
| Accounts  and notes receivable, net                                                                                                        |   | (752,000                 | )           | (462,000                 | )      |
| Inventories                                                                                                                                |   | (63,000                  | )           | 176,000                  |   |
| Prepaid  expenses                                                                                                                          |   | 947,000                  |        | 880,000                  |   |
| Increase  (decrease) in current liabilities:                                                                                               |   |                     |        |                     |   |
| Accounts  payable                                                                                                                          |   | (1,578,000               | )           | (897,000                 | )      |
| Accrued  liabilities                                                                                                                       |   | (5,201,000               | )           | (3,842,000               | )      |
| Accrued  insurance                                                                                                                         |   | 322,000                  |        | 568,000                  |   |
| Accrued  interest                                                                                                                          |   | (4,135,000               | )           | 4,490,000                |   |
| Accrued  payroll                                                                                                                           |   | (2,954,000               | )           | 467,000                  |   |
|                                                                                                                                       |   |                     |        |                     |   |
| Net  cash provided by (used in) continuing operating activities                                                                            |   | (3,963,000               | )           | 4,691,000                |   |

 

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

 

3

----

 

AMERICAN RESTAURANTGROUP, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATEDCONDENSED FINANCIAL STATEMENTS

 

1.                                       MANAGEMENT’SOPINION

 

The Consolidated Condensed FinancialStatements included were prepared by American Restaurant Group, Inc. withoutaudit, in accordance with Securities and Exchange Commission RegulationS-X.  (References to “the Company,”“we,” “us,” or “our” refer to American Restaurant Group, Inc.)  In the opinion of our management, theseConsolidated Condensed Financial Statements contain all adjustments necessaryto state fairly our financial position as of December 31, 2001 and September30, 2002, and the results of our operations for the thirteen weeks andthirty-nine weeks ended September 24, 2001 and September 30, 2002 and our cashflows for the thirty-nine weeks ended September 24, 2001 and September 30,2002.  Our results for an interim periodare not necessarily indicative of the results that may be expected for theyear.

 

Although we believe that we included alladjustments necessary for a fair presentation of the interim periods presentedand that the disclosures are adequate to make the information presented notmisleading, we suggest that these Consolidated Condensed Financial Statementsbe read in conjunction with the Consolidated Financial Statements and relatednotes included in the our annual report on Form 10-K, File No. 33-48183, forthe fiscal year ended December 31, 2001.

 

2.                                       RESTATEMENTOF QUARTERLY FINANCIAL STATEMENTS

 

The Company changed its policy for accountingfor advertising costs in its interim periods to conform to the accountingapplied at its fiscal year end. Management believes this accounting more accurately reflects thematching of costs and benefits during the interim periods.  Accordingly, financial statements for thefiscal period ending September 24, 2001 are restated to reflect thechange.  Advertising costs reportedwithin the financial position and results of operations for the fiscal yearended December 31, 2001 are unchanged.

 

3.                                       OPERATIONS

 

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

 

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

 

Management believes the Refinancing willalso allow us to continue to effect changes in our operations and hasimplemented measures to reduce overhead costs. We do not, however, expect togenerate sufficient cash flows from operations in the future to pay fully theprincipal of the senior indebtedness upon maturity in 2006 and, accordingly, weexpect to refinance all or a portion of such debt, obtain new financing, orpossibly sell assets.

 

4

----

 

4.                                       SALEOF STOCK TO SPECTRUM RESTAURANT GROUP

 

In June 2000, we sold all of the outstandingstock of four wholly owned subsidiaries (“Non-Black Angus Subsidiaries”) toSpectrum Restaurant Group, Inc. (formerly known as NBACo, Inc.) effective June26, 2000 (the “Stock Sale”). There was no gain or loss recorded because of therelated-party nature of the Stock Sale. We received $17.0 million in cash onJune 28, 2000, and transferred certain assets and liabilities to SpectrumRestaurant Group, Inc.  Concurrent withthe Stock Sale, advances between the Company and the Non-Black AngusSubsidiaries were eliminated. Paid-in capital of $27.0 million was charged as aresult of the Stock Sale. We retained the assets and liabilities associatedwith certain closed restaurants as well as certain liabilities, estimated onJune 26, 2000 at approximately $12.6 million, associated with the operatingrestaurants that were sold.

 

We are currently workingto settle these liabilities.  Anyadjustment to the recorded balance, as a result of such settlement, will berecognized when the amount becomes known. For the thirteen weeks ended September 30, 2002, the Company recognized$225,000 as a loss from discontinued operations for the expenses paid beyondthe $12.6 million liability ceiling.  Webelieve these costs paid, as well as any future costs paid related to theseretained assets and liabilities, are the responsibility of Spectrum RestaurantGroup, Inc.  Until a settlement isreached, additional payments will also to be charged as a loss fromdiscontinued operations as incurred.

 

5.                                       INCOMETAXES

 

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

 

6.                                       PREFERREDSTOCK

 

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

 

We issued preferred stockdividends of 4,495 shares on August 15, 2002. At September 30, 2002, we had 65,630 preferred shares outstanding andaccrued.

 

7.                                       SUBSIDIARYGUARANTORS

 

Separate financialstatements of our subsidiaries are not included in this report on Form 10-Qbecause the subsidiaries are fully, unconditionally, jointly, and severallyliable for our obligations under the Company’s Old Notes and New Notes, and theaggregate net assets, earnings, and equity of such subsidiary guarantors aresubstantially equivalent to the net assets, earnings, and equity of the Companyon a consolidated basis.

 

8.                                       INSURANCE

 

We self-insure certainrisks, including medical, workers’ compensation, property, and generalliability, up to varying limits. Deductible and self-insured limits have variedhistorically, ranging from $0 to $1,000,000 per incident depending on the typeof risk. The policy deductibles are $120,000 for annual medical and dentalbenefits per person. Reserves for losses are established based upon presentlyestimated obligations for the claim over time and the deductible orself-insured retention in place at the time of the loss.

 

5

----

 

9.****                                    GOODWILL ANDINTANGIBLES

 

The Company adopted SFAS No. 141 and SFAS No. 142, onJanuary 1, 2002, and is no longer amortizing goodwill, thereby eliminatingannual goodwill amortization of approximately $325,000, based on anticipatedamortization for fiscal year 2002 that would have been incurred under the prioraccounting standard. In accordance with the provisions of SFAS No. 142, theCompany reclassified $5.6 million net from intangible assets to goodwillrelating to assembled workforce and acquisition costs related to the original1986 acquisition of Stuart Anderson’s from Saga Corporation. The Companycompleted the first step of the transitional goodwill-impairment test in thefirst quarter of 2002 and determined that no potential impairment existed.However, no assurances can be given that future evaluations of goodwill willnot result in charges as a result of future impairment. The Company willevaluate goodwill at least on an annual basis and whenever events and changesin circumstances suggest that the carrying amount may not be recoverable fromits estimated future cash flow.  TheCompany will continue to amortize the identified intangibles. The amortizationexpense is estimated to be $1.5 million for fiscal 2002 and estimatedthereafter to be $1.0 million each for fiscal years 2003, 2004, and 2005.Amortization of intangibles for the thirty-nine weeks ended September 30, 2002was approximately $1.1 million.

 

10.****                              NEW ACCOUNTINGPRONOUNCEMENTS

 

In April 2002, the Financial Accounting StandardsBoard ( FASB ) issued SFAS 145 Rescission of FAS Nos. 4, 44, and 64, Amendmentof FAS 13, and Technical Corrections. SFAS 145 rescinds FASB Statement No. 4, Reporting Gains and Losses fromExtinguishment of Debt, and an amendment of that Statement, FASB Statement No.64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, as wellas FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers.This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between therequired accounting for sale-leaseback transactions and the required accountingfor certain lease modifications that have economic effects that are similar tosale-leaseback transactions.  ThisStatement also amends other existing authoritative pronouncements to makevarious technical corrections, clarify meanings, or describe theirapplicability under changed conditions. The provisions of SFAS 145 will be adopted during fiscal year 2003. Wedo not anticipate that adoption of this statement will have a material impacton our consolidated balance sheets or consolidated statements of operations.

 

In June 2002, the FASB issued SFAS No. 146, Accountingfor Exit or Disposal Activities  ( SFAS146 ). SFAS 146 addresses significant issues regarding the recognition,measurement, and reporting of costs that are associated with exit and disposalactivities, including restructuring activities that are currently accounted forunder EITF No. 94-3, Liability Recognition for Certain Employee TerminationBenefits and Other Costs to Exit an Activity (including Certain Costs Incurredin a Restructuring).  The scope of SFAS146 also includes costs related to terminating a contract that is not a capitallease and termination benefits that employees who are involuntarily terminatedreceive under the terms of a one-time benefit arrangement that is not anongoing benefit arrangement or an individual deferred-compensation contract.SFAS 146 will be effective for exit or disposal activities that are initiatedafter December 31, 2002 and early application is encouraged. The provisions ofEITF No. 94-3 shall continue to apply for an exit activity initiated under anexit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS146. We do not anticipate that adoption of this statement will have a materialimpact on our consolidated balance sheets or consolidated statements ofoperations.

 

6

----

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

 

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

 

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

 

**Resultsof Operations**

 

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

 

*Revenues. *Total revenues increasedto $70.1 million in the third quarter of 2002 from $68.3 million in the thirdquarter of 2001. The revenue increase is from the four additional stores openedin 2001. In the 103 base stores, sales decreased by 0.4% in the third quarterof 2002 compared to the third quarter of 2001. Lunch counts were positive 3.3%and dinner counts were positive 1.5%; this is offset, however, by a loweraverage check from the sale of “more casual” lower-priced items on the menu.There were 109 Black Angus restaurants operating as of September 30, 2002 and105 Black Angus restaurants operating as of September 24, 2001.

 

*Foodand Beverage Costs.* As a percentage of revenues, food and beverage costs increased to 33.2%in the third quarter of 2002 from 32.9% in the third quarter of 2001.  The increase in 2002 relates to a shift inproduct mix to lower-margin promotional items.

 

*PayrollCosts.*  As apercentage of revenues, labor costs increased to 30.9% in the third quarter of2002 from 30.2% in the third quarter of 2001. The increase is primarily from the minimum-wage rate increase in 2002.

 

*DirectOperating Costs.* Direct operating costs consist of occupancy, advertising, and otherexpenses incurred by individual restaurants. As a percentage of revenues, these costs increased to 25.6% in the thirdquarter of 2002 from 23.7% in the third quarter of 2001.  The increase is largely from higher rentalexpense for the additional four new restaurants operating during the thirdquarter.

 

*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 to2.7% in the third quarter of 2002 from 3.1% in the third 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 $2.7 million in thethird quarter of 2002 from $2.4 million in the third quarter of 2001, primarilybecause of an increase in management-training expense.

 

*OperatingProfit.*  As a result ofthe above items, operating profit decreased to $2.6 million in the thirdquarter of 2002 from $4.5 million in the third quarter of 2001. As a percentageof revenues, operating profit decreased to 3.7% in the third quarter of 2002compared to 6.5% in the third quarter of 2001.

 

*InterestExpense - Net.* Our interest expense increased to $5.5 millionin the third quarter of 2002 from $4.3 million in the third 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 thirdquarter of 2001 ($142.6 million face value) at the same interest rate (11.5%).

 

7

----

 

*Lossfrom Discontinued Operations.*  This account consists of the payments made pursuant to the StockSale that are above the liability ceiling, primarily rent for properties offormer restaurants of the Non-Black Angus Subsidiaries sold to Spectrum RestaurantGroup, Inc. The amount for the third quarter of 2002 is $225,000.  There was no such expense in the thirdquarter of 2001.

 

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

 

*Revenues. *Total revenues decreasedslightly to $226.5 million in 2002 from $226.8 million in 2001. In the 103 basestores, sales decreased by 3.0% in 2002 compared to 2001. Although lunch salesare positive 1.6%, dinner sales decreased from a decline in dinner counts.  Average check also declined with theintroduction of more casual “value” items on the dinner menu. There were 109Black Angus restaurants operating as of September 30, 2002 and 105 Black Angusrestaurants operating as of September 24, 2001.

 

*Foodand Beverage Costs.* As a percentage of revenues, food and beverage costs remained constantat 33.3% in 2002 and 2001.

 

*PayrollCosts.*  As apercentage of revenues, labor costs increased to 30.2% in 2002 from 28.6% in2001.  The increase is primarily fromhigher labor-related costs for vacation, employee incentives, and minimum-wagerate increases in 2002.

 

*DirectOperating Costs.* Direct operating costs consist of occupancy, advertising, and otherexpenses incurred by individual restaurants. As a percentage of revenues, these costs increased slightly to 25.1% in2002 from 24.9% in 2001. The savings related to energy-conservation measuresand general liability costs were offset by an increase in rental expense forthe additional restaurants operating 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 2002 from 2.9% in 2001. The decrease primarily relates to the reductionof amortization of the deferred debt costs for Old Notes purchased as part ofthe Refinancing in the fourth quarter of 2001 and the discontinued amortizationof goodwill in 2002.

 

*Generaland Administrative Expenses.* General and administrative expenses increased slightly to $7.5 millionin 2002 from $7.2 million in 2001, primarily because of an increase inmanagement-training expense.

 

*OperatingProfit.*  As a resultof the above items, operating profit decreased to $13.0 million in 2002 from$16.1 million in 2001.  As a percentageof revenues, operating profit decreased to 5.7% in 2002 compared to 7.1% in2001.

 

*InterestExpense - Net.* Our interest expense increased to $16.4million in 2002 from $12.8 million in 2001. The increase is from refinancingthe senior notes in the fourth quarter of 2001.  The face value of senior notes increased by $22.6 million ($165.2million face value) compared to 2001 ($142.6 million face value) at the sameinterest rate (11.5%).

 

*Lossfrom Discontinued Operations.*  This account consists of the payments made pursuant to the StockSale that are above the liability ceiling, primarily rent for properties offormer restaurants of the Non-Black Angus Subsidiaries sold to SpectrumRestaurant Group, Inc. The amount for 2002 is $225,000.  There was no such expense in 2001.

 

8

----

 

## **Liquidity and CapitalResources**

 

Our primary sources of liquidity are cashflows from operations and borrowings under our revolving creditfacilities.  We require capitalprincipally for the acquisition and construction of new restaurants, theremodeling of existing restaurants, the purchase of new equipment and leaseholdimprovements, and working capital. As of September 30, 2002, we hadapproximately $10.1 million of cash.

 

In general, restaurant businesses do nothave significant accounts receivable because sales are made for cash or bycredit-card vouchers, which are ordinarily paid within three to five days.  The restaurants do not maintain substantialinventory as a result of the relatively brief shelf life and frequent turnoverof food products. Additionally, restaurants generally are able to obtain tradecredit in purchasing food and restaurant supplies.  As a result, restaurants are frequently able to operate withworking-capital deficits, i.e., current liabilities exceed current assets.  At September 30, 2002, our working-capitaldeficit was $22.4 million.

 

We estimate that capital expenditures of$2.0 million to $5.0 million are required annually to maintain and refurbishour existing restaurants.  Other capitalexpenditures, which are generally discretionary, are primarily for theconstruction of new restaurants and for expanding, reformatting, and extendingthe capabilities of existing restaurants and for general corporatepurposes.  Total capital expendituresfor continuing operations were approximately $2.5 million through the thirdquarter of 2002 and $1.9 million through the third quarter of 2001.  We estimate that capital expenditures in2002 will be approximately $3.8 million. We intend to open new restaurants with small capital outlays and tofinance most of the expenditures through leases.

 

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

 

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

 

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

 

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

 

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

 

9

----

 

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

 

The Company and its direct subsidiariesdo not guaranty the debt of any other parties.

 

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

 
| **Contractual  Obligations**           |   | **Paid in  Q1, 2, & 3  2002** |   | **Remainder  of  Fiscal  2002** |   | **Fiscal  Years  2003&2004** |   | **Fiscal  Years  2005&2006** |    | **Fiscal  Years  Beyond  2006** |    | **Total  Remaining** |   |
|----------------------------------------|--------|-----------------------------------|--------|---------------------------------|--------|----------------------------------|--------|----------------------------------|---------|---------------------------------|---------|----------------------|--------|
| **Long-Term Debt - Interest on Notes** |   | $                                 | 9,694  |                            | 9,354  |                             | 37,404 |                             | 37,208  |                            | 0       |                 | $      | 93,660 |   |
| **Long-Term  Debt - Other**            |   | $                                 | 294    |                            | 108    |                             | 3,476  |                             | 161,867 |                            | 949     |                 | $      | 166,694 |   |
| **Capital  Leases**                    |   | $                                 | 589    |                            | 488    |                             | 1,092  |                             | 464     |                            | 1,115   |                 | $      | 3,748 |   |
| **Operating  Leases**                  |   | $                                 | 14,512 |                            | 4,932  |                             | 34,189 |                             | 28,528  |                            | 180,276 |                 | $      | 262,437 |   |
| **Employment  Agreements**             |   | $                                 | 0      |                            | 500    |                             | 0      |                             | 0       |                            | 0       |                 | $      | 500 |   |
| **Total  Contractual Cash**            |   | $                                 | 25,089 |                            | $      | 15,382                           |   | $                                | 76,161  |                            | $       | 228,067              |   | $ | 182,340 |   | $ | 527,039 |   |
|                                        |        |                                   |        |                                 |        |                                  |        |                                  |         |                                 |         |                      |        |  |  |  |  |  |  |

 

Preferredstock dividends of 4,181 and 4,495 shares were issued on February 15, 2002 andAugust 15, 2002 respectively.  Therewere 65,630 shares of preferred stock outstanding and accrued at September 30,2002. Our preferred stock is mandatorily redeemable on August 15, 2003. If wedo not redeem our preferred stock for cash at a price per share equal to 110%of the then-applicable liquidation preference, our preferred stock will beautomatically redeemed for shares of our common stock at that time and all ofthe rights of the preferred stock will terminate. Management believes that thepreferred stock will convert to common stock.

 

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

 

Although we are highly leveraged, basedupon current levels of operations and anticipated growth, we expect that cashflows generated from operations together with our other available sources ofliquidity will be adequate to make required payments of principal and intereston our indebtedness, to make anticipated capital expenditures, and to financeworking-capital requirements for the next several years. We do not, however,expect to generate sufficient cash flows from operations in the future to payfully the

 

10

----

 

principal of the senior indebtedness uponmaturity in 2006 and, accordingly, we expect to refinance all or a portion ofsuch debt, obtain new financing, or possibly sell assets.

 

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

 

*ValuationAllowance for Deferred Tax Assets. *Weprovided a valuation allowance of $34.1 million and $34.8 million against theentire amount of our deferred tax assets as of the fiscal year ended 2001 andas of the fiscal quarter ended September 30, 2002, respectively. The valuationallowance was recorded given the losses we have incurred historically anduncertainties regarding future operating profitability and taxable income.  Had we assumed that our deferred tax assetswere fully realizable, a deferred tax benefit of $1,036,000 would have beenrecognized in the statement of operations for the 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

----

 

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

 

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

 

**ITEM 4.  CONTROLS AND PROCEDURES**

** **

In the quarter ended September 30, 2002,there were no significant changes in our internal controls or other factorsthat could significantly affect these controls, including any correctiveactions with regards to significant deficiencies and material weaknesses. Weperiodically review our internal control for effectiveness, and we plan toconduct an evaluation of our disclosure controls and procedures each quarter.

 

**PARTII.                OTHER INFORMATION**

## ** **

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

 

N/A

 

**ITEM 5.                 OTHER INFORMATION**

 

N/A

 

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

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

 

12

----

 

**SIGNATURE**

 

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

 

 
|                          | AMERICAN RESTAURANT  GROUP, INC.       |                  |
|-------------------------------|----------------------------------------|-----------------------|
|                          | (Registrant)                           |                  |
|                          |                                   |
|                          |                                   |
| Date:  November 14, 2002 | By:                                    | /s/ Ralph S. Roberts  |   |
|                          |                                   |
|                          | Ralph S. Roberts                       |                  |
|                          | Chief Executive  Officer and President |                  |
|                          |                                   |
|                          |                                   |
| Date:  November 14, 2002 | By:                                    | /s/ William G.  Taves |   |
|                          |                                   |
|                          | William G. Taves                       |                  |
|                          | Chief Financial  Officer               |                  |
|                               |                                        |                       |  |  |

 

13

----

 

CERTIFICATION

 

I, Ralph S. Roberts, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q 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;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and wehave:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee of registrant’sboard of directors (or persons performing the equivalent functions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date: November 14, 2002 |
|-------------------------|
|                    |
|                    |
|                    | /s/ Ralph S. Roberts |   |
|                    | Ralph S. Roberts |
|                    | Chief Executive Officer |

 

14

----

 

CERTIFICATION

 

I, William G. Taves, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q 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;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and wehave:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date: November 14, 2002 |
|-------------------------|
|                    |
|                    |
|                    | /s/ William G. Taves |   |
|                    | William G. Taves |
|                    | Chief Financial Officer |

 

15

----