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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549

FORM 10-K

American Restaurant Group, Inc.
Exact name of registrant as specified in its charter

        Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part II of this Form 10-K or any amendments to this Form 10-K.     ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o    No ý

        The number of outstanding shares of the Registrant's Common Stock (one cent par value) as of March 1, 2004, was 102,442.

INDEX

ITEM 1. BUSINESS

Introduction

        The Company, through its subsidiaries, competes predominately in the midscale segment of the United States restaurant industry. (References to "the Company," "we," "us," and "our" refer to American Restaurant Group, Inc., a Delaware corporation.) The Company was formed on August 13, 1986 to acquire certain operations of Saga Corporation, a subsidiary of Marriott Corporation (the "Acquisition"). The Acquisition was completed in February 1987. (Prior to the completion of the Acquisition, the Company had no significant operations.)

        As of December 29, 2003, the Company had three wholly owned direct subsidiaries: ARG Enterprises, Inc., ARG Property Management Corporation, and ARG Terra, Inc. ARG Enterprises, Inc. is the parent to one wholly owned subsidiary, Black Angus Enterprises of Idaho, Inc.

        The only operating segment is Black Angus, which operates a western-style steakhouse specializing in steak and prime rib. We previously operated various restaurant chains. In June 2000, however, we sold all of the stock of four wholly owned subsidiaries (Grandy's, Inc., Spoons Restaurants, Inc., Spectrum Foods, Inc., and Local Favorite, Inc., collectively, the "Non-Black Angus Subsidiaries") to Spectrum Restaurant Group, Inc. ("SRG," formerly known as NBACo, Inc.; see discussion below in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the section captioned "Results of Operations" in the segment captioned "Loss from Discontinued Operations" and in Item 13, "Certain Relationships and Related Transactions").

Overview

        As of December 29, 2003, Black Angus operated 105 Stuart Anderson's Black Angus and Stuart Anderson's Cattle Company steakhouses located primarily in California, the Pacific Northwest, and Arizona. The chain was founded in Seattle in 1964. Black Angus restaurants are typically located in highly visible and heavily traveled areas in or near retail and commercial businesses, are freestanding, and range in size from 6,500 to 12,000 square feet, seating approximately 220 to 350 customers. Black Angus restaurants are distinctly Western in their design and feature booth seating for dining. They are generally open for lunch from 11:30 AM to 4:00 PM and for dinner from 4:00 PM to 10:00 PM.

        Black Angus developed a smaller restaurant prototype in 1995 that is approximately 6,700 square feet and offers a comparable number of dining seats as many of the larger restaurants. We opened 21 restaurants using the smaller prototype, including three, four, and one in the fiscal years 2000, 2001, and 2002, respectively. Black Angus developed an intermediate restaurant prototype in 2002 that is approximately 8,000 square feet. The first restaurant based on the intermediate prototype opened in September 2003. We intend to continue to expand Black Angus in existing and adjacent markets based on the smaller and intermediate prototypes.

Restaurant Operations

        Black Angus is functionally organized with separate operations, marketing, accounting/payroll, financial reporting/audit, finance/analysis, information systems, real estate/risk management, human resources/training, purchasing, and law departments.

        The Company's cash management system is highly sophisticated with controls down to the server level. Restaurants are required to make daily deposits of cash, and the Company uses a centralized cash-concentration system that sweeps all of its major cash accounts on a daily basis. Our central system for accounts payable and check-writing profiles approximately 3,000 vendors for the year ended December 29, 2003.

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        We use a combination of in-house and outside-contracted services for our information-system needs. In-house systems include a point-of-sale system for each restaurant and stand-alone processing at the restaurant and corporate levels. We contract for payroll services and for mainframe-based data processing.

        Each restaurant is staffed with a General Manager who is directly responsible for the operation of the restaurant, including product quality, cleanliness, service, inventory, cash control, and the appearance and conduct of employees. Each restaurant also has one or two restaurant Managers and a Chef. Managers and supervisory personnel train other restaurant employees in accordance with detailed procedures and guidelines.

        General Managers are supervised by District Managers, each of whom is responsible for approximately six restaurants. District Managers, General Managers, Managers, and Chefs are eligible for bonuses under an extra-compensation program that has goals and objectives based on the profitability, sales, and other factors relating to the restaurants. However, issuance of all bonuses or incentive pay is at management's discretion.

Purchasing and Distribution

        To ensure standards of quality and to maximize pricing efficiencies, a central purchasing department coordinates the supply of almost all restaurant items. We purchase products throughout the United States and abroad through agreements with various food-service vendors. None of our vendors supplies the Company exclusively and no material agreements exist. We routinely use public cold-storage facilities and make short-term commitments in order to establish the availability and price of key food items such as beef and seafood. We concentrate our distribution in order to achieve more favorable terms, but believe that we could replace any distributor, if necessary, on a timely basis.

Competition and Markets

        All aspects of the restaurant business are highly competitive. Price point, restaurant location, food quality, service, and attractiveness of facilities are important aspects of competition. The competitive environment is often affected by factors beyond a particular restaurant management's control, including changes in the public's taste and eating habits, population and traffic patterns, economic conditions, and changes in the political environment. Our restaurants compete with a wide variety of restaurants, ranging from national and regional restaurant chains to locally owned restaurants. Competition from other restaurant chains typically represents the more important competitive influence, principally because of their significant marketing and financial resources. Many of our competitors have substantially greater financial, marketing, personnel, and other resources than us. In addition, competition is not limited to a particular segment of the restaurant industry because fast-food restaurants, steakhouses, and casual-dining restaurants are all competing for the consumer's dining dollars. We believe that our principal competitive strengths lie in the distinctive atmosphere and food presentation offered; the value, variety, and quality of food products served; the quality and training of our employees; the experience and ability of management; and the economies of scale enjoyed by us because of our size and geographic concentration. We monitor consumer tastes and adjust and update our menus accordingly.

Employees

        As of December 29, 2003, we employed approximately 6,600 persons, of whom approximately 6,000 were hourly employees in restaurants, approximately 450 were salaried employees in restaurants (managers and chefs), and approximately 100 were hourly or salaried employees in corporate administration and management. Approximately 80% of our hourly restaurant employees work 35 hours

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or less per week. No facility is unionized. We believe we provide competitive compensation and benefits to our employees and that our employee relations are good.

Regulations

        Each restaurant is subject to licensing and regulation by state and local health, sanitation, safety, fire, and other departments. In addition, each restaurant is subject to licensing with respect to the sale of alcoholic beverages. The loss of licenses or permits by our restaurants to sell alcohol would interrupt or terminate our ability to serve alcoholic beverages at those restaurants and, if a significant number of restaurants were affected, could have a material adverse effect on us. We believe we have good relations with the various authorities regulating our sale of alcoholic beverages.

        We are subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime, and other working conditions. Many of our restaurant employees are paid at rates related to the federal and state minimum-wage rates. Accordingly, increases in the minimum wages increase our labor costs.

Service Marks

        We regard our service marks and trademarks as important to the identification of our restaurants and believe they have significant value in the conduct of our business. We have registered various service marks and trademarks with the United States Patent and Trademark Office. In addition, we have registered certain marks in various foreign countries.

Seasonality

        Our restaurant revenues and profitability are not subject to significant seasonal fluctuations.

Available Information

        We file annual reports on form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to these reports, and other information with the Securities and Exchange Commission ("SEC"). The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

ITEM 2. PROPERTIES

        The following table sets forth, as of December 29, 2003, the number of properties owned or leased by the Company and operated as a Stuart Anderson's Black Angus or Stuart Anderson's Cattle Company restaurant:

        All but one of our restaurants are freestanding. Our restaurants generally range from 6,500 to 12,000 square feet. Most of our restaurant leases provide for the payment of the greater of a set base rental or a percentage rental of up to 6% of gross revenues, plus property taxes, insurance, and other expenses.

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        We lease the land for a new restaurant to be developed in Arizona. We lease office space for our corporate and Black Angus headquarters in Los Altos, California. We also lease office space in Santa Ana, California and Folsom, California.

        We lease the land and building at two properties in Indiana, one in Arizona, and one in Oregon where we discontinued operations in 2003. We expect to terminate those leases or sublet the properties.

        The following table sets forth, as of December 29, 2003, the number of Black Angus restaurants by state of operation:

ITEM 3. LEGAL PROCEEDINGS

        We are involved in various claims and litigation matters incidental to our business, including claims arising out of personal injuries, employment practices, workers' compensation cases, and contract lawsuits. The claimants sometimes assert substantial damages. Based on information presently available, management does not believe that the outcome of such claims and litigation will have a material adverse effect on our financial position, business, results of operations, or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

        No matters were submitted to a vote of the common stockholders of the Company in the fourth quarter of 2003.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common Stock

        As of December 29, 2003, there were ten holders of record of the 102,442 outstanding shares of the Company's common stock. We have never paid dividends to common stockholders and have no plans to do so. There is currently no market for the Company's common stock, nor is such anticipated in the near future.

        Effective October 15, 2003, the Company amended its Certificate of Incorporation to implement a reverse stock split of the shares of the Company's common stock on a proportionate one-for-one million basis.

Preferred Stock

        Preferred stock dividends of our mandatorily redeemable 12% pay-in-kind exchangeable preferred stock of 4,832 shares were issued on February 15, 2003 and 5,194 shares on August 15, 2003. There were 74,448 shares of preferred stock outstanding on August 15, 2003. We converted all of our preferred stock on August 15, 2003 at the 110% liquidation preference to shares of our common stock and warrants to acquire additional shares of our common stock. The shareholders of the preferred stock received for each share of preferred stock 11.71 shares of common stock and a warrant. Each warrant, upon exercise with an exercise price of zero, represented 1,376,000 shares of common stock. Rights to exercise these warrants expired December 15, 2003. Upon the August 15, 2003 conversion to common stock, all rights of the preferred stock terminated.

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ITEM 6. SELECTED FINANCIAL DATA

        The following selected historical consolidated financial data for the fiscal year-end 2003 should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the consolidated financial statements and notes thereto included elsewhere in this Form 10-K. The selected financial data for the fiscal years ended 2001, 2002, and 2003 is derived from the audited consolidated financial statements of the Company. The consolidated financial statements for fiscal years ended 1999 and 2000 are unaudited.

(a)

Each of the 1999 and 2000 fiscal years is unaudited.

(b)

The 2001 fiscal year includes 53 weeks.

(c)

Continuing operations is defined as American Restaurant Group, Inc. and its current subsidiaries, excluding the Non-Black Angus Subsidiaries, and excludes the provision for income taxes.

(d)

Discontinued operations refers to the Non-Black Angus Subsidiaries.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The information set forth below should be read together with the Company's consolidated financial statements and related notes appearing elsewhere in this report.

Results of Operations

Fiscal Years Ended December 31, 2001, December 30, 2002, and December 29, 2003:

        Revenues.    Black Angus revenues were $301.8 million in 2001, $295.3 million in 2002, and $276.6 million in 2003. Compared to 2001, same-store sales for 2002 were 2.7% lower with 1.8% of the decline from lower customer counts and 0.9% from a lower average check. The 6.3% revenue decline from 2002 to 2003 was primarily the result of a 6.2% decline in same-store sales and a 0.7% decline resulting from the closure of 5 restaurants. These factors were partially offset by the contribution of new restaurants opened in 2002 and 2003, which provided 0.4% additional revenue in 2003. Higher-average food checks provided 0.4% additional revenue in 2003. Other factors caused a 0.2% decrease in 2003. For 2003 on a quarterly basis compared to the corresponding quarter in 2002, dinner counts declined 13.7% in the first quarter, 5.2% in the second quarter, 2.7% in the third quarter, and 1.2% in the fourth quarter. There were 107, 109, and 105 restaurants operating at the end of 2001, 2002, and 2003, respectively.

        Food and Beverage Costs.    As a percentage of revenues, food and beverage costs were 33.6% in 2001, 32.9% in 2002, and 33.9% in 2003. The decrease in 2002 relates primarily to savings resulting from continuing improvement in the cutting of steaks at each restaurant. The increase in 2003 was the result of higher beef costs, which were initiated by the discovery in Canada of a cow infected with BSE (Bovine Spongiform Encephalopathy) in May 2003. For all of 2003, beef costs increased 10.9% compared to 2002. Most of the increase in 2003 was experienced from May through December 2003.

        Payroll Costs.    As a percentage of revenues, labor costs were 29.1% in 2001, 30.3% in 2002, and 31.8% in 2003. The increase in 2002 was primarily the result of state minimum-wage increases. Payroll costs were $1.8 million lower in 2003 compared to 2002. The 2003 change in payroll costs both in terms of total dollars and as a percentage is the result of the year-over-year decrease in revenues.

        Direct Operating Costs.    Direct operating costs consist of occupancy, advertising, and other expenses incurred by individual restaurants. As a percentage of revenues, these costs were 24.5% in 2001, 24.4% in 2002, and 24.3% in 2003. The $1.7 million decrease and 0.1% reduction in 2002 was the result of a decrease in advertising costs. The $4.9 million decrease and 0.1% reduction in 2003 was the result of lower advertising costs in connection with a planned reduction in spending on TV product promotions, as well as the shift away from the use of outside janitorial services.

        Depreciation and Amortization.    Depreciation and amortization consists of depreciation of fixed assets used by individual restaurants and at the Company's Black Angus and corporate offices, as well as amortization of intangible assets. As a percentage of revenues, depreciation and amortization was 2.9% in 2001, 2.5% in 2002, and 2.6% in 2003.

        General and Administrative Expense.    General and administrative expense was 3.5%, 3.5%, and 3.8% of revenues for 2001, 2002, and 2003, respectively. In 2003, general and administrative expense increased $0.4 million from 2002, principally because of higher audit fees incurred in connection with the audit and related restatement conducted early in 2003, which more than offset reductions in corporate overhead.

        Change in Estimate of Gift-Certificate Liability.    At the end of 2002, we discontinued sales of paper gift certificates and began issuing electronic gift cards. During 2003, we recorded a charge of

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$2.9 million in connection with revising our estimated liability for paper gift-certificate redemptions. The additional data captured throughout 2003 facilitated better assessment of historical redemption patterns and improved the Company's ability to better estimate its liability for future redemptions of unredeemed paper gift certificates. From the analysis of the additional data and refined actuarial development projections, we ascertained that the tail of expected redemptions is longer than was previously estimated. We adjusted our reserves accordingly.

        Asset Impairment, Store Closures.    During 2003, we recorded a total of $9.4 million in charges related to the asset impairment and store closures of certain under-performing restaurants. Five restaurants were closed and two were impaired. $2.0 million in expense was recognized in connection with the impairment of the net book value of the assets for these locations. The assets consist of leasehold improvements, fixtures, and equipment. As of December 29, 2003, we had $7.0 million in reserves related to the future lease costs of closed locations that will be payable through 2023.

        SRG Group Bankruptcies.    During 2003, we recorded a charge of $8.5 million related to the SRG Group (defined in Item 13, below) bankruptcies for anticipated claims against us for the SRG Group obligations, including claims for obligations under certain leases rejected by the SRG Group through bankruptcy procedures. As of December 29, 2003, we had $7.9 million in reserves related to future obligations in connection with the SRG Group bankruptcies. Management is uncertain as to when payments will be made to satisfy claims that have been or may be asserted against the Company.

        Costs of Note Exchange.    We recognized a one-time charge of approximately $5.5 million in 2001. There was no similar activity recorded in 2002 or 2003. The exchange of our Old Notes (defined in the following section captioned "Liquidity and Capital Resources") for our New Notes (defined in the following section captioned "Liquidity and Capital Resources") was a transaction involving instruments that were substantially the same in the present value of their cash flows. As a result, the costs associated with the exchange were expensed as incurred. We incurred additional costs associated with the issuance of the New Notes, which costs have been capitalized and are being amortized over the term of the New Notes.

        Operating Profit/(Loss).    As a result of the items discussed above, operating profit was $13.9 million in 2001, operating profit was $18.8 million in 2002, and operating loss was $(10.9) million in 2003. $17.9 million of the difference from 2002 to 2003 relates to the reserves established for the SRG Group bankruptcies and the impairment of closed restaurants.

        Loss on Debt Extinguishment.    We prepaid $15.2 million of principal on October 31, 2001 and recorded a $0.4 million loss to write off the related unamortized deferred financing costs. We had no similar activity in 2002 or in 2003.

        Interest Expense, Net.    Interest expense was $18.0 million in 2001, $21.7 million in 2002, and $21.6 million in 2003. Borrowings (excluding capitalized lease obligations) were $157.7 million net of unamortized discount of $9.0 million in 2001, increased to $159.2 million net of unamortized discount of $7.2 million in 2002, and then increased to $168.7 million net of unamortized discount of $5.3 million in 2003. The increase in 2002 related to an increase in notes issued in 2001. The increase in 2003 was a result of borrowings under our credit facilities, partially offset by the redemption of $3.4 million in Old Notes in February 2003.

        Provision for Income Taxes.    Our provision for income taxes was $70,000 in 2001, $48,000 in 2002, and $10,000 in 2003. The tax provision against our pre-tax income in 2001, 2002, and 2003 consisted of liabilities for certain state income taxes and estimated federal income tax. The Company fully reserves against net-operating-loss carry forwards because sufficient doubt exists regarding the Company's ability to use the carry forwards before expiration.

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        Loss from Discontinued Operations.    The following chart summarizes the calculation of the net loss for discontinued operations of the Non-Black Angus restaurants for the fiscal year 2002 related to liabilities associated with the stock sale in 2000 of our former subsidiaries. There was no activity in the discontinued operations in 2001 or 2003.

Liquidity and Capital Resources

        The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. Our Company is highly leveraged. We have historically used cash flow from operations together with other liquidity sources to make required payments. As of December 29, 2003, we had no further availability under our New Credit Facility (defined below in this section), no further availability under our Junior Credit Facility (defined below in this section), and $2.1 million in cash on hand. Our Company has suffered recurring losses from operations, has a negative working-capital balance of $41.3 million, and has a net capital deficiency of $153.4 million as of December 29, 2003 that raise substantial doubt about our ability to continue as a going concern. We are currently evaluating alternatives for restructuring our overall outstanding debt and the associated interest rate. We do not, however, expect to generate sufficient cash flows from operations in the future to fully meet all of our senior debt obligations. Accordingly, we will need to refinance all or a portion of such debt, obtain new financing, or possibly sell assets. There can be no assurance that any such plans will be successful or that future financing will be available or, if available, at a cost that is acceptable to us.

        Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities. We require capital principally for the acquisition and construction of new restaurants, the remodeling of existing restaurants, and the purchase of new equipment and leasehold improvements. As of December 29, 2003, we had approximately $2.1 million of cash.

        In general, restaurant businesses do not have significant accounts receivable because sales are made for cash or by credit-card vouchers, which are ordinarily paid within three to five days. Our receivables are primarily from vendor rebates and credit-card transactions. The restaurants do not maintain substantial inventory as a result of the relatively brief shelf life and frequent turnover of food products. Additionally, restaurants generally are able to obtain trade credit in purchasing food and restaurant supplies. As a result, restaurants are frequently able to operate with working capital deficits, i.e., current liabilities exceed current assets. As of December 29, 2003, our working capital deficit was $41.3 million.

        We estimate that capital expenditures of $2.0 million to $5.0 million are required annually to maintain and refurbish our existing restaurants. Other capital expenditures, which are generally discretionary, are primarily for the construction of new restaurants, for expanding, reformatting, and extending the capabilities of existing restaurants, and for general corporate purposes. Total capital expenditures for continuing operations were $3.8 million in 2001, $3.5 million in 2002, and $6.5 million in 2003. Included in these amounts are expenditures for new restaurants of $1.5 million in 2001, $1.1 million in 2002, and $2.4 million in 2003. We estimate that capital expenditures in 2004 will be approximately $3.0 million. When we open new restaurants, we intend to do so with small capital investments and to finance most of the expenditures through leases.

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        In 2001, we completed an 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 $142.6 million outstanding 11¹/2% Senior Secured Notes due 2003 (the "Old Notes"). We simultaneously completed an offering (the "Offering") of $30.0 million aggregate principal amount of New Notes. After the consummation of the Exchange, the Offering, and related transactions (collectively, the "Refinancing"), we had no further payment obligations with respect to over 97.6% of the outstanding Old Notes (constituting all but $3.4 million aggregate principal amount of the Old Notes, which we redeemed in full on February 18, 2003) and assumed payment obligations equivalent to $161.8 million of the New Notes. The Refinancing substantially eliminates debt principal payments until November 2006.

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

        None of the Old Notes were outstanding at December 29, 2003. Under the Old Notes, we were obligated to make semiannual interest payments on February 15 and August 15 through February 2003. Accordingly, we made the last interest payment of $0.2 million on February 18, 2003.

        Under the New Notes, we are obligated to make semiannual interest payments on May 1 and November 1 through November 2006. Accordingly, we made interest payments of $9.3 million on May 5, 2003 and November 3, 2003.

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

        In 2001, we entered into a loan agreement with Wells Fargo Foothill, Inc. (then known as Foothill Capital Corporation) for a new revolving credit facility (the "New Credit Facility"). The New Credit Facility presently provides for cash borrowings and letters of credit in an aggregate amount of $15.0 million. The New Credit Facility provides for an unused line fee payable monthly in arrears, fees payable on outstanding letters of credit, as well as certain additional fees. Borrowings under the New Credit Facility bear interest at the prime rate announced by Wells Fargo Bank, National Association plus 1.5%. The New Credit Facility terminates in December 2005. As of December 29, 2003, we had $8.9 million of letters of credit outstanding, primarily related to our self-insurance program, and $6.1 in cash borrowings on our revolver. The New Credit Facility includes certain restrictive covenants, including a requirement to maintain certain financial ratios. On March 26, 2004, within the Amendment No. 5 to the loan agreement, we obtained a waiver from our lender related to our failure to maintain certain financial covenants for the fiscal quarter ended December 29, 2003. We are working with our lender to negotiate modifications to our financial covenants. There can be no assurance that such negotiations will be successful or that we will not need to request additional waivers going forward.

        Preferred stock dividends of our mandatorily redeemable 12% pay-in-kind exchangeable preferred stock of 4,832 shares were issued on February 15, 2003 and 5,194 shares on August 15, 2003. There were 74,448 shares of preferred stock outstanding on August 15, 2003. We converted all of our preferred stock on August 15, 2003 at the 110% liquidation preference to shares of common stock and

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warrants to acquire additional shares of common stock. The shareholders of the preferred stock received for each share of preferred stock 11.71 shares of common stock and a warrant. Each warrant, upon exercise, represented 1,376,000 shares of common stock. Rights to exercise these warrants expired December 15, 2003. Upon the August 15, 2003 conversion to common stock, all rights of the preferred stock terminated.

        On October 31, 2003, we entered into a loan agreement for a junior credit facility ("Junior Credit Facility") with TCW Shared Opportunity Fund III, L.P., an entity related to a group of funds that constitute the majority shareholder group. We received proceeds of $4.6 million net of fees and costs. The Junior Credit Facility bears an interest rate of 13% per annum. The Junior Credit Facility expires in February 2006, and shares in a first-priority lien on all assets.

        American Restaurant Group, Inc. and its subsidiaries do not guaranty the borrowings of any other parties outside the consolidated group, but have contingent obligations under certain contracts and leases, including those connected to operations sold to the SRG Group (see Item 13).

        Our contractual obligations (principal and interest) can be summarized as follows (dollars in thousands):

        Preferred stock dividends of 4,832 shares were issued on February 15, 2003 and 5,194 shares on August 15, 2003. There were 74,448 shares of preferred stock outstanding on August 15, 2003. We converted all of our preferred stock on August 15, 2003 at the 110% liquidation preference to shares of our common stock and warrants to acquire additional shares of our common stock. Upon the August 15, 2003 conversion to common stock, all rights of the preferred stock terminated.

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

Recent Accounting Pronouncements

        In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement No. 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment of FASB Statement No. 13 and Technical Corrections" ("SFAS 145"). SFAS 145 requires gains and losses on the extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement of Financial Standards No. 4, "Reporting Gains or Losses from the Extinguishment of Debt" ("SFAS 4"). Extraordinary treatment will be required for certain extinguishments as provided in Accounting Principles Board Opinion No. 30,"Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB 30"). SFAS 145 also amends Statement of Financial Accounting Standards No. 13, "Accounting for Leases" ("SFAS 13"), to require certain modifications to capital leases to be treated as a sale/leaseback and modifies the accounting for subleases when the original lessee remains a secondary obligor (or guarantor). SFAS 145 is effective for

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financial statements issued after May 15, 2002 and with respect to the impact of the reporting requirements of changes made to SFAS 4 for fiscal years beginning after May 15, 2002. In accordance with the adoption of this standard, our loss from extinguishment of debt has been classified as loss from continuing operations rather than as an extraordinary item.

        In January 2003, the FASB issued FASB Interpretation Number ("FIN") 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which was subsequently revised in December 2003 ("FIN 46R"). FIN 46R requires a variable-interest entity to be consolidated by a company if that company is the primary beneficiary of the entity. A company is a primary beneficiary if it is subject to a majority of the risk of loss from the variable-interest entity's activities, entitled to receive a majority of the entity's residual returns, or both. FIN 46R also requires disclosures about variable-interest entities that a company is not required to consolidate but in which it has a significant variable interest. FIN 46R was applicable immediately to variable-interest entities created after January 31, 2003, and will be effective for all other existing entities in financial statements for periods ending after March 15, 2004. We have no material interest in any variable-interest entity, and do not expect the full adoption of FIN 46R to have a material impact on our consolidated financial condition or results of operations.

        In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150"), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Financial instruments that are within the scope of the statement, which instruments previously were often classified as equity, must now be classified as liabilities. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on our consolidated balance sheet or consolidated statement of operations.

        In December 2003, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition" ("SAB 104"), which supersedes SAB No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). The primary purpose of SAB 104 is to rescind accounting guidance contained in SAB 101 related to multiple-element revenue arrangements, superseded as a result of Emerging Issues Task Force ("EITF") Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." Additionally, SAB 104 rescinds the SEC's "Revenue Recognition in Financial Statements Frequently Asked Questions and Answers" (the "FAQ") issued with SAB 101 that had been codified in SEC Topic 13, "Revenue Recognition." Selected portions of the FAQ have been incorporated into SAB 104. The adoption of SAB 104 did not have an impact on our consolidated balance sheet or consolidated statement of operations.

        In November 2002, EITF reached a consensus on Issue No. 00-21. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 did not have a material impact on our consolidated balance sheet or consolidated statement of operations.

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." There is no material impact on our consolidated balance sheet or consolidated statement of operations, except as discussed in Item 13 and Note 9.

Critical Accounting Policies

        Revenue Recognition.    We record revenue from the sale of food, beverage, and alcohol as products are sold. We record proceeds from the sale of a gift card or gift certificate in current liabilities and

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recognize income when a holder redeems a gift card or gift certificate. We recognize unredeemed gift cards and gift certificates as revenue only after such a period of time indicates, based on our Company's historical experience, the likelihood of redemption is remote.

        Use of Estimates.    The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

        We believe that our financial statements are a reasonable representation of the realizable values of our assets, the level of our liabilities, and the amounts of revenues and expenses incurred in any given period. There are estimates inherent in these amounts. If circumstances cause us to close restaurants or we experience a decline in revenues, we may not be able to recover the represented value of all of our assets, such as property and equipment or intangible assets. Our actual liabilities for matters, such as self-insurance, gift certificates, or the SRG Group bankruptcies, could possibly be significantly higher or lower than our estimates if actual conditions are ultimately different than the assumptions used in determining the estimates.

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

        Valuation Allowance for Deferred Tax Assets.    We provided a valuation allowance of $44.4 million and $56.0 million against the entire amount of our net deferred tax assets as of fiscal year-end 2002 and 2003, respectively. The valuation allowance was recorded given the losses we have incurred historically and uncertainties regarding future operating profitability and taxable income.

        Long-Lived Assets.    We periodically review for impairment the carrying value of our long-lived assets. We assess the recoverability of the assets based on the estimated undiscounted cash flows of the assets. If impairment is indicated, we write down the assets to fair market value based on discounted cash flows. We periodically review each restaurant property and determine which properties may be considered for closure. This determination is made based on poor operating results, deteriorating property values, and other factors. In addition, we periodically review all restaurants with negative cash flows for impairment. We assess the recoverability of the assets based on the restaurant's estimated, future, undiscounted cash flows. If impairment is indicated, we write down the assets to fair market value based on discounted cash flows. In 2002, no restaurants were impaired. In 2003, five restaurants were closed and two were impaired.

        Advertising Costs.    Advertising costs are expensed either as incurred or the first time the advertising takes place, in accordance with Statement of Position 93-7, "Reporting of Advertising Costs."

        Self-Insurance Reserves.    We self-insure certain risks, including medical, workers' compensation, property, and general liability, up to varying limits. Deductible and self-insured retention limits have varied historically, ranging from $0 to $1,000,000 per incident depending on the type of risk. Our policy deductible is $125,000 for annual medical and dental benefits per person. Reserves for losses are established on a claims-made basis plus an actuarially determined provision for incurred-but-not-reported claims and the deductible or self-insured retention in place at the time of the

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loss. The self-insured reserves are reported on the consolidated balance sheet under Self-insurance reserve.

Impact of Inflation

        Although inflationary increases in food, labor, or operating costs could adversely affect operations, we generally have been able to offset increases in cost through price increases, revisions to our labor scheduling, and other management actions.

Forward-looking Statements

        Certain statements contained in this Form 10-K are forward-looking regarding cash flows from operations, restaurant openings, capital requirements, and other matters. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business conditions, the impact of competition, governmental regulations, and inflation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

        We are exposed to market risk from changes in interest rates on debt and changes in commodity prices. We generally are not exposed to market risks related to fluctuations in interest rates because our New Notes are at fixed rates. Changes in interest rates affect the fair market value of fixed-rate debt, but not the Company's earnings or cash flows.

        Interest-rate risk and changes in fair market value would not have a significant impact on our fixed-rate debt until we undertake a refinancing.

        We are exposed to market risks related to fluctuations in interest rates on short-term borrowings on our New Credit Facility. Loan amounts of $6.1 million were outstanding as of December 29, 2003.

        Changes in interest rates do not affect interest expense on our Junior Credit Facility, which has a fixed rate of interest.

        We do not utilize interest-rate swaps, forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments. We do not believe future market-rate risks will materially affect us or our future operating results. A change in interest rates, however, could have an impact when we refinance.

        Many of the food products purchased by us are affected by commodity pricing and are, therefore, subject to unpredictable price volatility. These commodities are generally purchased based upon market prices established with vendors. The purchase arrangement may contain contractual features that limit the price paid by establishing certain floors and caps. We do not use financial instruments to hedge commodity prices because our purchase arrangements help control the ultimate cost paid. Changes in commodity prices could affect the Company adversely. We expect that in most cases sustained increases in commodity prices could be passed through to our consumers via increases in menu prices. Circumstances could limit our ability to change pricing, in which case margins would be negatively affected by increased commodity prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        See the Index to Consolidated Financial Statements on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

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ITEM 9A. CONTROLS AND PROCEDURES

        As of the end of the period covered by this Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including out Chief Executive Officer along with our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer along with our Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in our periodic SEC filings. There have been no significant changes in our internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

        The following table sets forth certain information about our current directors and each of our executive officers and key management personnel:

        Officers are elected by the Board of Directors and serve at the discretion of the Board.

        George G. Golleher.    Mr. Golleher was elected as a Director in 1998 and as Chairman of the Board in 2000. Mr. Golleher also serves as Chairman of the Company's audit committee. Mr. Golleher serves as Chief Executive Officer and as a Director of Simon Worldwide, Inc., and as a Director of Rite Aid Corporation. He is also a consultant and private investor. He previously served as President and Chief Operating Officer and as a Director of Fred Meyer, Inc. from May 1998 to June 1999. Prior to that, Mr. Golleher was the Chief Executive Officer and a Director of Ralph's Grocery Company from June 1995 until its merger with Fred Meyer, Inc. in May 1998. Mr. Golleher was a Director of Food 4 Less Supermarkets, Inc. since its inception in 1989 and was the President and Chief Operating Officer of Food 4 Less Supermarkets, Inc. from January 1990 until its merger with Ralph's.

        Ralph S. Roberts.    Mr. Roberts became the Chief Executive Officer in 2000. He has served as a Director since 1991 and has served as the President and Chief Operating Officer since 1986. Mr. Roberts has over 30 years of experience in the restaurant industry. Before joining us, he was Deputy Group Executive of Operations of the Grace Restaurant Group and Vice President of W.R. Grace & Co. ("Grace"). Prior to joining Grace in 1980, he was Vice President of the Stouffer Restaurant Division and President and co-founder of the Rusty Scupper restaurants. Mr. Roberts received a B.A. from Princeton University.

        Patrick J. Kelvie.    Mr. Kelvie has served as our General Counsel since 1987 and our Secretary since 1989. Mr. Kelvie became a Vice President in 1998 and Treasurer in 2000. Mr. Kelvie was elected as a Director in March 2004. From 1987 to 1989, Mr. Kelvie was an Assistant Secretary. Between 1978 and 1987, Mr. Kelvie held various legal counsel positions for Saga Corporation, predecessor owner of Black Angus. Mr. Kelvie received an A.B. from the University of California at Berkeley and a J.D. from Harvard Law School.

        William G. Taves.    Mr. Taves joined the Company in the spring of 2002 to serve as the Chief Financial Officer and Assistant Secretary. Before joining the Company, Mr. Taves was the Chief Financial Officer of Encore Software, Inc., a corporation that filed for protection to reorganize under Chapter 11 of the Federal bankruptcy laws in 2002. Mr. Taves served at Encore Software, Inc. from 1998 to 2002. Prior to that, Mr. Taves was Controller at Color Me Mine, Inc. and Jose Eber, Inc., following a position as Assistant Controller at California Pizza Kitchen, Inc. Preceding that, Mr. Taves was a Senior Auditor at Phillips, Rosen & Co. CPA's, where he served from 1989 to 1993. Mr. Taves has a B.S. in Accounting from Arizona State University and is a Certified Public Accountant.

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ITEM 11. EXECUTIVE COMPENSATION

        The following table sets forth the cash compensation for services rendered in all capacities that the Company paid to, or accrued for, the Chief Executive Officer and each of the executive officers.

SUMMARY COMPENSATION TABLE

(a)

Amounts shown in this column include group term life insurance premiums for Mr. Roberts.

(b)

Amounts shown in this column include auto allowances. Amounts also include Company matching contributions to a 401(k) plan for Mr. Kelvie and housing expense for Mr. Taves.

(c)

We had two executive officers in 2001.

(d)

Amounts shown for 2002 are for a partial year.

Employment Agreements

        The following table sets forth, with respect to any executive officer who has entered into an employment agreement with the Company, the base salary together with the termination date of such agreement:

        We have entered into an employment agreement with Ralph S. Roberts, our Chief Executive Officer and President. The agreement provides, among other things, for adjustments to his base salary and automatic extension of the agreement. The agreement also provides for certain other benefits, including a maximum of one year's pay in the event of death and salary for the remainder of the calendar year in the event of disability. The employment agreement provides for payment until the earlier of six months or the end of the employment term if Mr. Roberts terminates his employment for cause, but does not provide for any salary in the event we terminate him for cause.

        In addition, we entered into a consulting agreement with George G. Golleher, Chairman and Director. The agreement provides for monthly payments for consulting services and expenses. We paid a total amount of $348,000 for the period from December 31, 2002 through December 29, 2003. The

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consulting agreement automatically extends, but is terminable without cause by either party upon 90 days' notice.

Employee Loans

        Pursuant to a loan commitment made predating the Sarbanes-Oxley Act of 2002, we made a relocation loan to Mr. Taves. As of December 29, 2003, the loan remained outstanding with a balance of $147,500.

Savings Plan

        The American Restaurant Group Savings and Investment Plan (the "Savings Plan") is our 401(k) plan established for the benefit of employees who satisfy certain requirements. These requirements include being 21 or older and completion of one year of service with a minimum of 1,000 hours worked. Subject to applicable limits imposed on tax-qualified plans, eligible employees may elect pre-tax contributions up to 20.0% of a participant's total earnings for a calendar year (but not in excess of $12,000 for 2003). Until January 2003, the Company made matching contributions to the Savings Plan equal to 25% of the participant's contributions up to 6% of the participant's earnings. A participant is entitled to a distribution from the Savings Plan upon termination of employment and any such distribution will be in a lump-sum form. Distributable benefits are based on the value of the participant's individual account balance that is invested at the direction of the participant in one or a combination of six investment funds, none of which include investments in the Company. Under certain circumstances, a participant may borrow amounts held in his account under the Savings Plan. Based upon the Savings Plan vesting schedule, as of 2003, 100% of the Company matching contributions were vested for Mr. Kelvie.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information regarding the beneficial ownership of our common stock (as if all outstanding warrants were exercised), as of December 29, 2003, by (i) each of our directors, (ii) our Chief Executive Officer and certain other highly compensated executive officers, (iii) all executive officers and directors as a group, and (iv) each person believed to own beneficially more than 5% of our outstanding common stock.

(a)

Gives effect to the exercise of all outstanding warrants.

(b)

Mr. Stevens resigned as a Director in February 2004. Does not include shares deemed to be beneficially owned by Jefferies & Company, Inc.

(c)

Including TCW Shared Opportunity Fund II, L.P., TCW Shared Opportunity Fund III, L.P., TCW Leveraged Income Trust II, L.P., TCW Shared Opportunity Fund IIB, LLC, and TCW Leveraged Income Trust, L.P.

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Securityholders' Agreement

        In connection with the February 1998 recapitalization plan, each of Holdings, the Management Shareholders, Jefferies & Company, Inc. ("Jefferies"), and TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income Trust, L.P., Brown University, and TCW Shared Opportunity Fund IIB, LLC (collectively, the "TCW Investors"), and TCW Asset Management Company entered into a securityholders' agreement concerning the Company (the "Securityholders Agreement"). The Securityholders Agreement provided that each of the parties would agree to vote all of its shares of the Company's equity securities so that the composition of the Company's Board of Directors consisted of five members, two of whom would be management nominees, two of whom would be nominees of the TCW Investors, and one of whom, the remaining director, would be an independent director designated by Jefferies; provided that after the date that is 45 days after the date upon which underwritten primary public offerings of common stock of the Company pursuant to effective registration statements under the Securities Act have resulted in 35% of the Company's common stock (measured on a fully diluted basis after giving effect to such offerings) being sold to the public and in the Company's common stock being listed for trading on any of the New York Stock Exchange, the Nasdaq National Market, or the American Stock Exchange, the TCW Investors and management would mutually choose the remaining director and Jefferies would no longer have any right to designate a director.

        The Securityholders Agreement also provided that (i) in the event that American Restaurant Group Holdings, Inc. ("Holdings") sold or transferred any of its shares of the Company's equity securities, directly or indirectly, TCW Investors would have the option to include its Company equity securities in such sale or transfer on the same terms as Holdings' sale or transfer, (ii) TCW investors would have a right of first refusal with respect to any sale of equity securities by the Company or a party to the Securityholders Agreement (other than Management Shareholders) to purchase the equity securities being sold; and (iii) TCW Investors would have the nontransferable right to approve certain major corporate transactions concerning the Company, including mergers and consolidations, sales of any capital stock of the Company's subsidiaries, a sale of a material amount of the assets and properties of the Company, transactions with affiliates, and amendments to the Company's Certificate of Incorporation and Bylaws. In addition, the Securityholders Agreement provided that certain of the TCW Investors' purchasers would receive payments from the Company with respect to withholding obligations as a result of their ownership of the preferred stock, which amount shall not exceed $125,000 per year. The Company made no such payments in 2003.

        The Securityholders Agreement was terminated by agreement in December 2003.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        On June 28, 2000, we sold all of the outstanding stock of the Non-Black Angus Subsidiaries to SRG, a company that is controlled by Anwar S. Soliman, a former Company executive, Director, and significant shareholder of our common stock. There was no gain or loss recorded 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 and liabilities to SRG. Concurrent with the sale, advances between us and the Non-Black Angus Subsidiaries were eliminated. Paid-in capital of $27.0 million was charged as a result of the sale. We retained the assets and liabilities associated with certain closed restaurants as well as certain liabilities, estimated on June 26, 2000 at $12.6 million, associated with the Non-Black Angus Subsidiaries.

        We satisfied our obligations to pay such liabilities. In 2003, we entered into an agreement with SRG that documented reimbursement, assumption, and indemnification obligations by SRG of remaining liabilities related to the Non-Black Angus Subsidiaries.

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        On August 6, 2003, SRG and each of its subsidiaries (collectively, the "SRG Group") each filed in United States Bankruptcy Court a voluntary petition for bankruptcy and reorganization under Chapter 11. The Company recorded a reserve of $8.5 million in 2003 in connection with possible claims arising from the SRG Group bankruptcies. Third parties have asserted claims against the Company and its subsidiaries for the SRG Group obligations, including claims for obligations under certain leases rejected by the SRG Group through bankruptcy procedures. Of the reserve held as of December 29, 2003, $3.5 million is comprised of estimated lease obligations that are in arrears or due within the next twelve months. Management is uncertain, however, as to when payments will be made to satisfy claims that have been or may be asserted against the Company.

        The changes in the SRG Group bankruptcies reserve during the 52 weeks ended December 29, 2003 are as follows (dollars in thousands):

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

        The following table presents fees for professional audit and audit-related services rendered by PricewaterhouseCoopers LLP for the audit of the Company's annual financial statements billed for each of the years ended December 30, 2002 and December 29, 2003. Such fees are included in the general and administrative expense as reported in the Company's Consolidated Statement of Operations. No fees were billed for tax-related or other services rendered by PricewaterhouseCoopers LLP for those periods.

(a)

Does not include the fees in 2003 for reauditing 2001 and prior periods.

(b)

Audit-related fees consist of assurance and related services that are reasonably related to the performance of the audit of the Company's financial statements.

        The Audit Committee has considered whether the provision of services to the Company, other than audit services, is compatible with maintaining PricewaterhouseCoopers LLP's independence from the Company.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor

        The Audit Committee is responsible for appointing, setting compensation, and overseeing the work of the independent auditor. The Audit Committee has established a policy regarding pre-approval of all audit and permissable non-audit services provided by the independent auditor. Requests for approval are generally submitted at a meeting of the Audit Committee.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K

(a)

Consolidated Financial Statements. See the Index to Consolidated Financial Statements on page F-1.

(b)

Reports on Form 8-K. We filed a Form 8-K on November 6, 2003 concerning changes to our directors and our entering into our Junior Credit Facility. We filed another Form 8-K on November 17, 2003, announcing a press release regarding results in the third quarter of 2003.

(c)

List of Exhibits

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24

25

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SIGNATURE

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

        Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT AUDITORS

        To the Board of Directors of American Restaurant Group, Inc.:

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, common stockholders' deficit, and cash flows present fairly, in all material respects, the financial position of American Restaurant Group, Inc. and its subsidiaries at December 29, 2003 and December 30, 2002, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 29, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial-statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1.c to the consolidated financial statements, the Company has suffered recurring losses from operations, has a negative working-capital balance, and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

        As discussed in Note 1.p to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets with the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002.

/s/  PRICEWATERHOUSECOOPERS LLP      

San Francisco, California
March 22, 2004

F-2

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 30, 2002 AND DECEMBER 29, 2003

The accompanying notes are an integral part of these consolidated statements.

F-3

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2001, DECEMBER 30, 2002,
AND DECEMBER 29, 2003

The accompanying notes are an integral part of these consolidated statements.

F-4

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' DEFICIT

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2001, DECEMBER 30, 2002,
AND DECEMBER 29, 2003

(a)

Unaudited

The accompanying notes are an integral part of these consolidated statements.

F-5

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2001, DECEMBER 30, 2002,
AND DECEMBER 29, 2003