**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

 

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q/A**

 

**Amendment No. 1**

 
| **(Mark  One)** |                                                                                         |
|-----------------|----------------------------------------------------------------------------------------------|
| **ý**      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|            |                                                                                         |
|            | **For the quarterly period ended  April 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

 

The number of outstandingshares of the Company’s Common Stock (one cent par value) as of May 6, 2002 was128,081.

 

 

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**AMERICAN RESTAURANT GROUP, INC.**

 

**INDEX**

 
| **PART I.** | **FINANCIAL INFORMATION**                                                                   |
|-------------|---------------------------------------------------------------------------------------------|
|        |                                                                                        |
| ITEM 1.     | FINANCIAL STATEMENTS:                                                                       |
|        |                                                                                        |
|        | Consolidated  Condensed Balance Sheets                                                      |
|        |                                                                                        |
|        | Consolidated  Statements of Operations                                                      |
|        |                                                                                        |
|        | Consolidated  Statements of Cash Flows                                                      |
|        |                                                                                        |
|        | Notes  to Consolidated Condensed Financial Statements                                       |
|        |                                                                                        |
| ITEM 2.     | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|        |                                                                                        |
| ITEM  3.    | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 |

 

2

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**PART I.        FINANCIALINFORMATION**

 

**ITEM 1.        FINANCIALSTATEMENTS:**

 

ThisAmendment No.1 to Form 10-Q is filed to amend certain financial statements andrelated disclosures in the Quarterly Report on Form 10-Q for the registrant’squarter ended April 1, 2002 originally filed on May 10, 2002 (the “OriginalFiling”).  The Company changed itspolicy for accounting for advertising costs in its interim periods to conformto the accounting applied at its fiscal year end.  Management believes this accounting more accurately reflects thematching of costs and benefits during the interim periods.  The financial statements for the fiscalperiods ending April 1, 2002 and March 26, 2001 are restated to reflect thechange.  Advertising costs reportedwithin the financial position and results of operations for the fiscal yearended December 31, 2001 are unchanged. We also revised Note 8-Insurance to adjust the deductible andself-insured limits and made grammatical changes in this amended report.

 

Asdiscussed in Note 2 to the financial statements, the reclassification affectsthe Company’s quarterly results.   Thisreport continues to speak as of the date of the Original Filing, and we havenot updated the disclosures in this report to speak as of a later date.  All information contained in this report andthe Original Filing is subject to updating and supplementing as provided in ourperiodic reports filed with the Securities and Exchange Commission.

 

AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATEDCONDENSED BALANCE SHEETS

 

DECEMBER 31, 2001AND APRIL 1, 2002

 

(unaudited)

 
|                                                                                                                                                                                                                  |   | **December  31,  2001** |       | **April 1,  2002** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|--------------------|--------|
|                                                                                                                                                                                                                  |   |                    |       | **(as  restated)** |   |
| ASSETS                                                                                                                                                                                                                |   |                    |       |               |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| CURRENT  ASSETS:                                                                                                                                                                                                      |   |                    |       |               |   |
| Cash                                                                                                                                                                                                                  |   | $                       | 10,053,000 |               | $      | 17,235,000 |   |
| Accounts  and notes receivable, net                                                                                                                                                                                   |   | 4,071,000               |       | 3,932,000          |   |
| Inventories                                                                                                                                                                                                           |   | 3,040,000               |       | 3,130,000          |   |
| Prepaid  expenses                                                                                                                                                                                                     |   | 3,002,000               |       | 2,142,000          |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| Total  current assets                                                                                                                                                                                                 |   | 20,166,000              |       | 26,439,000         |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| PROPERTY  AND EQUIPMENT:                                                                                                                                                                                              |   |                    |       |               |   |
| Land  and land improvements                                                                                                                                                                                           |   | 2,598,000               |       | 2,598,000          |   |
| Buildings  and leasehold improvements                                                                                                                                                                                 |   | 69,858,000              |       | 71,620,000         |   |
| Fixtures  and equipment                                                                                                                                                                                               |   | 48,914,000              |       | 49,108,000         |   |
| Property  held under capital leases                                                                                                                                                                                   |   | 7,293,000               |       | 7,293,000          |   |
| Construction  in progress                                                                                                                                                                                             |   | 2,517,000               |       | 1,353,000          |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| Property  and Equipment                                                                                                                                                                                               |   | 131,180,000             |       | 131,972,000        |   |
| Less  – Accumulated depreciation                                                                                                                                                                                 |   | 80,077,000              |       | 81,496,000         |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| Net  property and equipment                                                                                                                                                                                           |   | 51,103,000              |       | 50,476,000         |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| OTHER  ASSETS, NET:                                                                                                                                                                                                   |   | 18,435,000              |       | 17,984,000         |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| Total  assets                                                                                                                                                                                                         |   | $                       | 89,704,000 |               | $      | 94,899,000 |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |   |   |
| LIABILITIES AND COMMON STOCKHOLDERS’ DEFICIT                                                                                                                                                                     |   |                    |       |               |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| CURRENT  LIABILITIES:                                                                                                                                                                                                 |   |                    |       |               |   |
| Accounts  payable                                                                                                                                                                                                     |   | $                       | 12,528,000 |               | $      | 16,081,000 |   |
| Accrued  liabilities                                                                                                                                                                                                  |   | 12,849,000              |       | 8,579,000          |   |
| Accrued  insurance                                                                                                                                                                                                    |   | 3,232,000               |       | 3,694,000          |   |
| Accrued  interest                                                                                                                                                                                                     |   | 3,447,000               |       | 7,882,000          |   |
| Accrued  payroll costs                                                                                                                                                                                                |   | 4,853,000               |       | 6,319,000          |   |
| Current  portion of obligations under capital leases                                                                                                                                                                  |   | 796,000                 |       | 819,000            |   |
| Current  portion of long-term debt                                                                                                                                                                                    |   | 402,000                 |       | 3,724,000          |   |
| Liabilities  from discontinued operations                                                                                                                                                                             |   | 525,000                 |       | 147,000            |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| Total  current liabilities                                                                                                                                                                                            |   | 38,632,000              |       | 47,245,000         |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| LONG-TERM  LIABILITIES, net of current portion:                                                                                                                                                                       |   |                    |       |               |   |
| Obligations  under capital leases                                                                                                                                                                                     |   | 1,799,000               |       | 1,585,000          |   |
| Long-term  debt, net of unamortized discount                                                                                                                                                                          |   | 157,272,000             |       | 154,322,000        |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| Total  long-term liabilities                                                                                                                                                                                          |   | 159,071,000             |       | 155,907,000        |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| DEFERRED  GAIN                                                                                                                                                                                                        |   | 3,990,000               |       | 3,940,000          |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| 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  61,052 shares outstanding and accrued at April 1, 2002 |   | 58,219,000              |       | 60,487,000         |   |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| 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 April 1, 2002                                                                            |   | 1,000                   |       | 1,000              |   |
| Paid-in  capital                                                                                                                                                                                                      |   | 7,279,000               |       | 5,011,000          |   |
| Accumulated  deficit                                                                                                                                                                                                  |   | (177,488,000            | )          | (177,692,000       | )      |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| Total  common stockholders’ deficit                                                                                                                                                                              |   | (170,208,000            | )          | (172,680,000       | )      |
|                                                                                                                                                                                                                  |   |                    |       |               |   |
| Total  liabilities and common stockholders’ deficit                                                                                                                                                              |   | $                       | 89,704,000 |               | $      | 94,899,000 |   |

 

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

 

3

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AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATEDSTATEMENTS OF OPERATIONS

 

FOR THE THIRTEENWEEKS ENDED MARCH 26, 2001 AND APRIL 1, 2002

 

(UNAUDITED ANDRESTATED)

 
|                                             |   | **Thirteen  Weeks Ended** |       |
|--------------------------------------------------|--------|---------------------------|------------|
|                                             |   | **March 26,  2001**       |       | **April 1,  2002** |   |
|                                             |   |                      |       |   |   |
| REVENUES                                         |   | $                         | 82,181,000 |   | $ | 81,845,000 |   |
| RESTAURANT  COSTS:                               |   |                      |       |   |   |
| Food  and beverage                               |   | 27,140,000                |       | 27,509,000 |   |
| Payroll                                          |   | 22,642,000                |       | 24,607,000 |   |
| Direct  operating                                |   | 20,397,000                |       | 20,276,000 |   |
| Depreciation  and amortization                   |   | 2,152,000                 |       | 1,909,000 |   |
|                                             |   |                      |       |   |   |
| GENERAL  AND ADMINISTRATIVE EXPENSES             |   | 2,466,000                 |       | 2,335,000 |   |
|                                             |   |                      |       |   |   |
| Operating  profit                                |   | 7,384,000                 |       | 5,209,000 |   |
|                                             |   |                      |       |   |   |
| INTEREST  EXPENSE, net                           |   | 4,244,000                 |       | 5,389,000 |   |
|                                             |   |                      |       |   |   |
| Income  (loss) before provision for income taxes |   | 3,140,000                 |       | (180,000 | ) |
|                                             |   |                      |       |   |   |
| PROVISION  FOR INCOME TAXES                      |   | 119,000                   |       | 24,000 |   |
|                                             |   |                      |       |   |   |
| Net  income (loss)                               |   | $                         | 3,021,000  |   | $ | (204,000 | ) |

 

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

 

4

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AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTSOF CASH FLOWS

 

FOR THE THIRTEENWEEKS ENDED MARCH 26, 2001 AND APRIL 1, 2002

 

(UNAUDITED ANDRESTATED)

### ** **

|                                                                                                                                         |   | **March 26,  2001** |       | **April 1,  2002** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|--------------------|--------|
| CASH  FLOWS FROM CONTINUING OPERATING ACTIVITIES:                                                                                            |   |                |       |               |   |
| Cash  received from customers                                                                                                                |   | $                   | 81,888,000 |               | $      | 81,984,000 |   |
| Cash  paid to suppliers and employees                                                                                                        |   | (75,963,000         | )          | (72,796,000        | )      |
| Interest  paid, net                                                                                                                          |   | (8,378,000          | )          | (487,000           | )      |
| Income  tax paid, net                                                                                                                        |   | (119,000            | )          | (24,000            | )      |
| Net  cash provided by (used in) continuing operating activities                                                                              |   | (2,572,000          | )          | 8,677,000          |   |
|                                                                                                                                         |   |                |       |               |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                                                                       |   |                |       |               |   |
| Capital  expenditures                                                                                                                        |   | (220,000            | )          | (824,000           | )      |
| Net  (increase) decrease in other assets                                                                                                     |   | 18,000              |       | (7,000             | )      |
| Proceeds  from disposition of assets                                                                                                         |   | (19,000             | )          | —             |   |
| Net  cash (used in) investing activities                                                                                                     |   | (221,000            | )          | (831,000           | )      |
|                                                                                                                                         |   |                |       |               |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                                                       |   |                |       |               |   |
| Payments  on indebtedness                                                                                                                    |   | (89,000             | )          | (95,000            | )      |
| Payments  on capital lease obligations                                                                                                       |   | (179,000            | )          | (191,000           | )      |
| Net  cash (used in) financing activities                                                                                                     |   | (268,000            | )          | (286,000           | )      |
|                                                                                                                                         |   |                |       |               |   |
| NET  INCREASE / (DECREASE) FROM CONTINUING OPERATIONS                                                                                        |   | (3,061,000          | )          | 7,560,000          |   |
|                                                                                                                                         |   |                |       |               |   |
| NET  (DECREASE) FROM DISCONTINUED OPERATIONS                                                                                                 |   | (937,000            | )          | (378,000           | )      |
|                                                                                                                                         |   |                |       |               |   |
| NET  CHANGE IN CASH, CURRENT PERIOD                                                                                                          |   | (3,998,000          | )          | 7,182,000          |   |
|                                                                                                                                         |   |                |       |               |   |
| CASH,  at beginning of period                                                                                                                |   | 8,532,000           |       | 10,053,000         |   |
|                                                                                                                                         |   |                |       |               |   |
| CASH,  at end of period                                                                                                                      |   | $                   | 4,534,000  |               | $      | 17,235,000 |   |
|                                                                                                                                         |   |                |       |               |   |
| RECONCILIATION  OF NET INCOME (LOSS) FROM CONTINUING OPERATIONS TO NET CASH PROVIDED BY (USED  IN) CONTINUING OPERATING ACTIVITIES:          |   |                |       |               |   |
|                                                                                                                                         |   |                |       |               |   |
| Net  income (loss) from continuing operations                                                                                                |   | $                   | 3,021,000  |               | $      | (204,000 | ) |
| Adjustments to reconcile net income (loss) from  continuing operations to net cash provided by / (used in) continuing  operating activities: |   |                |       |               |   |
|                                                                                                                                         |   |                |       |               |   |
| Depreciation  and amortization                                                                                                               |   | 2,152,000           |       | 1,909,000          |   |
| Amortization  of deferred gain                                                                                                               |   | (50,000             | )          | (50,000            | )      |
| Amortization  of non-cash interest expense                                                                                                   |   | —              |       | 467,000            |   |
| (Increase)  decrease in current assets:                                                                                                      |   |                |       |               |   |
| Accounts  and notes receivable, net                                                                                                          |   | (293,000            | )          | 139,000            |   |
| Inventories                                                                                                                                  |   | (272,000            | )          | (90,000            | )      |
| Prepaid  expenses                                                                                                                            |   | 1,124,000           |       | 860,000            |   |
| Increase  (decrease) in current liabilities:                                                                                                 |   |                |       |               |   |
| Accounts  payable                                                                                                                            |   | 2,137,000           |       | 3,553,000          |   |
| Accrued  liabilities                                                                                                                         |   | (4,815,000          | )          | (4,270,000         | )      |
| Accrued  insurance                                                                                                                           |   | (574,000            | )          | 462,000            |   |
| Accrued  interest                                                                                                                            |   | (4,134,000          | )          | 4,435,000          |   |
| Accrued  payroll                                                                                                                             |   | (868,000            | )          | 1,466,000          |   |
|                                                                                                                                         |   |                |       |               |   |
| Net  cash provided by (used in) continuing operating activities                                                                              |   | (2,572,000          | )          | 8,677,000          |   |

 

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

 

5

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AMERICANRESTAURANT GROUP, INC. AND SUBSIDIARIES

 

NOTES TOCONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

1.                                       MANAGEMENT’SOPINION

 

The Consolidated Condensed FinancialStatements included were prepared by American Restaurant Group, Inc. withoutaudit, in accordance with Securities and Exchange Commission RegulationS-X.  (References to “the Company,”“we,” “us,” or “our” refer to American Restaurant Group, Inc.)  In the opinion of our management, theseConsolidated Condensed Financial Statements contain all adjustments necessaryto present fairly our financial position as of December 31, 2001 and April 1,2002, and the results of our operations for the thirteen weeks ended March 26,2001 and April 1, 2002 and our cash flows for the thirteen weeks ended March 26,2001 and April 1, 2002.  Our results foran interim period are not necessarily indicative of the results that may beexpected for the year.

 

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

 

2.                                       RESTATEMENTOF QUARTERLY FINANCIAL STATEMENTS

 

The Company changed its policy foraccounting for advertising costs in its interim periods to conform to theaccounting applied at its fiscal year end. Management believes this accounting more accurately reflects thematching of costs and benefits during the interim periods.  The financial statements for the fiscalperiods ending April 1, 2002 and March 26, 2001 are restated to reflect thechange.  Advertising costs reportedwithin the financial position and results of operations for the fiscal yearended December 31, 2001 are unchanged.

 

3.                                       OPERATIONS

 

The Company’s operations are affected by local and regionaleconomic conditions, including competition in the restaurant industry.

 

On October 31, 2001, we completed an exchange offer(the “Exchange”) in which we offered to exchange our 111⁄2% Senior Secured Notesdue 2006 (the “New Notes”) for all of our $142,600,000 outstanding 111⁄2% SeniorSecured Notes due 2003 (the “Old Notes”). We simultaneously completed an offering (the “Offering”) of $30,000,000aggregate principal amount of New Notes. After the consummation of the Exchange, the Offering, and relatedtransactions (collectively, the “Refinancing”), we have no further paymentobligations with respect to over 97.6% of the outstanding Old Notes(constituting all but $3,410,000 aggregate principal amount of the Old Notes)and assumed payment obligations equivalent to $161,774,000 of the New Notes.The Refinancing substantially eliminates debt principal payments until November2006.

 

Management believes the Refinancing will also allow itto continue to effect changes in its operations and has implemented measures toreduce overhead costs. We do not, however, expect to generate sufficient cashflows from 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.

 

4.                                       SALEOF STOCK TO SPECTRUM RESTAURANT GROUP

 

In June 2000, we sold allof the outstanding stock of four wholly owned subsidiaries (“Non-Black AngusSubsidiaries”) to Spectrum Restaurant Group, Inc. (formerly known as NBACo,Inc.) effective June 26, 2000 (the “Stock Sale”). There was no gain or lossrecorded because of the related-party nature of the Stock Sale. We received$17.0 million in cash on June 28, 2000, and transferred certain assets andliabilities to Spectrum Restaurant Group, Inc. Concurrent with the Stock Sale,

 

6

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advances between theCompany and the Non-Black Angus Subsidiaries were eliminated. Paid-in capitalof $27.0 million was charged as a result of the Stock Sale. We retained theassets and liabilities associated with certain closed restaurants as well ascertain liabilities, estimated on June 26, 2000 at approximately $12.6 million,associated with the operating restaurants that were sold.  The amount of estimated liabilities relatedto the Stock Sale remaining at April 1, 2002 was approximately $147,000.

 

We are currently workingto settle these liabilities.  Anyadjustment to the recorded balance, as a result of such settlement, will berecognized when the amount becomes known. Until a settlement is reached, additional payments will be charged todirect operating expenses as incurred. Management believes such amount, if any, will not be material to ourfinancial position or results of operations.

 

5.                                       INCOMETAXES

 

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

 

6.                                       PREFERREDSTOCK

 

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

 

We issued preferred stockdividends of 4,181 shares on February 15, 2002.  At April 1, 2002, we had 61,052 preferred shares outstanding andaccrued.

 

7.                                       SUBSIDIARYGUARANTORS

 

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

 

8.                                       INSURANCE

 

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

 

9.                                       FORWARD-LOOKINGSTATEMENTS

 

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, 

 

7

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consequently, could beaffected by general business conditions, the impact of competition,governmental regulations, and inflation.

 

10.                                 NEWACCOUNTING PRONOUNCEMENTS

 

In June 2001, theFinancial Accounting Standards Board issued Statements of Financial AccountingStandards (SFAS) No. 141, “Business Combinations” and SFAS No. 142, “Goodwilland Other Intangible Assets.”  These newstandards are effective for fiscal years beginning after December 15,2001.  Under the new standards, goodwillis no longer amortized, but is subject to an annual impairment test.  The standards also promulgate newrequirements for accounting for other intangible assets.  The impact of the new standards on ourfinancial position and results of operations is not material.

 

In August 2001, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandard No.  144, “Accounting for theImpairment or Disposal of Long-Lived Assets.” FASB Statement No.144 retains FASB Statement No. 121’s “Accounting forthe Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed,”fundamental provisions for the: (1) recognition and measurement of impairmentof long-lived assets to be held and used; and (2) measurement of long-livedassets to be disposed of by sale.  FASBStatement No.  144 has not had amaterial impact on our financial position or results of operations, although itmay in future periods.  StatementNo.  144 is effective for fiscal yearsbeginning after December 15, 2001.

 

8

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

 

Thefollowing discussion and analysis of our financial condition and results ofoperations should be read in conjunction with the historical financialinformation included in the Consolidated Condensed Financial Statements.

 

**Results of Operations**

 

*Thirteen weeks ended March 26, 2001 and April 1, 2002:*

 

*Revenues. *Totalrevenues decreased slightly to $81.8 million in the first quarter of 2002 from$82.2 million in the first quarter of 2001. The 103 base same-store sales decreased by 3.1% in the first quarter of2002 compared to 2001. Significantly, of this unfavourable variance, customercounts accounted for only 0.3%; the introduction of more casual “value” itemson the dinner menu, which caused the average check to decline, accounted forthe balance of the decrease.  There were108 Black Angus restaurants operating as of April 1, 2002 and 105 Black Angusrestaurants operating as of March 26, 2001.

 

*Food and Beverage Costs.*  As a percentage of revenues, food andbeverage costs increased to 33.6% in the first quarter of 2002 from 33.0% inthe first quarter of 2001.  The increaserelates primarily to higher produce costs and the increase in the sales mix of“product promotional bundles” advertised on television.

 

*Payroll Costs.*  As a percentage of revenues, labor costs increased to 30.1% inthe first quarter of 2002 from 27.6% in the first quarter of 2001.  The increase is primarily from higherlabor-related costs for vacation, medical/dental, and employee incentives.

 

*Direct Operating Costs (restated): *Direct operating costs consist of occupancy,advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costsremained constant at 24.8% in the first quarter of 2002 and 2001.

 

*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 quarter of 2002 from 2.6% inthe first 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 expensesdecreased to $2.3 million in the first quarter of 2002 from $2.5 million in thefirst quarter of 2001.  The decrease isfrom continued reduction of corporate expenses.

 

*Operating Profit.*  As a result of the above items, operatingprofit decreased to $5.2 million in the first quarter of 2002 from $7.4 millionin the first quarter of 2001. As a percentage of revenues, operating profitdecreased to 6.4% in the first quarter of 2002 compared to 9.0% in the firstquarter of 2001.

 

*Interest Expense – Net.* Our interestexpense increased to $5.4 million in the first quarter of 2002 from $4.2million in the first 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 first quarter of 2001 ($142.6 million facevalue) at the same interest rate (11.5%).

 

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## **Liquidityand Capital Resources**

 

Ourprimary sources of liquidity are cash flows from operations and borrowingsunder our revolving credit facilities. We require capital principally for the acquisition and construction ofnew restaurants, the remodeling of existing restaurants, the purchase of new equipmentand leasehold improvements, and working capital. As of April 1, 2002, we hadapproximately $17.2 million of cash.

 

Ingeneral, restaurant businesses do not have significant accounts receivablebecause sales are made for cash or by credit-card vouchers, which areordinarily paid within three to five days. The restaurants do not maintain substantial inventory as a result of therelatively brief shelf life and frequent turnover of food products.Additionally, restaurants generally are able to obtain trade credit inpurchasing food and restaurant supplies. As a result, restaurants are frequently able to operate withworking-capital deficits, i.e., current liabilities exceed current assets.  At April 1, 2002, our working-capitaldeficit was $20.8 million.

 

Weestimate that capital expenditures of $3.0 million to $6.0 million are requiredannually to maintain and refurbish our existing restaurants.  Other capital expenditures, which aregenerally discretionary, are primarily for the construction of new restaurantsand for expanding, reformatting, and extending the capabilities of existingrestaurants and for general corporate purposes.  Total capital expenditures for continuing operations wereapproximately $0.8 million through the first half of 2002 and $0.2 millionthrough the half of 2001.  We estimatethat capital expenditures 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.

 

OnOctober 31, 2001, we completed an exchange offer (the “Exchange”) in which weoffered to exchange our 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“Old Notes”).  We simultaneouslycompleted an offering (the “Offering”) of $30,000,000 aggregate principalamount of New Notes.  After theconsummation of the Exchange, the Offering, and related transactions(collectively, the “Refinancing”), we have no further payment obligations withrespect to over 97.6% of the outstanding Old Notes (constituting all but$3,410,000 aggregate principal amount of the Old Notes) and assumed paymentobligations equivalent to $161,774,000 of the New Notes. The Refinancingsubstantially eliminates debt principal payments until November 2006.

 

The principal elements ofthe Refinancing were: (a) the Exchange (approximately $124 million aggregateprincipal amount of Old Notes were exchanged for approximately $132 millionaggregate principal amount New Notes); (b) the Offering (the issuance of $30million aggregate principal amount of New Notes); (c) the consent of theholders of our outstanding preferred stock to amend the terms of the preferredstock to provide that if we do not redeem the preferred stock for cash onAugust 15, 2003 in accordance with its terms, then the preferred stock willautomatically be redeemed for shares of our common stock at that time and allthe 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 April 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

 

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November 1 throughNovember 2006. Accordingly, we made an interest payment of $9,353,683 on May 1,2002.

 

We have an additional$2.7 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 April 1, 2002, we had approximately $8.5 million ofletters of credit outstanding and no borrowings, leaving approximately $6.5million remaining under the New Credit Facility. The New Credit Facilityexpires in December 2005.

 

TheCompany and its direct subsidiaries do not guaranty the debt of any otherparties.

 

TheCompany’s contractual obligations can be summarized as follows (in thousands):

 
| **Contractual Obligations**            |   | **Paid  in   Q1- 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** |   | $                       | 196    |                            | 18,800 |                             | 37,404 |                             | 37,208  |                            | 0       |                 | $      | 93,608 |   |
| **Long-Term  Debt-Other**              |   | $                       | 103    |                            | 299    |                             | 3,476  |                             | 161,867 |                            | 949     |                 | $      | 166,694 |   |
| **Capital  Leases**                    |   | $                       | 268    |                            | 809    |                             | 1,092  |                             | 464     |                            | 1,115   |                 | $      | 3,748 |   |
| **Operating  Leases**                  |   | $                       | 5,038  |                            | 12,047 |                             | 34,189 |                             | 28,528  |                            | 180,276 |                 | $      | 260,078 |   |
| **Employment  Agreements**             |   | $                       | 0      |                            | 500    |                             | 0      |                             | 0       |                            | 0       |                 | $      | 500 |   |
| **Total  Contractual Cash**            |   | $                       | 5,605  |                            | $      | 32,455                           |   | $                                | 76,161  |                            | $       | 228,067              |   | $ | 182,340 |   | $ | 524,628 |   |
|                                        |        |                         |        |                                 |        |                                  |        |                                  |         |                                 |         |                      |        |  |  |  |  |  |  |

 

Preferred stockdividends of 4,181 shares were issued on February 15, 2002.  There were 61,052 shares of preferred stockoutstanding and accrued at April 1, 2002. Our preferred stock is mandatorilyredeemable on August 15, 2003. If we do not redeem our preferred stock for cashat a price per share equal to 110% of the then-applicable liquidationpreference, our preferred stock will be automatically redeemed for shares ofour common stock at that time and all of the rights of the preferred stock willterminate. Management believes that the preferred stock will convert to commonstock.

 

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

 

Althoughwe are highly leveraged, based upon current levels of operations andanticipated growth, we expect that cash flows generated from operationstogether with our other

 

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availablesources of liquidity will be adequate to make required payments of principaland interest on our indebtedness, to make anticipated capital expenditures, andto finance working-capital requirements for the next several years. We do not,however, expect to generate sufficient cash flows from operations in the futureto pay fully the principal of the senior indebtedness upon maturity in 2006and, accordingly, we expect to refinance all or a portion of such debt, obtainnew financing, or possibly sell assets.

 

**RecentAccounting Pronouncements**

 

In June 2001, theFinancial Accounting Standards Board issued Statements of Financial AccountingStandards (SFAS) No. 141, “Business Combinations” and SFAS No. 142, “Goodwilland Other Intangible Assets.”  These newstandards are effective for fiscal years beginning after December 15,2001.  Under the new standards, goodwillis no longer amortized, but is subject to an annual impairment test.  The standards also promulgate newrequirements for accounting for other intangible assets.  The impact of the new standards on ourfinancial position and results of operations is not material.

 

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

 

**Critical Accounting Policies**

 

*Revenue Recognition. *We recognize revenue based upon sales to customers inour restaurants at the time that meals and related services are provided.  No revenue is recognized in advance ofservices being provided.  Because of thenature of our business, refunds on services provided are minimal andinfrequent.  The majority of sales arepaid for in cash or by major credit card and, therefore, collection risk forunpaid amounts is considered to be low. We sell gift certificates for use in our restaurants, but only recognizerevenue at the time the services are actually rendered.  We do not believe that there are otheracceptable methods of accounting for our revenue that would cause revenuerecognized in any particular period to be materially different than the amountsthat we have reported.

 

*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.

 

Webelieve that our financial statements are a reasonable representation of therealizable values of our assets, the level of our liabilities, and the amountsof revenues and expenses incurred in any given period.  There are estimates inherent in theseamounts.  We may not be able to recoverthe assumed value of all of our assets, such as property and equipment orintangible assets, if circumstances cause us to close restaurants or weexperience a decline in revenues.  Ouractual liabilities for matters, such as self-insurance or discontinuedoperations, could possibly be significantly higher or lower than our estimatesif actual conditions are ultimately different than the assumptions used indetermining the estimates.

 

*Leases*. We lease equipment and operating facilities under both capital andoperating leases.  In future periods,leases for similar equipment or facilities may not qualify

 

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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 $37.0 million and $34.1 million against the entire amount of ourdeferred tax assets as of the fiscal year-end 2000 and 2001, respectively. Thevaluation allowance was recorded given the losses we have incurred historicallyand uncertainties regarding future operating profitability and taxableincome.  Had we assumed that ourdeferred tax assets were fully realizable, a deferred tax benefit (provision)of $1,903,000, ($2,655,000), and $1,035,000 would have been recognized in the statement of operations for the fiscalyear-end 1999, 2000, and 2001, respectively.

 

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

 

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

 

Themarket risk of our financial instruments as of April 1, 2002 has not materiallychanged since December 31, 2001.  Themarket risk profile on December 31, 2001 is disclosed in our annual report onForm 10-K, File No. 33-48183, for the fiscal year ended December 31, 2001.

 

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

 

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

 

N/A

 

## **ITEM 5.**                     OTHER INFORMATION

 

N/A

 

**ITEM 6.****                     EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)           List of Exhibits

 

Exhibit No.             Description

 

99.1                         Certificate of ChiefExecutive 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:     November  14, 2002 | By:                              | /s/ Ralph S.  Roberts                  |   |
|                                                  |                             |                                   |   |
|                                                  |                             | Ralph S. Roberts                       |   |
|                                                  |                             | Chief Executive  Officer and President |   |
|                                                  |                             |                                   |
|                                                  |                             |                                   |   |
| Date:     November  14, 2002 | By:                              | /s/ William G.  Taves                  |   |
|                                                  |                             |                                   |   |
|                                                  |                             | William G. Taves                       |   |
|                                                  |                             | Chief Financial  Officer               |   |
|                                                       |                                  |                                        |  |  |

 

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

 

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CERTIFICATION

 

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

 

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