**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION**

 

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q/A**

 

**AmendmentNo. 3**

 
| **(Mark  One)**                                                                                                                                                   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                                        | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                              |
| **For the quarterly period ended July  1, 2002**                                                                                                                  |
|                                                                                                                                                              |
| **OR**                                                                                                                                                            |
|                                                                                                                                                              |
| **o**                                                                                                                                                             | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                              |
| **For the transition period from             to            ** |
|                                                                                                                                                              |
| **American  Restaurant Group, Inc.**                                                                                                                              |
| (Exact name of  registrant as specified in its charter)                                                                                                           |
|                                                                                                                                                              |   |   |   |   |
| **Delaware**                                                                                                                                                      |   | **33-48183** |   | **33-0193602** |
| (State or other  jurisdiction of  incorporation or organization)                                                                                                  |   | (Commission File  Number) |   | (I.R.S. employer  identification no.) |
|                                                                                                                                                              |   |   |   |   |
| **4410 El Camino Real, Suite 201  Los Altos, CA  94022  (650) 949-6400**                                                                                     |
| (Address and  telephone number of principal executive offices)                                                                                                    |
|                                                                                                                                                              |
|                                                                                                                                                              |
| Former name,  former address and former fiscal year  if changed since last report.                                                                                |
|                                                                                                                                                                   |  |  |  |  |  |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

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

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theAct)

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

 

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

 

 

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**AMERICAN RESTAURANT GROUP, INC.**

 

**INDEX**

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

 

2

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

 

EXPLANATORY NOTE

 

THIS AMENDMENT NO. 3 TOFORM 10-Q IS FILED TO AMEND CERTAIN FINANCIAL STATEMENTS AND RELATED DISCLOSURESIN THE QUARTERLY REPORT ON FORM 10-Q FOR THE REGISTRANT’S QUARTER ENDED JULY 1,2002.  AMERICAN RESTAURANT GROUP, INC.(THE “COMPANY”) HAS RESTATED ITS CONSOLIDATED FINANCIAL STATEMENTS FOR THEPERIODS ENDING JUNE 25, 2001, DECEMBER 31, 2001, AND JULY 1, 2002.  THE RESTATEMENT OF THE COMPANY’S FINANCIALSTATEMENTS FOR THE PERIODS ENDING JUNE 25, 2001 AND JULY 1, 2002 ARE DESCRIBEDWITHIN NOTE 2, “RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS.”

 

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

 

**ITEM 1****.****     FINANCIALSTATEMENTS:**

 

AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATEDCONDENSED BALANCE SHEETS

 

#### DECEMBER 31, 2001 AND JULY 1, 2002

 

 
|                                  |   | **(Restated)  December 31, 2001** |       | **(Restated and  unaudited)****July 1,   2002** |   |
|---------------------------------------|--------|-----------------------------------|------------|-------------------------------------------------|--------|
|                                  |   |                              |       |
| ASSETS                                |   |                              |       |                                            |   |
|                                  |   |                              |       |                                            |   |
| CURRENT  ASSETS:                      |   |                              |       |                                            |   |
| Cash                                  |   | $                                 | 7,384,000  |                                            | $      | 3,087,000 |   |
| Rebates  and other receivables, net   |   | 2,985,000                         |       | 2,790,000                                       |   |
| Inventories                           |   | 2,800,000                         |       | 2,726,000                                       |   |
| Prepaid  expenses                     |   | 3,002,000                         |       | 2,056,000                                       |   |
|                                  |   |                              |       |                                            |   |
| Total  current assets                 |   | 16,171,000                        |       | 10,659,000                                      |   |
|                                  |   |                              |       |                                            |   |
| PROPERTY  AND EQUIPMENT, net:         |   |                              |       |                                            |   |
| Land  and land improvements           |   | 834,000                           |       | 773,000                                         |   |
| Buildings  and leasehold improvements |   | 36,559,000                        |       | 36,457,000                                      |   |
| Fixtures  and equipment               |   | 11,351,000                        |       | 11,169,000                                      |   |
| Property  held under capital leases   |   | 1,060,000                         |       | 884,000                                         |   |
| Construction  in progress             |   | 1,299,000                         |       | 810,000                                         |   |
|                                  |   |                              |       |                                            |   |
| Net  property and equipment           |   | 51,103,000                        |       | 50,093,000                                      |   |
|                                  |   |                              |       |                                            |   |
| OTHER  ASSETS, NET:                   |   | 17,450,000                        |       | 16,701,000                                      |   |
|                                  |   |                              |       |                                            |   |
| Total  assets                         |   | $                                 | 84,724,000 |                                            | $      | 77,453,000 |   |

 

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

(consolidatedcondensed balance sheets continued on the following page)

 

3

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|                                                                                                                                                                                                                 |   | **(Restated)  December 31,  2001** |       | **(Restated and unaudited)****July 1,  2002** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|------------|-----------------------------------------------|------------|
|                                                                                                                                                                                                                 |   |                               |       |                                          |       |
| LIABILITIES  AND COMMON STOCKHOLDERS’ DEFICIT                                                                                                                                                                   |   |                               | ** ** |                                          | ** ** |
|                                                                                                                                                                                                                 |   |                               | ** ** |                                          | ** ** |
| CURRENT  LIABILITIES:                                                                                                                                                                                                |   |                               |       |                                          |       |
| Accounts  payable                                                                                                                                                                                                    |   | $                                  | 11,126,000 |                                          | $          | 7,677,000 |   |
| Accrued  liabilities                                                                                                                                                                                                 |   | 4,585,000                          |       | 3,844,000                                     |       |
| Gift-certificate  liability                                                                                                                                                                                          |   | 6,755,000                          |       | 3,575,000                                     |       |
| Self-insurance  reserve                                                                                                                                                                                              |   | 3,312,000                          |       | 3,939,000                                     |       |
| Accrued  interest                                                                                                                                                                                                    |   | 3,447,000                          |       | 3,385,000                                     |       |
| Accrued  occupancy costs                                                                                                                                                                                             |   | 3,998,000                          |       | 4,171,000                                     |       |
| Accrued  employee costs                                                                                                                                                                                              |   | 4,207,000                          |       | 4,173,000                                     |       |
| Current  portion of obligations under capital leases                                                                                                                                                                 |   | 796,000                            |       | 842,000                                       |       |
| Current  portion of long-term debt                                                                                                                                                                                   |   | 402,000                            |       | 3,632,000                                     |       |
| Liabilities  from discontinued operations                                                                                                                                                                            |   | 525,000                            |       | 36,000                                        |       |
|                                                                                                                                                                                                                 |   |                               |       |                                          |       |
| Total  current liabilities                                                                                                                                                                                           |   | 39,153,000                         |       | 35,274,000                                    |       |
|                                                                                                                                                                                                                 |   |                               |       |                                          |       |
| LONG-TERM  LIABILITIES, net of current portion:                                                                                                                                                                      |   |                               |       |                                          |       |
| Obligations  under capital leases                                                                                                                                                                                    |   | 1,799,000                          |       | 1,366,000                                     |       |
| Long-term  debt, net of unamortized discount                                                                                                                                                                         |   | 157,272,000                        |       | 154,780,000                                   |       |
|                                                                                                                                                                                                                 |   |                               |       |                                          |       |
| Total  long-term liabilities                                                                                                                                                                                         |   | 159,071,000                        |       | 156,146,000                                   |       |
|                                                                                                                                                                                                                 |   |                               |       |                                          |       |
| DEFERRED  GAIN ON SALE-LEASEBACK                                                                                                                                                                                     |   | 3,990,000                          |       | 3,889,000                                     |       |
|                                                                                                                                                                                                                 |   |                               |       |                                          |       |
| COMMITMENTS  AND CONTINGENCIES                                                                                                                                                                                       |   |                               |       |                                          |       |
|                                                                                                                                                                                                                 |   |                               |       |                                          |       |
| CUMULATIVE  PREFERRED STOCK, MANDATORILY REDEEMABLE:                                                                                                                                                                 |   |                               |       |                                          |       |
| Senior  pay-in-kind exchangeable preferred stock, $0.01 par value; 160,000 shares  authorized; 58,883 shares outstanding and accrued at December 31, 2001 and  63,299 shares outstanding and accrued at July 1, 2002 |   | 64,108,000                         |       | 69,164,000                                    |       |
|                                                                                                                                                                                                                 |   |                               |       |                                          |       |
| COMMON  STOCKHOLDERS’ (DEFICIT):                                                                                                                                                                                |   |                               |       |                                          |       |
| Common  stock, $0.01 par value; 1,000,000 shares authorized; 128,081 shares issued  and outstanding at December 31, 2001 and July 1, 2002                                                                            |   | 1,000                              |       | 1,000                                         |       |
| Paid-in  capital                                                                                                                                                                                                     |   | 1,390,000                          |       | —                                        |       |
| Accumulated  (deficit)                                                                                                                                                                                               |   | (182,989,000                       | )          | (187,021,000                                  | )          |
|                                                                                                                                                                                                                 |   |                               |       |                                          |       |
| Total  common stockholders’ (deficit)                                                                                                                                                                           |   | (181,598,000                       | )          | (187,020,000                                  | )          |
|                                                                                                                                                                                                                 |   |                               |       |                                          |       |
| Total  liabilities and common stockholders’ deficit                                                                                                                                                             |   | $                                  | 84,724,000 |                                          | $          | 77,453,000 |   |

 

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

 

4

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AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATEDCONDENSED STATEMENTS OF OPERATIONS

 

FOR THE THIRTEENWEEKS AND THE TWENTY-SIX WEEKS  ENDEDJUNE 25, 2001 AND JULY 1, 2002 

 

(UNAUDITED)

 
|                                             |   | **Thirteen  Weeks Ended**      |       | **Twenty-Six  Weeks Ended**   |   |
|--------------------------------------------------|--------|--------------------------------|------------|-------------------------------|--------|
|                                             |   | **(Restated)  June 25,  2001** |       | **(Restated)  July 1,  2002** |   | **(Restated)  June 25,  2001** |   | **(Restated)  July 1,  2002** |   |
|                                             |   |                           |       |                          |   |   |   |   |   |
| REVENUES                                         |   | $                              | 76,307,000 |                          | $      | 74,660,000 |   | $ | 158,351,000 |   | $ | 156,476,000 |   |
|                                             |   |                           |       |                          |   |   |   |   |   |
| RESTAURANT  COSTS:                               |   |                           |       |                          |   |   |   |   |   |
| Food  and beverage                               |   | 26,013,000                     |       | 24,612,000                    |   | 53,153,000 |   | 51,669,000 |   |
| Payroll                                          |   | 21,620,000                     |       | 22,104,000                    |   | 44,262,000 |   | 46,711,000 |   |
| Direct  operating                                |   | 19,382,000                     |       | 18,829,000                    |   | 40,589,000 |   | 39,077,000 |   |
| Depreciation  and amortization                   |   | 2,178,000                      |       | 1,754,000                     |   | 4,330,000 |   | 3,663,000 |   |
|                                             |   |                           |       |                          |   |   |   |   |   |
| GENERAL  AND ADMINISTRATIVE EXPENSES             |   | 2,310,000                      |       | 2,492,000                     |   | 4,782,000 |   | 4,834,000 |   |
|                                             |   |                           |       |                          |   |   |   |   |   |
| Operating  profit                                |   | 4,804,000                      |       | 4,869,000                     |   | 11,235,000 |   | 10,522,000 |   |
|                                             |   |                           |       |                          |   |   |   |   |   |
| INTEREST  EXPENSE, net                           |   | 4,258,000                      |       | 5,550,000                     |   | 8,479,000 |   | 10,832,000 |   |
|                                             |   |                           |       |                          |   |   |   |   |   |
| Income  (Loss) before provision for income taxes |   | 546,000                        |       | (681,000                      | )      | 2,756,000 |   | (310,000 | ) |
|                                             |   |                           |       |                          |   |   |   |   |   |
| PROVISION  FOR INCOME TAXES                      |   | 44,000                         |       | 33,000                        |   | 163,000 |   | 57,000 |   |
|                                             |   |                           |       |                          |   |   |   |   |   |
| Net  income (Loss)                               |   |                           | 502,000    |                          |   | (714,000 | ) |   | 2,593,000 |   |   | (367,000 | ) |
|                                             |   |                           |       |                          |   |   |   |   |   |   |   |   |   |
| Preferred  stock dividends, issued and accrued   |   |                           | 2,238,000  |                          |   | 2,571,000 |   |   | 4,403,000 |   |   | 5,056,000 |   |
|                                             |   |                           |       |                          |   |   |   |   |   |   |   |   |   |
| Loss  to common stockholders                     |   | $                              | (1,736,000 | )                             | $      | (3,285,000 | ) | $ | (1,810,000 | ) | $ | (5,423,000 | ) |
|                                             |   |                           |       |                          |   |   |   |   |   |   |   |   |   |

 

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

 

5

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AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATEDCONDENSED STATEMENTS OF CASH FLOWS

 

FOR THE TWENTY-SIXWEEKS ENDED JUNE 25, 2001 AND JULY 1, 2002

 

(UNAUDITED)

 
|                                                                                                            |   | **(Restated)  June 25, 2001** |        | **(Restated)  July 1, 2002** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|-------------------------------|-------------|------------------------------|--------|
| CASH  FLOWS FROM CONTINUING OPERATING ACTIVITIES:                                                               |   |                          |        |                         |   |
|                                                                                                            |   |                          |        |                         |   |
| Income  (Loss) from continuing operations                                                                       |   | $                             | 2,593,000   |                         | $      | (367,000 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by (used in)  continuing operating activities: |   |                          |        |                         |   |
|                                                                                                            |   |                          |        |                         |   |
| Depreciation  and amortization                                                                                  |   | 4,330,000                     |        | 3,663,000                    |   |
| Amortization  of deferred gain                                                                                  |   | (101,000                      | )           | (101,000                     | )      |
| Amortization  of non-cash interest expense                                                                      |   | —                        |        | 933,000                      |   |
| Decrease  in current assets                                                                                     |   | 406,000                       |        | 1,215,000                    |   |
| (Decrease)  in current liabilities                                                                              |   | (7,627,000)                   |        | (6,665,000)                  |   |
|                                                                                                            |   |                          |        |                         |   |
| Net  cash  (used in) continuing operating  activities                                                      |   | (399,000                      | )           | (1,322,000)                  |   |
|                                                                                                            |   |                          |        |                         |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                                                          |   |                          |        |                         |   |
| Capital  expenditures                                                                                           |   | (1,171,000                    | )           | (1,902,000                   | )      |
| Net  (increase) decrease in other assets                                                                        |   | 51,000                        |        | (2,000                       | )      |
| Net  cash (used in) investing activities                                                                        |   | (1,120,000                    | )           | (1,904,000                   | )      |
|                                                                                                            |   |                          |        |                         |   |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                                                          |   |                          |        |                         |   |
| Payments  on indebtedness                                                                                       |   | (200,000                      | )           | (195,000                     | )      |
| Payments  on capital-lease obligations                                                                          |   | (340,000                      | )           | (387,000                     | )      |
| Net  cash (used in) financing activities                                                                        |   | (540,000                      | )           | (582,000                     | )      |
|                                                                                                            |   |                          |        |                         |   |
| NET  (DECREASE) FROM CONTINUING OPERATIONS                                                                      |   | (2,059,000                    | )           | (3,808,000                   | )      |
|                                                                                                            |   |                          |        |                         |   |
| NET  (DECREASE) FROM DISCONTINUED OPERATIONS                                                                    |   | (1,715,000                    | )           | (489,000                     | )      |
|                                                                                                            |   |                          |        |                         |   |
| NET  CHANGE IN CASH, CURRENT PERIOD                                                                             |   | (3,774,000                    | )           | (4,297,000                   | )      |
|                                                                                                            |   |                          |        |                         |   |
| CASH,  at beginning of period                                                                                   |   | 3,938,000                     |        | 7,384,000                    |   |
|                                                                                                            |   |                          |        |                         |   |
| CASH,  at end of period                                                                                         |   | $                             | 164,000     |                         | $      | 3,087,000 |   |
|                                                                                                            |   |                          |        |                         |   |
| Cash  payments during the period:                                                                               |   |                          |        |                         |   |
| Interest                                                                                                        |   | $                             | (8,464,000) |                         | $      | (10,036,000) |   |
| Income  taxes                                                                                                   |   | (44,000)                      |        | (33,000)                     |   |

 

The accompanyingnotes are an integral part of these consolidated condensed statements

 

6

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AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

NOTES TOCONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

1.                                       BASISOF PRESENTATION

 

The ConsolidatedCondensed Financial Statements included were prepared by American RestaurantGroup, Inc. without audit, in accordance with Securities and ExchangeCommission Regulation S-X.  (Referencesto “the Company,” “we,” “us,” or “our” refer to American Restaurant Group,Inc.)  In the opinion of our management,these Consolidated Condensed Financial Statements contain all adjustmentsnecessary to present fairly our financial position as of December 31, 2001 andJuly 1, 2002, and the results of our operations for the thirteen weeks andtwenty-six weeks ended June 25, 2001 and July 1, 2002 and our cash flows forthe twenty-six weeks ended June 25, 2001 and July 1, 2002.  Our results for an interim period are notnecessarily indicative of the results that may be expected for the year.

 

Although we believe thatwe included all adjustments necessary for a fair presentation of the interimperiods presented and that the disclosures are adequate to make the informationpresented not misleading, we suggest that these Consolidated Condensed FinancialStatements be read in conjunction with the Consolidated Financial Statementsand related notes included in our annual report on Form 10-K for the fiscalyear ended December 30, 2002, which restated the financial results for thefiscal year ended December 31, 2001.

 

2.                                       RESTATEMENTOF QUARTERLY FINANCIAL STATEMENTS

 

The Company's previouslyissued consolidated financial statements as of and for the fiscal periods endedJune 25, 2001, December 31, 2001, and July 1, 2002 are restated to correct theaccounting of certain items. Significant items are noted below.

 

The Company's previousliability for gift certificates was understated.  The Company corrected its accounting for its gift-certificateliability and adjusted the liability on the balance sheet.  The cumulative adjustment to the balancesheet as of December 31, 2001 was an increase to the gift-certificate liabilityof $2,408,000.  This adjustmentdecreased the net loss for the thirteen weeks ended June 25, 2001 by $500,000and increased the net loss for the thirteen weeks ended July 1, 2002 by$309,000. This adjustment increased the net income for the twenty-six weeksended June 25, 2001 by $352,000 and increased the net loss for the twenty-sixweeks ended July 1, 2002 by $349,000.

 

In connection with theissuance of the Company's preferred stock in 1998, the Company did not properlyrecord the accretion of the redemption price due at maturity.  Accordingly, the Company has recorded anadjustment that increased the carrying amount on the balance sheet forpreferred stock and correspondingly adjusted paid-in capital, accumulateddeficit, and loss to common stockholders. There was no impact to net income or loss in 2001 or 2002.

 

Certain deposits,previously reported as other assets at December 31, 2001 and earlier periods,no longer represented recoverable assets as of December 27, 1999.  The cumulative adjustment to the balancesheet as of December 31, 2001 was a decrease to other assets of $985,000.  There was no impact to net income or loss in2001 or 2002.

 

The Company improperlyrecorded certain credit-card receivables and rebate receivables in 2001.  The Company reduced the carrying amount ofthe receivables on the balance sheet. The cumulative adjustment to the balance sheet as of December 31, 2001was a decrease to rebates and other receivables of $1,086,000.  There was no impact to net income or loss inthe thirteen weeks ended June 25, 2001 or July 1, 2002.  This adjustment decreased net income for thetwenty-six weeks ended June 25, 2001 by $634,000 and decreased the netloss for the twenty-six weeks ended July 1, 2002 by $452,000.

 

The Company incorrectlyreduced an insurance accrual during the fiscal year ended December 25,2000.  The Company adjusted the accrualaccordingly.  The cumulative adjustmentto the balance sheet as of December 31, 2001 was an increase to accruedliabilities of $352,000.

 

The Company previouslyrecorded in the fiscal year ended December 31, 2001 certain interest incomeearned in the fiscal year ended December 25, 2000.  The Company adjusted the recognition of the interest incomeaccordingly.  The cumulative adjustmentto the balance sheet as of December 31, 2001 was an increase to cash of$544,000.  This adjustment decreased thenet loss for the thirteen weeks ended June 25, 2001 by $22,000 and had noimpact on the net loss for the thirteen weeks ended July 1, 2002.  This adjustment increased the net income forthe twenty-six weeks ended June 25, 2001 by $78,000 and had no impact on thenet loss for the twenty-six weeks ended July 1, 2002.

 

The effects of thecorrections to the Company’s consolidated financial statements as of December31, 2001 and for the periods ended June 25, 2001 and July 1, 2002 are asfollows (in thousands):

 

7

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| **(in thousands)**                                         |   | **As of December 31, 2001**      |   | **As of July 1, 2002** |   |
|------------------------------------------------------------|--------|----------------------------------|--------|------------------------|--------|
|                                                       |   | **As  Previously   Reported(1)** |   | **As   Restated**      |   | **As  Previously   Reported(1)** |   | **As   Restated** |   |
|                                                       |   |                             |   |                   |   |
| ASSETS                                                     |   |                             |   |                   |   |   |   |   |   |
| CURRENT  ASSETS:                                           |   |                             |   |                   |   |   |   |   |   |
| Cash                                                       |   | $                                | 7,814  |                   | $      | 7,384 |   | $ | 3,378 |   | $ | 3,087 |   |
| Rebates  and Other receivables, net                        |   | 4,071                            |   | 2,985                  |   | 3,424 |   | 2,790 |   |
| Inventories                                                |   | 3,040                            |   | 2,800                  |   | 2,966 |   | 2,726 |   |
| Prepaid  expenses                                          |   | 3,002                            |   | 3,002                  |   | 2,056 |   | 2,056 |   |
| Total  current assets                                      |   | 17,927                           |   | 16,171                 |   | 11,824 |   | 10,659 |   |
|                                                       |   |                             |   |                   |   |   |   |   |   |
| Net  Property & Equipment                              |   | 51,103                           |   | 51,103                 |   | 50,093 |   | 50,093 |   |
| Net  Other Assets                                          |   | 18,435                           |   | 17,450                 |   | 17,686 |   | 16,701 |   |
| Total  assets                                              |   | $                                | 87,465 |                   | 84,724 |   | $ | 79,603 |   | $ | 77,453 |   |
|                                                       |   |                             |   |                   |   |   |   |   |   |
| LIABILITIES  AND COMMON STOCKHOLDERS’ (DEFICIT)       |   |                             |   |                   |   |   |   |   |   |
|                                                       |   |                             |   |                   |   |   |   |   |   |
| CURRENT  LIABILITIES:                                      |   |                             |   |                   |   |   |   |   |   |
| Accounts  payable                                          |   | $                                | 11,126 |                   | $      | 11,126 |   | $ | 7,677 |   | $ | 7,677 |   |
| Other  Current liabilities                                 |   | 25,267                           |   | 28,027                 |   | 24,489 |   | 27,597 |   |
| Total  current liabilities                                 |   | 36,393                           |   | 39,153                 |   | 32,166 |   | 35,274 |   |
|                                                       |   |                             |   |                   |   |   |   |   |   |
| LONG-TERM  LIABILITIES, net of current portion:            |   | 159,071                          |   | 159,071                |   | 156,146 |   | 156,146 |   |
|                                                       |   |                             |   |                   |   |   |   |   |   |
| DEFERRED  GAIN ON SALE-LEASEBACK                           |   | 3,990                            |   | 3,990                  |   | 3,889 |   | 3,889 |   |
|                                                       |   |                             |   |                   |   |   |   |   |   |
| CUMULATIVE  PREFERRED STOCK                                |   | 58,219                           |   | 64,108                 |   | 62,834 |   | 69,164 |   |
|                                                       |   |                             |   |                   |   |   |   |   |   |
| COMMON  STOCKHOLDERS’ (DEFICIT):                      |   |                             |   |                   |   |   |   |   |   |
| Common  Stock                                              |   | 1                                |   | 1                      |   | 1 |   | 1 |   |
| Paid-in  capital                                           |   | 7,279                            |   | 1,390                  |   | 2,664 |   | — |   |
| Accumulated  (deficit)                                     |   | (177,488                         | )      | (182,989               | )      | (178,097 | ) | (187,021 | ) |
| Total  common stockholders’ (deficit)                 |   | (170,208                         | )      | (181,598               | )      | (175,432 | ) | (187,020 | ) |
|                                                       |   |                             |   |                   |   |   |   |   |   |
| Total  liabilities and common stockholders’ (deficit) |   | $                                | 87,465 |                   | $      | 84,724 |   | $ | 79,603 |   | $ | 77,453 |   |

 

----

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

 

8

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| **(in  thousands)**                               |   | **(Unaudited)   Thirteen Weeks Ended  June 25, 2001** |   | **(Unaudited)   Thirteen Weeks Ended  July 1, 2002** |   |
|---------------------------------------------------|--------|-------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                              |   | **As  Previously Reported(1)**                        |   | **AsRestated**                                       |   | **As  Previously Reported(1)** |   | **AsRestated** |   |
|                                              |   |                                                  |   |                                                 |   |
| REVENUES                                          |   | $                                                     | 76,296 |                                                 | $      | 76,307 |   | $ | 74,626 |   | $ | 74,660 |   |
|                                              |   |                                                  |   |                                                 |   |   |   |   |   |
| RESTAURANT  COSTS:                                |   |                                                  |   |                                                 |   |   |   |   |   |
| Food  and beverage                                |   | 26,013                                                |   | 26,013                                               |   | 24,612 |   | 24,612 |   |
| Payroll                                           |   | 21,620                                                |   | 21,620                                               |   | 22,104 |   | 22,104 |   |
| Direct  operating                                 |   | 19,910                                                |   | 19,382                                               |   | 18,525 |   | 18,829 |   |
| Depreciation  and amortization                    |   | 2,178                                                 |   | 2,178                                                |   | 1,754 |   | 1,754 |   |
|                                              |   |                                                  |   |                                                 |   |   |   |   |   |
| GENERAL  AND ADMIN. EXPENSES                      |   | 2,304                                                 |   | 2,310                                                |   | 2,485 |   | 2,492 |   |
|                                              |   |                                                  |   |                                                 |   |   |   |   |   |
| Operating  profit from continuing operations      |   | 4,271                                                 |   | 4,804                                                |   | 5,146 |   | 4,869 |   |
|                                              |   |                                                  |   |                                                 |   |   |   |   |   |
| INTEREST  EXPENSE, net                            |   | 4,247                                                 |   | 4,258                                                |   | 5,518 |   | 5,550 |   |
|                                              |   |                                                  |   |                                                 |   |   |   |   |   |
| Income  /(Loss) before provision for income taxes |   | 24                                                    |   | 546                                                  |   | (372 | ) | (681 | ) |
|                                              |   |                                                  |   |                                                 |   |   |   |   |   |
| PROVISION  FOR INCOME TAXES                       |   | 44                                                    |   | 44                                                   |   | 33 |   | 33 |   |
|                                              |   |                                                  |   |                                                 |   |   |   |   |   |
| Net  Income/(Loss)                                |   |                                                  | (20    | )                                                    |   | 502 |   |   | (405 | ) |   | (714 | ) |
|                                              |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Perferred  stock dividends, issued and accrued    |   |                                                  | 2,044  |                                                 |   | 2,238 |   |   | 2,346 |   |   | 2,571 |   |
|                                              |   |                                                  |   |                                                 |   |   |   |   |   |   |   |   |   |
| Loss  to common stockholders                      |   | $                                                     | (2,064 | )                                                    | $      | (1,736 | ) | $ | (2,751 | ) | $ | (3,285 | ) |

 

----

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

 

9

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| **(in thousands)**                                |   | **(Unaudited)   Twenty-Six Weeks  June 25, 2001** |    | **(Unaudited)  Twenty-Six Weeks  July 1, 2002** |   |
|---------------------------------------------------|--------|---------------------------------------------------|---------|-------------------------------------------------|--------|
|                                              |   | **As  Previously   Reported(1)**                  |    | **As  Restated**                                |   | **As  Previously   Reported(1)** |   | **As   Restated** |   |
|                                              |   |                                              |    |                                            |   |
| REVENUES                                          |   | $                                                 | 158,477 |                                            | $      | 158,351 |   | $ | 156,471 |   | $ | 156,476 |   |
|                                              |   |                                              |    |                                            |   |   |   |   |   |
| RESTAURANT  COSTS:                                |   |                                              |    |                                            |   |   |   |   |   |
| Food  and beverage                                |   | 53,153                                            |    | 53,153                                          |   | 52,121 |   | 51,669 |   |
| Payroll                                           |   | 44,262                                            |    | 44,262                                          |   | 46,711 |   | 46,711 |   |
| Direct  operating                                 |   | 40,307                                            |    | 40,589                                          |   | 38,801 |   | 39,077 |   |
| Depreciation  and amortization                    |   | 4,330                                             |    | 4,330                                           |   | 3,663 |   | 3,663 |   |
|                                              |   |                                              |    |                                            |   |   |   |   |   |
| GENERAL  AND ADMIN. EXPENSES                      |   | 4,770                                             |    | 4,782                                           |   | 4,820 |   | 4,834 |   |
|                                              |   |                                              |    |                                            |   |   |   |   |   |
| Operating  profit from continuing operations      |   | 11,655                                            |    | 11,235                                          |   | 10,355 |   | 10,522 |   |
|                                              |   |                                              |    |                                            |   |   |   |   |   |
| INTEREST  EXPENSE, net                            |   | 8,491                                             |    | 8,479                                           |   | 10,907 |   | 10,832 |   |
|                                              |   |                                              |    |                                            |   |   |   |   |   |
| Income  /(Loss) before provision for income taxes |   | 3,164                                             |    | 2,756                                           |   | (552 | ) | (310 | ) |
|                                              |   |                                              |    |                                            |   |   |   |   |   |
| PROVISION  FOR INCOME TAXES                       |   | 163                                               |    | 163                                             |   | 57 |   | 57 |   |
|                                              |   |                                              |    |                                            |   |   |   |   |   |
| Net  Income/(Loss)                                |   |                                              | 3,001   |                                            |   | 2,593 |   |   | (609 | ) |   | (367 | ) |
|                                              |   |                                              |    |                                            |   |   |   |   |   |   |   |   |   |
| Preferred  stock dividends, issued and accrued    |   |                                              | 4,021   |                                            |   | 4,403 |   |   | 4,615 |   |   | 5,056 |   |
|                                              |   |                                              |    |                                            |   |   |   |   |   |   |   |   |   |
| Loss  to common stockholders                      |   | $                                                 | (1,020  | )                                               | $      | (1,810 | ) | $ | (5,224 | ) | $ | (5,423 | ) |

 

----

(1)          Certain accounts have beenreclassified to conform with the current period’s presentation.

 

3.                                       OPERATIONSAND REFINANCING

 

The Company’s operationsare affected by local and regional economic conditions, including competitionin the restaurant industry.

 

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

 

10

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We do not, however,expect to generate sufficient cash flows from operations in the future to payfully the principal of the senior indebtedness upon maturity in 2006 and, accordingly,we expect to refinance all or a portion of such debt, obtain new financing, orpossibly sell assets.

 

4.                                       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.

 

5.                                       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 4,181 shares on February 15, 2002.  At July 1, 2002, we had 63,299 preferred shares outstanding andaccrued.

 

6.                                       SUBSIDIARYGUARANTORS

 

Separate financialstatements of our subsidiaries are not included in this report on Form10-Q.  The subsidiaries are fully,unconditionally, jointly, and severally liable for our obligations under theCompany's Old Notes and New Notes, and the aggregate net assets, earnings, andequity of such subsidiary guarantors are substantially equivalent to the netassets, earnings, and equity of the Company (issuer) on a consolidated basis,as the Company has no significant operations.

 

7.                                       INSURANCE

 

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

 

11

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8.                                       GOODWILLAND INTANGIBLES

 

The Company adoptedStatement of Financial Accounting Standards (“SFAS”) No. 141 and SFAS No. 142,on January 1, 2002, and is no longer amortizing goodwill, thereby eliminatingannual goodwill amortization of approximately $331,000, based on anticipatedamortization for fiscal year 2002 that would have been incurred under the prioraccounting standard. The adoption reduced amortization expense by approximately$83,000 and $166,000 for the thirteen weeks and twenty-six weeks ended July 1,2002. In accordance with SFAS No. 142, the Company reclassified $501,000 netfrom intangible assets to goodwill relating to acquisition costs connected withthe 1987 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 $1.5 million each for fiscal years 2003, 2004, and 2005.Amortization of intangibles for the twenty-six weeks ended July 1, 2002 wasapproximately $0.8 million.

 

9.                                       NEWACCOUNTING PRONOUNCEMENTS

 

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

 

In June 2002, the FASBissued SFAS No. 146, “Accounting for Exit or Disposal Activities”  (“SFAS 146”). SFAS 146 addresses significantissues regarding the recognition, measurement, and reporting of costs that areassociated with exit and disposal activities, including restructuringactivities that are currently accounted for under EITF No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).”  The scope of SFAS 146 also includes costs relatedto terminating a contract that is not a capital lease and termination benefitsthat employees who are involuntarily terminated receive under the terms of aone-time benefit arrangement that is not an ongoing benefit arrangement or anindividual deferred-compensation contract. SFAS 146 will be effective for exitor disposal activities that are initiated after December 31, 2002 and earlyapplication is encouraged. The provisions of EITF No. 94-3 shall continue toapply for an exit activity initiated under an exit plan that met the criteria ofEITF No. 94-3 prior to the adoption of SFAS 146. We do not anticipate thatadoption of this statement will have a material impact on our consolidatedbalance sheets or consolidated statements of operations.

 

10.                                 COMMITMENTSAND CONTINGENCIES

 

The Company is obligatedunder an employment agreement with an officer. The obligation under the agreement is $500,000 per year and expires in2002 unless extended.

 

The Company has beennamed as defendant in various lawsuits. Management's opinion is that theoutcome of such litigation will not materially affect the Company's financialposition, results of operations, or cash flows.

 

12

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

 

Management's Discussionand Analysis of Financial Condition and Results of Operations presented belowreflects certain restatements to our previously reported consolidated financialstatements as of December 31, 2001 and for the periods ended June 25, 2001 andJuly 1, 2002.  (See "Restatement ofFinancial Statements" below.)  Theinformation set forth below should be read together with the Company's consolidatedfinancial statements and related notes appearing elsewhere in this report.

 

Certain statementscontained in this Form 10-Q 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.

 

The following discussionand analysis of our financial condition and results of operations should beread in conjunction with the historical financial information included in theConsolidated Condensed Financial Statements.

 

**Results of Operations**

 

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

 

*Revenues. *Totalrevenues decreased slightly to $74.7 million in the second quarter of 2002 from$76.3 million in the second quarter of 2001. In the 103 base stores, sales decreased by 5.1% in the second quarter of2002 compared to the second quarter of 2001. There were 109 Black Angus restaurants operating as of July 1, 2002 and105 Black Angus restaurants operating as of June 25, 2001.

 

*Food and Beverage Costs.*  As a percentage of revenues, food andbeverage costs decreased to 33.0% in the second quarter of 2002 from 34.1% inthe second quarter of 2001.  Thedecrease relates primarily to favorable raw material costs.

 

*Payroll Costs.*  As a percentage of revenues, labor costs increased to 29.6% inthe second quarter of 2002 from 28.3% in the second quarter of 2001.  The increase is primarily from the minimum-wagerate increase in 2002 and increased management expense for four new units.

 

*Direct Operating Costs:*  Direct operating costs consist of occupancy,advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costsdecreased to 25.2% in the second quarter of 2002 from 25.4% in the secondquarter of 2001. The decrease is from lower advertising costs in 2002.

 

*Depreciation and Amortization.*  Depreciation and amortization consists ofdepreciation of fixed assets used by individual restaurants and at the BlackAngus and corporate offices, as well as amortization of intangible assets.  As a percentage of revenues, depreciationand amortization decreased to 2.3% in the second quarter of 2002 from 2.9% inthe second quarter of 2001. The decrease primarily relates to the reduction ofamortization of the deferred debt costs for Old Notes purchased as part of theRefinancing in the fourth quarter of 2001 and the discontinued amortization ofgoodwill in 2002.

 

*General and Administrative Expenses.*  General and administrative expensesincreased to $2.5 million in the second quarter of 2002 from $2.3 million inthe second quarter of 2001, primarily because of an increase inmanagement-training expense.

 

*Operating Profit.*  As a result of the above items, operatingprofit increased to $4.9 million in the second quarter of 2002 from $4.8million in the second quarter of 2001. As a percentage of revenues, operating profit increased to 6.5% in thesecond quarter of 2002 compared to 6.3% in the second quarter of 2001.

 

*Interest Expense – Net.* Our interestexpense increased to $5.6 million in the second quarter of 2002 from $4.3million in the second quarter of 2001. The increase is from refinancing thesenior notes in the fourth quarter of 2001. The face value of senior notes increased by $22.6 million ($165.2million face value) compared to the second quarter of 2001 ($142.6 million facevalue) at the same interest rate (11.5%).

 

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

 

*Revenues. *Totalrevenue decreased to $156.5 million in the first half of 2002 from $158.4million in the first half of 2001. In the 103 base stores, sales decreased by4.1% in the first half of 2002 compared to the first half of 2001.Significantly, of this unfavorable variance, customer counts accounted for only0.1%; the introduction of more casual “value” items on the dinner menu, whichcaused the average check to decline, accounted for the balance of the decrease.There were 109 Black Angus restaurants operating as of July 1, 2002 and 105Black Angus restaurants operating as of June 25, 2001.

 

*Food and Beverage Costs.*  As a percentage of revenues, food andbeverage costs decreased to 33.0% in the first half of 2002 from 33.6% in thefirst half of 2001.  This decreasereflects lower raw-material costs.

 

13

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*Payroll Costs*.  As of percentage of revenues, labor costs increased to 29.9% inthe first half of 2002 from 27.9% in the first half of 2001. The increase isprimarily from higher labor-related costs for vacation, medical/dental,employee incentives, and minimum wage rate increases in 2002.

 

*Direct Operating Costs:*  Direct operating costs consist of occupancy,advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costsdecreased to 25.0% in the first half of 2002 from 25.6% in the first half of2001.  The savings relate toenergy-conservation measures and general liability costs from the first quarterof 2002 and decreased advertising costs in the second quarter of 2002.

 

*Depreciation and Amortization.*  Depreciation and amortization consists ofdepreciation of fixed assets used by individual restaurants and at the BlackAngus and corporate offices, as well as amortization of intangible assets.  As a percentage of revenues, depreciationand amortization decreased to 2.3% in the first half of 2002 from 2.7% in thefirst half of 2001.  The decreaseprimarily relates to the reduction of amortization of the deferred debt costsfor Old Notes purchased as part of the Refinancing in the fourth quarter of2001 and the discontinued amortization of goodwill in 2002.

 

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

 

*Operating Profit.*  As a result of the above items, operatingprofit decreased to $10.5 million in the first half of 2002 from $11.2 millionin the first half of 2001.  As apercentage of revenues, operating profit decreased to 6.7% in the first half of2002 compared to 7.1% in the first half of 2001.

 

*Interest Expense — Net.*  Our interest expense increased to $10.8million in the first half of 2002 from $8.5 million in the first half of2001.  The increase is from refinancingthe senior notes in the fourth quarter of 2001.  The face value of senior notes increased by $22.6 million ($165.2million face value) compared to the first half of 2001 ($142.6 million facevalue) at the same interest rate (11.5%)

 

**Liquidity and Capital Resources**

 

Our primary sources ofliquidity are cash flows from operations and borrowings under our revolvingcredit facilities.  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 July 1, 2002, we had approximately$3.1 million of cash.

 

In general, restaurantbusinesses do not have significant accounts receivable because sales are madefor cash or by credit-card vouchers, which are ordinarily paid within three tofive days.  The restaurants do notmaintain substantial inventory as a result of the relatively brief shelf lifeand frequent turnover of food products. Additionally, restaurants generally areable to obtain trade credit in purchasing food and restaurant supplies.  As a result, restaurants are frequently ableto operate with working-capital deficits, i.e., current liabilities exceedcurrent assets.  At July 1, 2002, ourworking-capital deficit was $24.6 million.

 

We estimate that capitalexpenditures of $3.0 million to $6.0 million are required annually to maintainand refurbish our existing restaurants. Other capital expenditures, which are generally discretionary, areprimarily for the construction of new restaurants and for expanding,reformatting, and extending the capabilities of existing restaurants and forgeneral corporate purposes.  Totalcapital expenditures for continuing operations were approximately $1.9 millionthrough the first half of 2002 and $1.2 million through the first half of2001.  We estimate that capitalexpenditures in 2002 will be approximately $5.0 million.  We intend to open new restaurants with smallcapital outlays and to finance most of the expenditures through leases.

 

On October 31, 2001, wecompleted an exchange offer (the “Exchange”) in which we offered to exchangeour 111⁄2% Senior Secured Notes due 2006 (the “New Notes”) for all of our$142,600,000 outstanding 111⁄2% Senior Secured Notes due 2003 (the “OldNotes”).  We simultaneously completed anoffering (the “Offering”) of $30,000,000 aggregate principal amount of NewNotes.  After the consummation of theExchange, the Offering, and related transactions (collectively, the“Refinancing”), we have no further payment obligations with respect to over 97.6%of the outstanding Old Notes (constituting all but $3,410,000 aggregateprincipal amount of the Old Notes) and assumed payment obligations equivalentto $161,774,000 of the New Notes. The Refinancing substantially eliminates debtprincipal payments until November 2006.

 

The principal elements ofthe Refinancing were: (a) the Exchange (approximately $124 million aggregateprincipal amount of Old Notes were exchanged for approximately $132 millionaggregate principal amount New Notes); (b) the Offering (the issuance of $30million aggregate principal amount of New Notes); (c) the consent of theholders of our outstanding preferred stock to 

 

14

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amend the terms of thepreferred stock to provide that if we do not redeem the preferred stock forcash on August 15, 2003 in accordance with its terms, then the preferred stockwill automatically be redeemed for shares of our common stock at that time andall the rights of the preferred stock will terminate, including any rights ofacceleration; to eliminate provisions that allow the holders to exchangepreferred stock for new subordinate debt; and to amend the covenants of thepreferred stock so that they are substantially similar to the covenants underthe New Notes,; and, (d) the consent of the lender under our former revolvingcredit facility (“Old Credit Facility”) to permit the issuance of the New Notesand any other aspects of the Refinancing requiring the lender’s consent.

 

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

 

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

 

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

 

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

 

The Company and itssubsidiaries do not guaranty the debt of any other parties outside theconsolidated group.

 

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

 
| **Contractual Obligations**              |   | **Paid in   Q1&2–  2002** |   | **Remainder   of  Fiscal   2002** |   | **Fiscal  Years  2003&2004** |   | **Fiscal  Years  2005&2006** |   | **Fiscal  Years  Beyond  2006** |   | **Total  Remaining** |   |
|------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|----------------------------------|--------|---------------------------------|--------|----------------------|--------|
| Long-Term Debt – Interest  on Notes |   | $                                  | 9,550  |                              | $      | 9,498                            |   | 37,404                           |   | $                               | 37,208 |                 | $      | — |   | $ | 93,660 |   |
| Long-Term Debt – Other              |   | 195                                |   | 207                               |   | 3,476                            |   | 161,867                          |   | 949                             |   | 166,694              |   |
| Capital Leases                           |   | 387                                |   | 690                               |   | 1,092                            |   | 464                              |   | 1,115                           |   | 3,748                |   |
| Operating Leases                         |   | 9,595                              |   | 9,595                             |   | 34,189                           |   | 28,528                           |   | 180,276                         |   | 262,183              |   |
| Employment Agreements                    |   | —                             |   | 500                               |   | —                           |   | —                           |   | —                          |   | 500                  |   |
| Total Contractual Cash                   |   | $                                  | 19,727 |                              | $      | 20,490                           |   | $                                | 76,161 |                            | $      | 228,067              |   | $ | 182,340 |   | $ | 526,785 |   |
|                                          |        |                                    |        |                                   |        |                                  |        |                                  |        |                                 |        |                      |        |  |  |  |  |  |  |

 

Preferred stock dividendsof 4,181 shares were issued on February 15, 2002.  There were 63,299 shares of preferred stock outstanding andaccrued at July 1, 2002. Our preferred stock is mandatorily redeemable onAugust 15, 2003.  If we do not redeemour preferred stock for cash at a price per share equal to 110% of thethen-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.

 

15

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

 

Although we are highlyleveraged, based upon current levels of operations and anticipated growth, weexpect that cash flows generated from operations together with our otheravailable sources of liquidity will be adequate to make required payments ofprincipal and interest on our indebtedness, to make anticipated capitalexpenditures, and to finance working-capital requirements for at least the nexttwelve months. We do not, however, expect to generate sufficient cash flowsfrom operations in the future to pay fully the principal of the seniorindebtedness upon maturity in 2006 and, accordingly, we expect to refinance allor a portion of such debt, obtain new financing, or possibly sell assets.

 

**Critical Accounting Policies**

*Revenue Recognition.*We record revenuefrom the sale of food, beverage, and alcohol as products are sold.   We record proceeds from the sale of a giftcard of gift certificate in current liabilities and recognize income when aholder redeems a gift card of gift certificate.  We recognize unredeemed gift cards and certificates as revenueonly after such a period of time indicates, based on the Company’s historicalexperience, the likelihood of redemption is remote.

 

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

 

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

 

*Valuation Allowance for Deferred Tax Assets. *We provided a valuationallowance of $34.1 million and $33.7 million against the entire amount of ourdeferred tax assets as of the fiscal year ended 2001 and as of the fiscalquarter ended July 1, 2002, respectively. The Company fully reserves both the net-operating-loss andgeneral-business-credit carryforwards because sufficient doubt exists regardingthe Company’s ability to use the carryforwards before expiration.

 

*Long-LivedAssets.*  The Company periodicallyreviews for impairment the carrying value of its long-lived assets.  The Company assesses the recoverability ofthe assets based on the estimated undiscounted cash flows of the assets.  If impairment is indicated, the Companywrites down the assets to fair market value based on discounted cash flows.

 

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

* *

*Reclassification. *Certainaccounts have been reclassified to conform with the current year’spresentation.

 

*Self-InsuranceReserves*.  The Companyself-insures certain risks, including medical, workers' compensation, property,and general liability, up to varying limits. Deductible and self-insured limits have varied historically, rangingfrom $0 to $1,000,000 per incident depending on the type of risk.  The policy deductibles are $125,000 forannual medical and dental benefits per person. Reserves for losses are established on a claims-made basis plus anactuarially determined provision for incurred-but-not-reported claims and thedeductible or self-insured retention in place at the time of the loss.  The self-insured reserves are reported onthe balance sheet under self-insurance reserves.

 

 

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## **ITEM3**.     QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

 

The market risk of ourfinancial instruments as of July 1, 2002 has not materially changed sinceDecember 31, 2001.  The market riskprofile on December 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 ANDPROCEDURES

 

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

 

**PART II****.****                                                OTHERINFORMATION**

 

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

 

(a)                                        Listof Exhibits

 
| **Exhibit No.** |   | **Description**                                                     |
|-----------------|--------|---------------------------------------------------------------------|
|            |   |                                                                |
| 99.1            |   | Certificate of Chief  Executive Officer and Chief Financial Officer |

 

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**SIGNATURE**

 

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

 

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

** **

18

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**CERTIFICATION**

 

I, Ralph S. Roberts,certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q/A of American RestaurantGroup, Inc;

 

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

 

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

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

 

 

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**CERTIFICATION**

 

I, William G. Taves,certify that:

 

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

 

2.                    Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                    Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report.

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

 

 

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