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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 30, 2002 Commission File Number: 0-18668


MAIN STREET AND MAIN INCORPORATED
(Exact name of registrant as specified in its charter)


DELAWARE 11-2948370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)


5050 NORTH 40TH STREET
SUITE 200, PHOENIX, ARIZONA 85018
(Address of principal executive offices) (Zip Code)


(602) 852-9000
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value

Indicate by 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 [X] No [ ]

Indicate by 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

At July 1, 2002, there were outstanding 14,129,928 shares of the registrant's
common stock, $.001 par value. The aggregate market value of common stock held
by nonaffiliates of the registrant (8,378,678 shares) based on the closing sale
price of the common stock as reported on the Nasdaq National Market on July 1,
2002, ($6.22 per share) was $52,115,377. For purposes of this computation, all
officers, directors, and 10% beneficial owners of the registrant are deemed to
be affiliates. Such determination should not be deemed an admission that such
officers, directors, or 10% beneficial owners are, in fact, affiliates of the
registrant.

Documents incorporated by reference: Portions of the registrant's Proxy
Statement for the 2003 Annual Meeting of Stockholders are incorporated by
reference into Part III.

MAIN STREET AND MAIN INCORPORATED

ANNUAL REPORT ON FORM 10-K

FISCAL YEAR ENDED DECEMBER 30, 2002

TABLE OF CONTENTS

PAGE
PART I
ITEM 1. BUSINESS........................................................ 1
ITEM 2. PROPERTIES...................................................... 24
ITEM 3. LEGAL PROCEEDINGS............................................... 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 24

PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 25
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA............................ 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 37

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 38
ITEM 11. EXECUTIVE COMPENSATION.......................................... 38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.................... 38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 38
ITEM 14. CONTROLS AND PROCEDURES......................................... 38

PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K................................................... 39
SIGNATURES ................................................................ 42

CERTIFICATIONS ............................................................ 43

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

THE STATEMENTS CONTAINED IN THIS REPORT ON FORM 10-K THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF APPLICABLE
SECURITIES LAWS. FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING OUR
"EXPECTATIONS," "ANTICIPATION," "INTENTIONS," "BELIEFS," OR "STRATEGIES"
REGARDING THE FUTURE. FORWARD-LOOKING STATEMENTS ALSO INCLUDE STATEMENTS
REGARDING REVENUE, MARGINS, EXPENSES, AND EARNINGS ANALYSIS FOR FISCAL 2003 AND
THEREAFTER; FUTURE RESTAURANT OPERATIONS AND NEW RESTAURANT ACQUISITIONS OR
DEVELOPMENT; THE RESTAURANT INDUSTRY IN GENERAL; AND LIQUIDITY AND ANTICIPATED
CASH NEEDS AND AVAILABILITY. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
REPORT ARE BASED ON INFORMATION AVAILABLE TO US AS OF THE FILING DATE OF THIS
REPORT, AND WE ASSUME NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING
STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS IN THIS REPORT. A VARIETY OF FACTORS COULD CAUSE OUR ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS, INCLUDING THE FACTORS
DISCUSSED IN ITEM 1, "BUSINESS - SPECIAL CONSIDERATIONS."

PART I

ITEM 1. BUSINESS

We are the world's largest franchisee of T.G.I. Friday's restaurants,
currently owning 56 and managing four T.G.I. Friday's restaurants. In addition,
at the end of 2002, we owned and operated eight Bamboo Club restaurants and we
opened a ninth in January of 2003, in Aventura (North Miami), Florida. We
currently have two Bamboo Club restaurants under construction, one in Novi
(Detroit), Michigan and one in Desert Ridge Mall (North Phoenix), Arizona; both
are scheduled to open in 2003. We will also open one T.G.I. Friday's restaurant
in Desert Ridge Mall, Arizona scheduled for the second quarter of 2003. We also
own five Redfish Seafood Grill and Bar restaurants. On April 1, 2002, we opened
an Alice Cooper'stown restaurant in Cleveland, Ohio, pursuant to a license
agreement we entered into with Celebrity Restaurants, L.L.C., the owner of the
exclusive rights to operate Alice Cooper'stown restaurants and which operates
one such restaurant in Phoenix, Arizona.

T.G.I. Friday's restaurants are full-service, casual dining establishments
featuring a wide selection of freshly prepared, popular foods and beverages
served by well-trained, friendly employees in relaxed settings. Bamboo Club
restaurants are full-service, fine dining, upscale restaurants that feature an
extensive and diverse menu of innovative and tantalizing Pacific Rim cuisine.
Redfish Seafood Grill and Bar restaurants are full-service, casual dining
restaurants that feature a broad selection of New Orleans style fresh seafood,
Creole and seafood cuisine, and traditional southern dishes, as well as a
"Voodoo" style lounge, all under one roof. Alice Cooper'stown restaurants are
rock and roll and sports themed restaurant and feature a connection to the music
celebrity Alice Cooper.

We own the exclusive rights to develop additional T.G.I. Friday's
restaurants in several territories in the western United States. We have
co-development privileges with Carlson Restaurants Worldwide to develop
additional T.G.I. Friday's restaurants in California. We own the Bamboo Club and
Redfish brands. Our strategy is to

* capitalize on the brand-name recognition and goodwill associated with
T.G.I. Friday's restaurants;

* expand our restaurant operations through

- the development of additional T.G.I. Friday's restaurants in our
existing development territories,

- the development of additional Bamboo Club restaurants throughout
the United States, and

- the possible acquisition or development of restaurants operating
under other restaurant concepts; and

* improve our profitability by continuing to enhance the dining
experience of our guests and improving operating efficiency at all of
our restaurant brands.

We may explore opportunities to franchise Bamboo Club and Redfish concepts to
third parties in the future.

We were incorporated in December 1988. We maintain our principal executive
offices at 5050 North 40th Street, Suite 200, Phoenix, Arizona 85018, and our
telephone number is (602) 852-9000. Our Web site, which is not a part of this
Report, is located at www.mainandmain.com. Our current periodic and annual
reports are available free of charge on our Web site as soon as reasonably
practicable after such material is electronically filed with the Securities and
Exchange Commission. As used in this Report, the terms "we," "our," "us," the
"Company" or "Main Street" refers to Main Street and Main Incorporated and its
subsidiaries and operating divisions.

OUR BUSINESS

OUR T.G.I. FRIDAY'S RESTAURANTS

THE T.G.I. FRIDAY'S CONCEPT

The T.G.I. Friday's concept is franchised by Carlson Restaurants Worldwide,
Inc. (formerly TGI Friday's Inc.), a wholly owned subsidiary of Carlson
Companies Inc., which is a diversified company with business interests in the
restaurant and hospitality industries. The first T.G.I. Friday's restaurant was
opened in 1965 in New York City. Carlson Restaurants Worldwide, Inc. and its
predecessors, has conducted a business since 1972 that is substantially similar

1

to the business currently conducted by its franchisees. As of December 30, 2002,
Carlson Restaurants Worldwide had 245 franchisor-operated and 277 franchised
T.G.I. Friday's restaurants operating worldwide. During 2002, Carlson
Restaurants Worldwide sold most of its holdings of our common stock, which
amounted to approximately 1.8% of our outstanding common stock, retaining 53,016
shares, or approximately 0.038% of our outstanding common stock. Holders of our
common stock do not have any financial interest in Carlson Restaurants
Worldwide, and Carlson Restaurants Worldwide has no responsibility for the
contents of this report.

T.G.I. Friday's restaurants are full-service, casual dining establishments
featuring a wide selection of high- quality, freshly prepared popular foods and
beverages, including a number of innovative and distinctive menu items, such as
menu items featuring "Jack Daniel's" sauces. The restaurants feature quick,
efficient, and friendly table service designed to minimize customer-waiting time
and facilitate table turnover. Our restaurants generally are open seven days a
week between the hours of approximately 11:00 a.m. and 1:00 a.m. During 2002 we
started experimenting with "curbside service". The first location to have this
service was in Chandler, Arizona and we plan to use the same concept in the
Desert Ridge location. We believe that the design and operational consistency of
all T.G.I. Friday's restaurants enable us to benefit significantly from the name
recognition and goodwill associated with T.G.I. Friday's restaurants.

MENU

We attempt to capitalize on the innovative and distinctive menu items that
have been an important attribute of T.G.I. Friday's restaurants. The menu
consists of more than 85 food items, including

* appetizers, such as buffalo wings, stuffed potato skins, quesadillas,
spinach dip, cheese sticks, and pot stickers;

* a variety of soups, salads, sandwiches, burgers, and pasta;

* southwestern, oriental, and American specialty items;

* beef, seafood, and chicken entrees, including Jack Daniels(TM)grill
items;

* a children's menu; and

* desserts.

Beverages include a full bar featuring wines, beers, classic and specialty
cocktails, after dinner drinks, soft drinks, milk, milk shakes, malts, hot
chocolate, coffee, tea, frozen fruit drinks known as Friday's Smoothies(TM), and
sparkling fruit juice combinations known as Friday's Flings(R).

Menu prices range from $9 to $20 for beef, chicken, and seafood entrees; $9
to $13 for pasta and oriental and southwestern specialty items; $4 to $9 for
salads, sandwiches, and burgers; and $6 to $13 for appetizers and soups. Each
restaurant offers a separate children's menu with food entrees ranging from $2
to $3. Alcoholic beverage sales currently account for approximately 24% of total
revenue.

RESTAURANT LAYOUT

Each of our T.G.I. Friday's restaurants is similar in terms of exterior and
interior design. Each restaurant features a distinctive decor accented by
red-and-white striped awnings, brass railings, stained glass, and eclectic
memorabilia. Each restaurant has interior dining areas and bar seating.

Most of our T.G.I. Friday's restaurants are located in freestanding
buildings. These restaurants normally contain between 5,500 and 9,000 square
feet of space and average approximately 7,500 square feet. Most of our recently
developed restaurants, however, contain 5,800 to 6,500 square feet of space. Our
T.G.I. Friday's restaurants contain an average of 60 dining tables, seating an
average of 210 guests, and a bar area seating an average of approximately 30
additional guests.

2

UNIT ECONOMICS

We estimate that our total cost of opening a new T.G.I. Friday's restaurant
currently ranges from $2,475,000 to $2,825,000, exclusive of annual operating
expenses and assuming that we obtain the underlying real estate under a lease
arrangement. These costs include approximately (a) $1,650,000 to $2,000,000 for
building, improvements, and permits, including liquor licenses, (b) $600,000 for
furniture, fixtures, and equipment, (c) $175,000 in pre-opening expenses,
including hiring expenses, wages for managers and hourly employees, and
supplies, and (d) $50,000 for the initial franchise fee. Actual costs, however,
may vary significantly depending upon a variety of factors, including the site
and size of the restaurant and conditions in the local real estate and
employment markets. Our T.G.I. Friday's restaurants open during all of fiscal
2002 generated an average of approximately $3,383,000 in annual revenue.

OUR BAMBOO CLUB RESTAURANTS

THE BAMBOO CLUB CONCEPT

Bamboo Club restaurants are full-service, fine dining restaurants that
feature an extensive and diverse menu of innovative and tantalizing Pacific Rim
cuisine. Bamboo Club restaurants use fresh ingredients and premium herbs and
spices in creative combinations to serve high-quality food and beverages that
deliver a unique combination of delicious taste, eye-appealing color, appetizing
aroma, and delightful texture. The entire Bamboo Club concept has been designed
to deliver a consistent and enjoyable dining experience to each guest in an
elegant, upscale atmosphere. The restaurants feature a modern decor that
provides a dramatic yet comfortable impression, with food and beverages prepared
and served by a highly trained and skilled staff.

Bamboo Club restaurants are open for lunch and dinner, with hours between
11:00 a.m. to 11:00 p.m. Monday through Thursday, 11:00 a.m. to midnight on
Friday and Saturday, and 11:00 a.m. to 10:00 p.m. on Sunday. The kitchen remains
open until 11:00 p.m. Monday through Thursday and until midnight on Friday and
Saturday to accommodate guests who prefer to dine late. Bamboo Club restaurants
take reservations and can serve large parties or groups.

MENU

Bamboo Club restaurants feature a menu of more than 80 items inspired by
the diverse and exotic cuisines found in locations such as Bangkok, Canton,
Singapore, Seoul, Hong Kong, Indonesia, Hawaii, and other Pacific Rim cities and
provinces. Each Bamboo Club restaurant also features a full-service bar that
serves a variety of popular drinks and liquors, such as martinis and tropical
drinks, as well as traditional mixed beverages, fine wines, a wide selection of
popular Asian and domestic beers, and fine cigars.

Menu prices range from $6 to $10 for salads; $5 to $16 for appetizers; and
$9 to $29 for entrees. The average guest check is approximately $20-$22 per
person. Alcoholic beverage sales account for approximately 23% of total revenue.
Take-out orders represent approximately 4-5% of total revenue. In addition,
sales through a third-party delivery service in Phoenix, Arizona, represent
approximately 3% of total Phoenix revenue.

RESTAURANT LAYOUT AND STAFFING

Bamboo Club restaurants have been designed to create a dramatic impression
in an atmosphere that is both spacious and intimate. The restaurants' decor
features artful lighting, dramatic murals, an eclectic mix of background music,
and a general color theme of black, copper, and bamboo to create a "hip," exotic
feeling of warmth and color.

The restaurants also feature an "exhibition kitchen" adjacent to the
seating area, where diners can watch highly skilled wok chefs prepare and serve
the restaurants' appetizers and entrees. Most dishes are prepared and served
within five to ten minutes from the time when the order is placed.

The eight Bamboo Club restaurants are located in high-traffic retail
shopping environments. Each restaurant contains approximately 6,500 square feet
of space in leased facilities, excluding patio areas. Each of these restaurants

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feature indoor seating and bar area seating for a total of approximately 200
guests, which does not include outdoor patio seating at some locations.

Bamboo Club restaurants have developed an extensive program to train and
motivate restaurant employees. The Bamboo Club serving staff are professional,
friendly, highly skilled, and knowledgeable about the restaurant's cuisine and
menu selections. Servers are trained to make suggestions or recommendations for
new or different menu items or combinations that patrons might try, which helps
each guest to enjoy a memorable dining experience. We have developed a prototype
for use in developing inline Bamboo Club restaurants. We plan to use this
prototype whenever possible in order to standardize the construction process and
to reduce costs. We originally acquired the two operating Bamboo Club
restaurants in Phoenix and Scottsdale, Arizona, and since have opened a total of
seven more Bamboo Club restaurants, one each in Wellington, Tampa, and Aventura,
Florida; one each in Tempe and Tucson, Arizona; one in Newport, Kentucky; and
one in King of Prussia, Pennsylvania. We plan to open a Bamboo Club restaurant
in Novi, Michigan, and a freestanding Bamboo Club location in Phoenix, Arizona
(Desert Ridge Mall), which is scheduled to open in the third quarter of 2003.

UNIT ECONOMICS

After opening seven Bamboo Club restaurants, our total cost of opening a
new location ranges between $1,625,000 and $1,800,000, exclusive of annual
operating expenses. These costs included approximately (a) $900,000 to
$1,000,000, net of a reduction for landlord's contribution, for building
improvements and permits, including liquor licenses, (b) $550,000 to $600,000
for furniture, fixtures, and equipment, and (c) $175,000 to $200,000 in
pre-opening expenses, including hiring expenses, wages for managers and hourly
employees, and supplies. We are currently developing a freestanding Bamboo Club
restaurant (Desert Ridge Mall in Phoenix, Arizona) and anticipate that this cost
will be substantially in excess of the preceding averages. Actual costs for
future openings may vary significantly, depending on a variety of factors.

In the fourth quarter of 2002, in response to the difficult and soft
national economy, we decided (i) that we would begin negotiations to terminate
several existing leases or delay openings for Bamboo Club locations where we
have not yet built a restaurant (these sites included San Antonio and Fort Worth
Texas; Columbus, Ohio; Raleigh-Durham, North Carolina; and Fairfax, Virginia),
(ii) we would not renew leases for two California T.G. I. Friday's restaurants
whose lease terms expire in 2003, and (iii) we would perform recoverability
tests for under-performing restaurants and take asset impairment charges if
necessary. The asset impairment and estimated lease termination fees, recorded
in the fourth quarter of 2002, were $6,337,000, including an allocation of
$860,000 of goodwill.

Our five Bamboo Club restaurants open during all of fiscal 2002, which
consist of the two original restaurants acquired, Tempe, Arizona, and West Palm
and Tampa, Florida generated an average of approximately $2.7 million in annual
revenue.

OUR REDFISH SEAFOOD GRILL AND BAR RESTAURANTS

THE REDFISH CONCEPT

Redfish Seafood Grill and Bar restaurants are full-service, casual dining
restaurants that feature a broad selection of New Orleans style fresh seafood,
Creole and seafood cuisine, and traditional southern dishes, as well as a
"Voodoo" style lounge, all under one roof. The restaurants offer unique, freshly
prepared food that is served quickly and efficiently in a fun-filled New Orleans
atmosphere. Each Redfish restaurant's Voodoo lounge features a unique atmosphere
decorated with an eclectic collection of authentic New Orleans artifacts, signs,
and antiques. Some locations have local bands and, occasionally, national
touring acts present live rhythm and blues music on weekends. Redfish
restaurants are open for lunch and dinner seven days a week, although our Denver
restaurant is not open on Sundays. Hours of operation are usually from 11:00
a.m. until midnight Monday through Thursday and 11:00 a.m. until 2:00 a.m. on
weekends.

MENU

We have developed a menu of more than 45 items for our Redfish restaurants.
Signature dishes include blackened redfish, Bourbon Street jambalaya, southern
fried catfish, stuffed salmon, and crawfish etoufee. The menu also features a

4

selection of appetizers, including Looziana egg rolls, Maryland-style crab
cakes, fried green tomatoes, and crab & artichoke dip. Our Redfish menu also
features a variety of fresh seafood, steaks, barbeque ribs, delicious pastas,
fresh seasonal salads, sandwiches, and tempting desserts, such as bananas
foster, chocolate bread pudding, and our signature key lime pie. The spacious
Voodoo lounge offers a wide selection of the finest beers on tap, a full wine
list, and an extensive specialty drink list.

Menu prices range from $7.00 to $25.00 for an entree and $5.00 to $11.00
for salads and appetizers. Alcohol sales currently account for approximately 31%
of total revenue.

RESTAURANT LAYOUT

We developed the Redfish restaurant layout to provide a refined southern
roadhouse atmosphere. Each of our Redfish restaurants is decorated with
nostalgic mementos of the South, together with decorative elements that are
derived from the individual restaurant's locale. The decor generally creates a
tribute to the legends of American music that created the blues, as well as to
the regions that developed the classic Creole, Cajun, and American cuisine
served in our Redfish restaurants.

Most of our Redfish restaurants are located in high-traffic urban office
environments. These restaurants contain between 6,000 and 12,000 square feet of
space and average approximately 8,500 square feet. Our Redfish restaurants
contain an average of 60 dining tables, seating an average of 250 guests, and a
bar area seating an average of approximately 25 additional guests. We have
developed a prototype for use in developing Redfish restaurants in the future.
We constructed two restaurants using this prototype in Scottsdale and Chandler,
Arizona. We plan to use this prototype whenever possible in order to standardize
the construction process and to reduce costs. We do not currently plan to build
any new Redfish restaurants in the foreseeable future.

UNIT ECONOMICS

We estimate that our total cost of opening a new Redfish restaurant
currently ranges from $2,400,000 to $2,600,000, exclusive of annual operating
expenses and assuming that we obtain the underlying real estate under a lease
arrangement. These costs include approximately (a) $1,650,000 to $1,850,000 for
building, improvements, and permits, including liquor licenses, (b) $600,000 for
furniture, fixtures, and equipment, and (c) $150,000 in pre-opening expenses,
including hiring expenses, wages for managers and hourly employees, and
supplies. Actual costs, however, may vary significantly depending upon a variety
of factors, including the site and size of the restaurant and conditions in the
local real estate and employment markets. Our four Redfish restaurants open
during all of fiscal 2002 generated an average of approximately $2.2 million in
annual revenue. During 2002, we opened our newest Redfish in Chandler, Arizona
and closed an under-performing location in San Diego, California.

ALICE COOPER'STOWN RESTAURANT

THE ALICE COOPER'STOWN CONCEPT

The Alice Cooper'stown concept was developed by Celebrity Restaurants,
L.L.C. and is rock and roll and sports themed, featuring a connection to Alice
Cooper. We own no interest in Celebrity Restaurants, L.L.C., and it owns no
interest in us. Celebrity Restaurants operates one Alice Cooper'stown
restaurant, which opened in December 1998 in Phoenix, Arizona. Our Alice
Cooper'stown restaurant opened in April 2002, in a location formally occupied by
a Redfish Seafood Grill and Bar restaurant in Cleveland, Ohio. The Cleveland
location's proximity to Jacobs Field, the home of the Cleveland Indians, and the
fact that Cleveland is the home of the Rock and Roll Hall of Fame, resulted in
our decision to convert the location into an Alice Cooper'stown. Our Alice
Cooper'stown restaurant is a full-service, casual dining establishment featuring
a wide selection of high quality, freshly prepared popular foods and beverages,
including a number of innovative and distinctive menu items, such as menu items
that are sports and rock and roll themed. In addition, the restaurant sells
sports and rock and roll memorabilia. The restaurant features quick, efficient,
and friendly table service designed to minimize customer-waiting time and
facilitate table turnover. Our Alice Cooper'stown restaurant benefits
significantly from the name recognition of Alice Cooper and the proximity to
Jacobs Field, the home of the Cleveland Indians, and the Rock and Roll Hall of
Fame.

5

MENU

Our menu in Cleveland includes salads and sandwiches, pizzas and burgers,
and tempting appetizers and desserts.

Menu prices range from $4.00 to $9.00 for appetizers and desserts, $5.00 to
$18.00 for entrees, and $6.00 to $11.00 for pizzas and burgers.

RESTAURANT LAYOUT AND STAFFING

Our Alice Cooper'stown restaurant was designed to feature a rock and roll
and sports theme, featuring the connection to rock and roll legend Alice Cooper.
The general decor is rock and roll and sports memorabilia. The logo reads "Where
Rock and Roll and Sports Collide". The restaurant features a video wall in the
bar and a large screen video in the dining room. In keeping with its sports bar
theme, there are more than 35 TV screens in the restaurant. Some of our former
Cleveland Redfish staff, including management personnel, are involved in the
operation of this restaurant.

UNIT ECONOMICS

Our construction costs to convert this location were approximately $400,000
and pre-opening expenses were approximately $191,000. This restaurant generated
$1.9 million of revenue during the nine months it was open in 2002.

SITE SELECTION

When evaluating whether and where to seek expansion of our restaurant
operations, we analyze a restaurant's profit potential. We consider the location
of a restaurant to be one of the most critical elements of the restaurant's
long-term success. Accordingly, we expend significant time and effort in
investigating and evaluating potential restaurant sites. In conducting the site
selection process, we obtain and examine detailed demographic information (such
as population characteristics, density, and household income levels), evaluate
site characteristics (such as visibility, accessibility, and traffic volume),
consider the proposed restaurant's proximity to demand generators (such as
shopping malls, lodging, and office complexes), and analyze potential
competition. Our senior corporate management evaluates and approves each
restaurant site for all of our brands prior to acquisition after extensive
consultation with all levels of our operations group. Carlson Restaurants
Worldwide provides site selection guidelines and criteria as well as site
selection counseling and assistance for our T.G.I. Friday's restaurant sites. We
also must obtain Carlson Restaurants Worldwide's consent before we enter into
definitive agreements for a T.G.I. Friday's restaurant site.

CURRENT RESTAURANTS

The following table sets forth information relating to each restaurant we
own or manage as of March 12, 2003.



SEATING IN OPERATION OPERATED BY OUR
LOCATION SQUARE FOOTAGE CAPACITY SINCE COMPANY SINCE
- -------- -------------- -------- ----- -------------

ACQUIRED T.G.I. FRIDAY'S RESTAURANTS (OWNED)
Phoenix, Arizona.................................. 9,396 298 1985 1990
Mesa, Arizona..................................... 9,396 298 1985 1990
Tucson, Arizona................................... 7,798 290 1982 1990
Las Vegas, Nevada................................. 9,194 298 1982 1990
Overland Park, Kansas............................. 6,000 220 1992 1993
San Diego, California............................. 8,002 234 1979 1993
Costa Mesa, California............................ 8,345 232 1980 1993
Woodland Hills, California........................ 8,358 283 1980 1993


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SEATING IN OPERATION OPERATED BY OUR
LOCATION SQUARE FOOTAGE CAPACITY SINCE COMPANY SINCE
- -------- -------------- -------- ----- -------------

Valencia, California.............................. 6,500 232 1993 1993
Torrance, California.............................. 8,923 237 1982 1993
La Jolla, California.............................. 9,396 225 1984 1993
Palm Desert, California........................... 9,194 235 1983 1993
West Covina, California........................... 9,396 232 1984 1993
North Orange, California.......................... 9,194 213 1983 1993
Ontario, California............................... 5,700 190 1993 1993
Laguna Niguel, California......................... 6,730 205 1990 1993
San Bernardino, California........................ 9,396 236 1986 1993
Brea, California.................................. 6,500 195 1991 1993
Riverside, California............................. 6,500 172 1991 1993
Pleasanton, California............................ 8,000 255 1995 1998
Salinas, California............................... 6,500 240 1994 1998
Oakland, California............................... 5,966 230 1994 1998
Sacramento, California............................ 6,200 230 1979 1998
Citrus Heights, California........................ 8,500 270 1982 1998
Fresno, California................................ 5,950 230 1978 1998

DEVELOPED T.G.I. FRIDAY'S RESTAURANTS (OWNED)
Glendale, Arizona................................. 5,200 230 1993 1993
Albuquerque, New Mexico........................... 5,975 270 1993 1993
Reno, Nevada...................................... 6,500 263 1994 1994
Oxnard, California................................ 6,500 252 1994 1994
Carmel Mountain, California....................... 6,500 252 1995 1995
Rancho Santa Margarita, California................ 6,548 252 1995 1995
Cerritos, California.............................. 6,250 223 1996 1996
Las Vegas, Nevada................................. 6,700 251 1997 1997
Superstition Springs (Mesa), Arizona.............. 6,250 240 1998 1998
Puente Hills, California.......................... 5,800 272 1999 1999
San Diego, California............................. 6,800 277 1999 1999
Independence, Missouri............................ 5,800 240 1999 1999
Rancho San Diego, California...................... 5,800 240 1999 1999
Yorba Linda, California........................... 5,800 240 1999 1999
Simi Valley, California........................... 5,800 240 1999 1999
Tucson, Arizona................................... 5,800 240 1999 1999
Henderson, Nevada................................. 5,800 240 1999 1999
Carlsbad, California.............................. 8,146 302 1999 1999
Temecula, California.............................. 6,400 278 1999 1999
Chandler, Arizona................................. 6,000 240 1999 1999
Goodyear, Arizona................................. 6,000 207 2000 2000
Shawnee, Kansas................................... 6,400 245 2000 2000
Thousand Oaks, California......................... 6,400 249 2000 2000
Union City - San Francisco, California............ 6,400 240 2000 2000
Leawood, Kansas................................... 7,248 240 2000 2000
N. Long Beach, California......................... 7,177 291 2000 2000
Scottsdale, Arizona............................... 7,100 263 2000 2000
Albuquerque West, New Mexico...................... 6,426 241 2001 2001
Roseville, California............................. 6,426 245 2001 2001
Porter Ranch, California.......................... 6,426 245 2001 2001
Chandler, Arizona................................. 6,800 322 2002 2002
Desert Ridge Mall (Phoenix), Arizona.............. 6,573 292 Currently Currently
under under
construction construction


7



SEATING IN OPERATION OPERATED BY OUR
LOCATION SQUARE FOOTAGE CAPACITY SINCE COMPANY SINCE
- -------- -------------- -------- ----- -------------

MANAGED T.G.I. FRIDAY'S RESTAURANTS
San Bruno, California............................. 8,345 200 1980 1993
San Jose, California.............................. 8,002 228 1977 1993
San Mateo, California............................. 9,396 252 1984 1993
San Ramon, California............................. 6,000 182 1990 1993

ACQUIRED REDFISH RESTAURANTS
Denver, Colorado.................................. 7,925 321 1997 1997
Chicago, Illinois................................. 6,200 214 1996 1997
Cincinnati, Ohio.................................. 7,133 239 1997 1997

DEVELOPED REDFISH RESTAURANTS
Scottsdale, Arizona.............................. 7,285 218 2001 2001
Chandler, Arizona................................ 7,216 334 2002 2002

ACQUIRED BAMBOO CLUB RESTAURANTS
Phoenix, Arizona.................................. 5,400 200 1995 2000
Scottsdale, Arizona............................... 5,400 200 1997 2000

DEVELOPED BAMBOO CLUB RESTAURANTS
Tampa, Florida.................................... 8,100 235 2001 2001
West Palm Beach, Florida.......................... 6,317 180 2001 2001
Tempe, Arizona.................................... 6,400 210 2001 2001
Tucson, Arizona................................... 6,422 277 2002 2002
Newport, Kentucky................................. 6,735 236 2002 2002
King of Prussia, Pennsylvania..................... 7,391 243 2002 2002
Miami (Aventura), Florida......................... 6,544 236 2003 2003
Novi, Michigan.................................... 6,941 291 Currently Currently
under under
construction construction
Desert Ridge Mall (Phoenix), Arizona.............. 7,000 293 Currently Currently
under under
construction construction
DEVELOPED ALICE COOPER'STOWN RESTAURANT
Cleveland, Ohio................................... 11,160 356 2002 2002


The average size of our acquired T.G.I. Friday's restaurants is
approximately 7,800 square feet, and the average size of our developed T.G.I.
Friday's restaurants is approximately 6,375 square feet. The Redfish restaurants
average 7,150 square feet. The acquired Bamboo Club restaurants average 5,400
square feet and our developed Bamboo Club restaurants average approximately
6,875 square feet. The size of our Alice Cooper'stown restaurant is 11,160
square feet.

RESTAURANT OPERATIONS

THE T.G.I. FRIDAY'S SYSTEM

T.G.I. Friday's restaurants are developed and operated pursuant to a
specified system. Carlson Restaurants Worldwide maintains detailed standards,
specifications, procedures, and operating policies to facilitate the success and
consistency of all T.G.I. Friday's restaurants. To ensure that the highest
degree of quality and service is maintained, each franchisee of Carlson
Restaurants Worldwide, including our company, must operate each T.G.I. Friday's

8

restaurant in strict conformity with these methods, standards, and
specifications. The T.G.I. Friday's system includes

* distinctive exterior and interior design, decor, color scheme, and
furnishings;

* uniform specifications, procedures for operations, formal training,
and standardized menus featuring special recipes and menu items;

* advertising and promotional programs;

* requirements for quality and uniformity of products and services
offered; and

* requirements that franchisees purchase or lease from approved
suppliers equipment, fixtures, furnishings, signs, inventory, recorded
music, ingredients, and other products and materials that conform with
the standards and specifications of Carlson Restaurants Worldwide;

The T.G.I. Friday's system is identified by means of certain trade names,
service marks, trademarks, logos, and emblems, including the marks T.G.I.
Friday's(R) and Friday's(R). We believe the support as well as the standards,
specifications, and operating procedures of Carlson Restaurants Worldwide are
important elements to our restaurant operations. Our policy is to execute these
specifications, procedures, and policies to the highest level of standards of
Carlson Restaurants Worldwide.

T.G.I. FRIDAY'S, BAMBOO CLUB, REDFISH, AND ALICE COOPER'STOWN OPERATIONS

Once a restaurant is integrated into our operations, we provide a variety
of corporate services to assure the operational success of the restaurant. Our
executive management continually monitors restaurant operations, inspects
individual restaurants to assure the quality of products and services and the
maintenance of facilities, institutes procedures to enhance efficiency and
reduce costs, and provides centralized support systems.

We also maintain quality assurance procedures designed to assure compliance
with the high quality of products and services mandated by our company and, for
our T.G.I. Friday's restaurants, by Carlson Restaurants Worldwide. We respond to
and investigate inquiries and complaints, initiate on-site resolution of
deficiencies, and consult with each restaurant's staff to assure that proper
action is taken to correct any deficiency. Our personnel and contracted
third-party quality assurance professionals make unannounced visits to
restaurants to evaluate the facilities, products, and services. We believe that
our quality review program and executive oversight enhance restaurant
operations, reduce operating costs, improve customer satisfaction, and
facilitate the highest level of compliance with the T.G.I. Friday's system.

We maintain a zero tolerance policy for discrimination of any type towards
both our employees and customers, and to this end constantly enforce this policy
through our training of new employees, our policy and training manuals, and
periodic re-enforcement programs.

RESTAURANT MANAGEMENT

Our T.G.I. Friday's regional and restaurant management personnel are
responsible for complying with Carlson Restaurants Worldwide's and our
operational standards. One of our Directors of Operations, together with one
Senior Regional Manager, and seven Regional Managers are responsible for between
4 and 13 of our restaurants within their region. We have one Director of
Operations who is responsible for the Alice Cooper'stown restaurant. This
individual has signed an agreement wherein he purchased a net profit
participation in this operation equal to 20% of a defined level of profits over
a certain EBDITA level. These Regional Managers and three Directors of
Operations report to our Senior Vice President of Restaurant Operations. The
Senior Vice President of Restaurant Operations reports to our President and
Chief Operating Officer, who has responsibility for our T.G.I. Friday's,
Redfish, Bamboo Club, and Alice Cooper'stown operations. Restaurant managers are
responsible for day-to-day restaurant operations, including customer relations,
food preparation and service, cost control, restaurant maintenance, and
personnel relations. We typically staff our restaurants with an on-site general
manager, two or three assistant managers, and a kitchen manager. Our T.G.I.
Friday's restaurants average between 80 and 90 hourly employees. Our Redfish
restaurants average approximately 65 hourly employees and our Bamboo Club
restaurants average approximately 72 hourly employees. Our Alice Cooper'stown

9

restaurant averages 50 hourly employees. We support these operational personnel
with a Director of New Store Openings, a Director of Research and Development,
and training personnel.

We have established a program of appointing multi-location general managers
in geographic areas having locations close enough to each other to support this
concept. We currently have six multi-location senior general managers. In
addition to improving efficiency, this program allows us to promote and
compensate key general managers and create a position that improves our ability
to retain key employees in our company.

RECRUITMENT AND TRAINING

We attempt to hire employees who are committed to the standards maintained
by our company and, for our T.G.I. Friday's restaurants, by Carlson Restaurants
Worldwide. We also believe that our high unit sales volume, the image and
atmosphere of the T.G.I. Friday's, Bamboo Club, Redfish, and Alice Cooper'stown
concepts, and our career advancement and employee benefit programs enable us to
attract high quality management and restaurant personnel.

Our T.G.I. Friday's restaurant personnel participate in continuing training
programs maintained by Carlson Restaurants Worldwide and our company. In
addition, we supplement those programs by hiring personnel devoted solely to
employee training. Each T.G.I. Friday's restaurant general and assistant manager
completes a formal training program conducted by our company and Carlson
Restaurants Worldwide. This program provides our T.G.I. Friday's restaurant
managers 14 weeks of training. The training covers all aspects of management
philosophy and overall restaurant operations, including supervisory skills,
operating and performance standards, accounting procedures, and employee
selection and training necessary for restaurant operations. We employ personnel
who are involved exclusively in training for both initial new store openings and
continued re-training.

Our Redfish and Bamboo Club restaurant managers and personnel participate
in extensive training programs consistent with our operating standards. Many of
our Redfish restaurant managers are experienced T.G.I. Friday's managers who
have accepted positions in our Redfish operations. We have implemented all of
our policies and training programs in order to operate the Alice Cooper'stown
restaurant with the same high standards we have established for our other
brands.

MAINTENANCE AND IMPROVEMENT OF RESTAURANTS

We maintain our restaurants and all associated fixtures, furnishings, and
equipment in conformity with the T.G.I. Friday's system or standards we have
developed for our Redfish and Bamboo Club restaurants. We also make necessary
additions, alterations, repairs, and replacements to our T.G.I. Friday's
restaurants as required by Carlson Restaurants Worldwide, including periodic
repainting or replacement of obsolete signs, furnishings, equipment, and decor.
We may be required, subject to certain limitations, to modernize our restaurants
to the then-current standards and specifications of Carlson Restaurants
Worldwide. We are currently developing plans to convert some of our T.G.I.
Friday's locations to develop a take out program, and our Chandler and Desert
Ridge Mall, Arizona T.G.I. Friday's have been designed for this program. One
Bamboo Club restaurant lease requires us to periodically refurbish the location.

MANAGEMENT INFORMATION SYSTEMS

We have devoted considerable resources to develop and implement management
information systems that improve the quality and flow of information throughout
our company. We use five to seven touch-screen computer registers located
conveniently throughout each of our restaurants. Servers enter guest orders by
touching the appropriate sections of the register's computer screen, which
transfers the information electronically to the kitchen and bar for preparation.
These registers also are connected to a computer in the restaurant office and to
our corporate information system via frame relay. Management receives detailed
comparative reports on each restaurant's sales and expense performance daily,
weekly, and monthly.

We are currently using three different in-store systems; at our T.G.I.
Friday's locations we use a proprietary system supported by Carlson Restaurants
Worldwide, our Redfish locations use Micros software, and our Bamboo Club
locations are on our new restaurant systems provided by Aloha Technology. We are
migrating all of our concepts to a consistent new point of sale (POS) and back
office solution from Aloha Technology. We are also moving to a new corporate

10

enterprise resource planning system (ERP) from Lawson Software. Management and
support of the new corporate ERP system will be outsourced to netASPx, Inc.

We are in the process of installing the POS and back office systems at all
of our stores and anticipate that this will be completed by the first quarter of
2004. We are currently defining the requirements for the ERP system and our
conversion to this will commence when the new POS system has been implemented at
a majority of our stores. We anticipate the ERP implementation will be completed
by the middle of 2004.

We believe that our management information systems enable us to increase
the speed and accuracy of order taking and pricing, to better assist guest
preferences, to efficiently schedule labor to better serve guests, to quickly
and accurately monitor food and labor costs, to promptly access financial and
operating data, and to improve the accuracy and efficiency of store-level
information and reporting.

EQUIPMENT, FOOD PRODUCTS, AND OTHER SUPPLIES

We lease or purchase all fixtures, furnishings, equipment, signs, recorded
music, food products, supplies, inventory, and other products and materials
required for the development and operation of our T.G.I. Friday's restaurants
from suppliers approved by Carlson Restaurants Worldwide. In order to be
approved as a supplier, a prospective supplier must demonstrate to the
reasonable satisfaction of Carlson Restaurants Worldwide its ability to meet the
then-current standards and specifications of Carlson Restaurants Worldwide for
such items, possess adequate quality controls, and have the capacity to provide
supplies promptly and reliably. We are not required to purchase supplies from
any specified suppliers, but the purchase or lease of any items from an
unapproved supplier requires the prior approval of Carlson Restaurants
Worldwide.

Carlson Restaurants Worldwide maintains a list of approved suppliers and a
set of the T.G.I. Friday's system standards and specifications. Carlson
Restaurants Worldwide receives no commissions on direct sales to its
franchisees, but may receive rebates and promotional discounts from
manufacturers and suppliers, some of which are passed on proportionately to our
company. Carlson Restaurants Worldwide is an approved supplier of various
kitchen equipment and store fixtures, decorative memorabilia, and various paper
goods, such as menus and in-store advertising materials and items. We are not,
however, required to purchase such items from Carlson Restaurants Worldwide. If
we elect to purchase such items from Carlson Restaurants Worldwide, Carlson
Restaurants Worldwide may derive revenue as a result of such purchases.

Celebrity Restaurants assisted us in converting the Cleveland location into
an Alice Cooper'stown restaurant. They provided guidance in restaurant design,
acquisition of themed memorabilia for decor, and locating sources for the
purchase of memorabilia for sale to guests.

We entered into an agreement with U.S. Foodservice, a national food
distribution service company, to serve substantially all of our restaurants in
California, Arizona, and Nevada and for all of our Bamboo Club and Redfish
restaurants. We have an agreement with Performance Food Group in Missouri,
Kansas, Texas, and New Mexico for all of our T.G.I. Friday's restaurants located
in those states. Orders are sent electronically to the supplier. Our suppliers
have comprehensive warehouse and delivery outlets servicing each of our markets.
We believe that our purchases from our primary suppliers enable us to maintain a
high level of quality, achieve dependability in the receipt of our supplies,
avoid the costs of maintaining a large purchasing department, and attain cost
advantages as the result of volume purchases. We believe, however, that all
essential products are available from other national suppliers as well as from
local suppliers in the cities in which our restaurants are located in the event
we determine to purchase our supplies from other suppliers.

ADVERTISING AND MARKETING

T.G.I. FRIDAY'S RESTAURANTS

We participate in the national marketing and advertising programs conducted
by Carlson Restaurants Worldwide, which were suspended by Carlson Restaurants
Worldwide for the fourth quarter of 2001 because they changed advertising
agencies. These programs resumed in February of 2002. The programs use network
and cable television and national publications and feature new menu innovations
and various promotional programs. In addition, from time to time, we supplement
the marketing and advertising programs conducted by Carlson Restaurants

11

Worldwide through local radio, newspaper, and magazine advertising media and
sponsorship of community events. In conjunction with Carlson Restaurants
Worldwide, we maintain a "frequent diner" program that includes awards of food,
merchandise, and travel to frequent diners based upon points accumulated through
purchases.

As a franchisee of Carlson Restaurants Worldwide, we are able to utilize
the trade names, service marks, trademarks, emblems, and indicia of origin of
Carlson Restaurants Worldwide, including the marks T.G.I. Friday's(R) and
Friday's(R). We advertise in various media utilizing these marks to attract new
customers to our restaurants.

REDFISH AND BAMBOO CLUB RESTAURANTS

Our in-house marketing department develops advertising and marketing
programs for our Redfish and Bamboo Club restaurants. We develop these programs
with an emphasis on building awareness of the "Redfish" and "Bamboo Club" brands
in the communities in which we operate Redfish and Bamboo Club restaurants and
generate sales for those restaurants. Advertising and marketing campaigns have
included radio and print advertising, as well as point-of-sale marketing
promotions. We conduct a comprehensive advertising and public relations campaign
in advance of each Redfish and Bamboo Club restaurant grand opening.

ALICE COOPER'STOWN RESTAURANT

Our in-house marketing department is developing advertising and marketing
programs for our Alice Cooper'stown restaurant. We will emphasize the sports and
rock and roll connection and feature Alice Cooper.

EXPANSION OF OPERATIONS

Between 1990 and 2002, we acquired 31 existing T.G.I. Friday's restaurants
as well as the exclusive and co-development rights to develop restaurants in
specified territories. The acquisitions include 25 restaurants in California,
three in Arizona, and one in each of Kansas, Missouri, and Nevada. We
subsequently sold five of the restaurants we had previously acquired in
California, and we continue to manage four of them. Between 1990 and 2002, we
also developed 32 new T.G.I. Friday's restaurants, including one during 2002.
These include 16 in California, seven in Arizona, three in Nevada, two in each
of New Mexico and Kansas, and one in each of Missouri and Texas. In 2001, we
closed our T.G.I. Friday's restaurant in Texas. We plan to open one T.G.I.
Friday's restaurant in 2003, in Desert Ridge Mall in north Phoenix, Arizona.

With the concurrence of the franchisee for whom we managed, we closed one
under-performing T.G.I. Friday's restaurant in San Francisco, California in
2002. In addition, we closed one under-performing T.G.I. Friday's restaurant in
El Paso, Texas during 2002.

In 1997, we acquired a 52% ownership interest and in 1999 we acquired the
remaining minority interest in Redfish America, LLC, which operated our four
original Redfish Seafood Grill and Bar restaurants. We opened two additional
Redfish restaurants in 1999 and closed one in each of 2000, 2001 and 2002. We
opened one Redfish restaurant in North Scottsdale, Arizona in 2001 and one in
Chandler, Arizona in 2002. We also may explore opportunities to franchise the
Redfish concept to third parties in the future.

In July 2000, we acquired the business and substantially all of the assets
of two Bamboo Club restaurants. As part of the acquisition, we also acquired the
right, title, and interest under, in, and to the "Bamboo Club" name and
restaurant concept. The two Bamboo Club restaurants are located in Phoenix and
Scottsdale, Arizona. In 2001 we opened three Bamboo Club restaurants, two in
Florida, (one in Tampa and one in West Palm Beach), and one in Tempe, Arizona.
In 2002 we opened three Bamboo Club restaurants, one each in Tucson, Arizona,
Newport, Kentucky, and King of Prussia, Pennsylvania. We opened one Bamboo Club
restaurant in Aventura Mall, Miami Florida in January 2003. We currently have
under construction two additional Bamboo Clubs in 2003, in Novi (Detroit),
Michigan and Desert Ridge Mall (North Phoenix), Arizona. We also may explore
opportunities to franchise the Bamboo Club concept to third parties in the
future.

We plan to expand our restaurant operations through the development of
additional T.G.I. Friday's restaurants in our existing development territories
and the development of additional Bamboo Club restaurants in suitable locations
as our financial capabilities permit (refer to the "Liquidity and Capital
Resource" section for additional information regarding our financial condition).

12

As a result of our financial capabilities, other than the one T.G.I. Friday's
location we currently have under construction (Desert Ridge Mall, Arizona), we
do not anticipate building additional T.G.I. Friday's locations during 2003.
With regard to our development agreement with Carlson Restaurants Worldwide
(which requires the development of five T.G. I. Friday's in 2003), we have every
expectation, based on past history, that we will be successful in obtaining the
appropriate waivers.

We currently are considering other sites for additional restaurants, but
have not entered into leases or purchase agreements for such sites. We do not
know how many sites will materialize, as that depends on a variety of factors
and economic conditions.

The opening of new restaurants also may be affected by increased
construction, utility, and labor costs, delays resulting from governmental
regulatory approvals, strikes, or work stoppages, adverse weather conditions,
and acts of God. Newly opened restaurants may operate at a loss for a period
following their opening. The length of this period will depend upon a number of
factors, including the time of year the restaurant is opened, sales volume, and
operating costs.

The acquisition of existing restaurants will depend upon our ability to
identify and purchase restaurants that meet our criteria on satisfactory terms
and conditions. There can be no assurance that we will be successful in
achieving our expansion goals through the development or acquisition of
additional restaurants or that any additional restaurants that are developed or
acquired will be profitable. In addition, the opening of additional restaurants
in an existing market may have the effect of drawing customers from, and
reducing the sales volume of, our existing restaurants in those markets.

RESTAURANT CLOSURES AND LEASE TERMINATIONS

Generally when we close a location due to underperformance or other reasons
that management deems appropriate, our first priority is to transfer useable
assets to other locations. Other assets that are not transferable, including
leasehold improvements and certain kitchen equipment, are written off at the
time of closure, or when the formal decision to close or not renew the lease is
made. At the time of closure, allocated goodwill is also written off. During the
third quarter 2002, we closed one Friday's restaurant and wrote off $300,000 of
allocated goodwill.

In the fourth quarter of 2002, in response to the difficult and soft
national economy, we decided (i) that we would begin negotiations to terminate
several existing leases for Bamboo Club locations where we have not yet built a
restaurant (these sites included San Antonio and Fort Worth Texas; Columbus,
Ohio; Raleigh-Durham, North Carolina; and Fairfax, Virginia), (ii) we would not
renew leases for two Friday's restaurants whose lease terms expire in 2003, and
(iii) we would perform recoverability tests for under-performing restaurants and
take asset impairment charges if necessary. The asset impairment and estimated
lease termination fees, recorded in the fourth quarter of 2002, were $6,337,000,
including an allocation of $860,000 of goodwill. Currently, there is no final
resolution to any of these negotiations, except the San Antonio lease, which has
been terminated.

DEVELOPMENT AGREEMENTS

We are a party to four development agreements with Carlson Restaurants
Worldwide. Each development agreement grants us the right to develop additional
T.G.I. Friday's restaurants in a specified territory and obligates us to develop
additional T.G.I. Friday's restaurants in that territory in accordance with a
specified development schedule. We own the exclusive rights to develop
additional T.G.I. Friday's restaurants in territories encompassing the states of
Arizona, Nevada, and New Mexico, and the Kansas City, Kansas/Missouri and E1
Paso, Texas metropolitan areas. We also have the non-exclusive right, together
with Carlson Restaurants Worldwide, to develop additional T.G.I. Friday's
restaurants in the state of California. We plan to develop additional T.G.I.
Friday's restaurants in our existing development territories.

In the past, we have successfully renegotiated our franchisee development
obligations for new T.G.I. Friday's locations. Our renegotiated development
schedule has reduced our development obligation in Northern California, extended
the dates for new store development in all of California, and increased to a
lesser extent our development obligations in other territories. As part of this
agreement, Carlson Restaurants Worldwide now has the right to co-develop the
California market, although they have not added any locations nor have they
informed us of their intention to do so.

13

The following table sets forth information regarding our minimum
requirements to open new T.G.I. Friday's restaurants under our current
development agreements as amended, as well as the number of existing restaurants
in each of our development territories.



SOUTHERN NORTHERN
CALIFORNIA CALIFORNIA SOUTHWEST MIDWEST
YEAR TERRITORY(1) TERRITORY(1) TERRITORY(2) TERRITORY(3) TOTAL
- ---- ------------ ------------ ------------ ------------ -----

2003 .............................. 2 1 1 1 5
2004 .............................. -- -- -- 2 2
---- ---- ---- ---- ----
Total ........................ 2 1 1 3 7
==== ==== ==== ==== ====
Existing T.G. I. Fridays
Restaurants ....................... 30 6(4) 16 4 56


- ----------
(1) Carlson Restaurants Worldwide also may develop restaurants in this region.
Agreement expires at the end of 2003.
(2) Consists of the states of Arizona, Nevada, and New Mexico and the E1 Paso,
Texas metropolitan area. Agreement expires at the end of 2003.
(3) Consists of metropolitan Kansas City, Kansas and Kansas City, Missouri.
(4) Does not include the four restaurants managed in the Northern California
Territory.

Each development agreement gives Carlson Restaurants Worldwide certain
remedies in the event that we fail to comply in a timely manner with our
schedule for restaurant development, if we otherwise default under the
development agreement or any franchise agreement relating to a restaurant within
that development territory as described above, or if our officers or directors
breach the confidentiality or non-compete provisions of the development
agreement. The remedies available to Carlson Restaurants Worldwide include (a)
the termination of our exclusive right to develop restaurants in the related
territory; (b) a reduction in the number of restaurants we may develop in the
related territory; (c) the termination of the development agreement; and (d) an
acceleration of the schedule for development of restaurants in the related
territory pursuant to the development agreement. None of these remedies would
adversely affect our ability to continue to operate our then-existing T.G.I.
Friday's restaurants. Currently, other than the one T.G.I. Friday's location
currently under construction, we do not anticipate building additional T.G.I.
Friday's restaurants during 2003. Based on waivers and amendments received in
prior years, we fully expect to receive the appropriate waivers for 2003 from
Carlson Restaurants Worldwide.

FRANCHISE AGREEMENTS

We enter into or assume a separate franchise agreement with respect to each
T.G.I. Friday's restaurant that we acquire or develop pursuant to a development
agreement. Each franchise agreement grants us an exclusive license to operate a
T.G.I. Friday's restaurant within a designated geographic area, which generally
is a three-mile limit from each restaurant, and obligates us to operate such
restaurant in accordance with the requirements and specifications established by
Carlson Restaurants Worldwide relating to food preparation and quality of
service as well as general operating procedures, advertising, records
maintenance, and protection of trademarks. The franchise agreements restrict our
ability to transfer our interest in our T.G.I. Friday's restaurants without the
consent of Carlson Restaurants Worldwide.

Each franchise agreement requires us to pay Carlson Restaurants Worldwide
an initial franchise fee of $50,000. In addition, we are obligated to pay
Carlson Restaurants Worldwide a royalty of 4% of the gross revenue as defined in
the franchise agreement for each restaurant. Royalty payments under these
agreements totaled $7,477,000 during fiscal 2002, $7,444,000 during fiscal 2001,
and $6,634,000 during fiscal 2000. Each franchise agreement also requires us to
spend at least 4% of gross sales on local marketing and to contribute to a
national marketing pool Carlson Restaurants Worldwide administers. The national
marketing pool funds are used to develop national advertising campaigns
(creative material) and buy national, spot, and local advertising. All funds
contributed to the national advertising fund are credited against the local
advertising requirement. Carlson Restaurants Worldwide required us, as well as
all other franchisees, to contribute 2.1% of gross sales in fiscal year 2000 and
the first three quarters of 2001 to the national marketing fund. This
requirement was reduced to 1.7% during the last fiscal quarter of 2001. In 2002,
the marketing fund contributions were increased to 2.7% and are expected be

14

3.25% in 2003. Marketing expenses totaled $5,250,000 during fiscal 2002,
$4,774,000 during fiscal 2001, and $4,163,000 in 2000.

A default under one of our franchise agreements will not constitute a
default under any of our other franchise agreements. A default under the
franchise agreement for a restaurant in a development territory may, however,
constitute a default under the development agreement for that development
territory.

LICENSE AGREEMENTS

Our license agreement with Celebrity Restaurants, L.L.C., allowed us to
open an Alice Cooper'stown restaurant in Cleveland, Ohio. The agreement grants
us the right to use Celebrity Restaurants' exclusive rights to Alice Cooper's
likeness and its trademarks and trade names to operate a sports and rock and
roll themed restaurant featuring Alice Cooper.

The license agreement requires us to pay Celebrity Restaurants a royalty
fee in the amount of 1% of gross sales for food and beverage sales up to the
amount of gross sales derived in 2001 in each location through its existing
operations; 2.5% from that point to $3,500,000; and 3% over $3,500,000. For the
sale of merchandise products, such as logo and memorabilia, we pay a royalty of
20% of gross sales.

During 2002 we paid approximately $41,000 in royalties under this license
agreement.

GOVERNMENT REGULATION

Each of our restaurants is subject to licensing and regulation by state and
local departments and bureaus of alcohol control, health, sanitation, and fire
and to periodic review by the state and municipal authorities for areas in which
the restaurants are located. In addition, we are subject to local land use,
zoning, building, planning, and traffic ordinances and regulations in the
selection and acquisition of suitable sites for constructing new restaurants.
Delays in obtaining, or denials of, or revocation or temporary suspension of,
necessary licenses or approvals could have a material adverse impact on our
development of restaurants.

We also are subject to regulation under the Fair Labor Standards Act, which
governs such matters as working conditions and minimum wages. An increase in the
minimum wage rate or the cost of workers' compensation insurance, both of which
recently occurred in California, or changes in tip-credit provisions, employee
benefit costs (including costs associated with mandated health insurance
coverage), or other costs associated with employees could adversely affect our
company.

In addition, we are subject to the Americans with Disabilities Act of 1990
(ADA). That act may require us to make certain installations in new restaurants
or renovations to existing restaurants to meet federally mandated requirements.
To our knowledge, we are in compliance in all material respects with all
applicable federal, state, and local laws affecting our business, with the
exception of renovations to restaurants existing at the time of passage of the
ADA.

COMPETITION

The restaurant business is highly competitive with respect to price,
service, food type, and quality. In addition, restaurants compete for the
availability of restaurant personnel and managers. Our restaurants compete with
a large number of other restaurants, including national and regional restaurant
chains and franchised restaurant systems, many of which have greater financial
resources, more experience, and longer operating histories than we possess. We
also compete with locally owned, independent restaurants.

Our casual dining business also competes with various types of food
businesses, as well as other businesses, for restaurant locations. We believe
that site selection is one of the most crucial decisions required in connection
with the development of restaurants. As the result of the presence of competing
restaurants in our development territories, our management devotes great
attention to obtaining what we believe will be premium locations for new
restaurants, although we can provide no assurance that we will be successful in
these efforts.

15

EMPLOYEES

We employ approximately 2,100 people on a full-time basis, of whom 76 are
corporate management and staff personnel. We also employ approximately 4,100
part-time employees, which results in our employment of approximately 6,000
total personnel, of which approximately 5,950 are restaurant personnel. Except
for corporate and management personnel, we generally pay our employees on an
hourly basis. We employ an average of approximately 90 full-time and part-time
hourly employees at each of our restaurants. None of our employees are covered
by a collective bargaining agreement with us. We have never experienced a major
work stoppage, strike, or labor dispute. We consider our relations with our
employees to be good.

EXECUTIVE OFFICERS

The following table sets forth certain information regarding our executive
officers:

NAME AGE POSITION
---- --- --------
Bart A. Brown, Jr.......... 71 Chief Executive Officer, and Director
William G. Shrader......... 55 President, Chief Operating Officer, and
Director
Michael Garnreiter......... 51 Executive Vice President, Treasurer, and
Chief Financial Officer
Jeff Smit.................. 44 Senior Vice President-Restaurant Operations
Michael J. Herron.......... 62 General Counsel and Secretary
Matthew J. Wickesberg...... 28 Vice President-Financial Planning and
Analysis
Stephanie Barbini.......... 33 Vice President-Human Resources and Training

BART A. BROWN, JR. has served as our Chief Executive Officer and as a
director since December 1996. Mr. Brown served as our President from December
1996 until June 2001. Mr. Brown was affiliated with Investcorp International,
N.A., and an international investment-banking firm, from April 1996 until
December 1996. Mr. Brown served as the Chairman and Chief Executive Officer of
Color Tile, Inc. at the request of Investcorp International, Inc., which owned
all of that company's common stock, from September 1995 until March 1996. In
January 1996, Color Tile filed for reorganization under Chapter 11 of the United
States Bankruptcy Code. Mr. Brown served as Chairman of the Board of The Circle
K Corporation from June 1990, shortly after that company filed for
reorganization under Chapter 11 of the United States Bankruptcy Code, until
September 1995. From September 1994 until September 1996, Mr. Brown served as
the Chairman and Chief Executive Officer of Spreckels Industries, Inc. Mr. Brown
engaged in the private practice of law from 1963 through 1990 after seven years
of employment with the Internal Revenue Service.

WILLIAM G. (BILL) SHRADER has served as our President and Chief Operating
Officer and as a director since June 2001. Mr. Shrader served as our Executive
Vice President and Chief Operating Officer from March 1999 until June 2001.
Prior to joining our company, Mr. Shrader was Senior Vice President of Marketing
for Tosco Marketing Company from February 1997 to March 1999. From August 1992
to February 1997, Mr. Shrader served in several capacities at Circle K Stores,
Inc., including President of the Arizona Region, President of the Petroleum
Products/Services Division, Vice President of Gasoline Operations, and Vice
President of Gasoline Marketing. Mr. Shrader began his career in 1976 at The
Southland Corporation and departed in 1992 as National Director of Gasoline
Marketing.

MICHAEL GARNREITER has served as our Executive Vice President, Treasurer,
and Chief Financial Officer since April 2002. Prior to joining our company, Mr.
Garnreiter served as a general partner of the international accounting firm of
Arthur Andersen LLP. Mr. Garnreiter began his career in public accounting with
the Los Angeles office of Andersen in 1974 after graduating with a Bachelor of
Science degree in accounting from California State University at Long Beach. In
1986, he transferred to their Tucson, Arizona office to become its Office
Managing Partner. Mr. Garnreiter's career as an accounting and audit partner
spanned many different industries but focused on the entrepreneurial, public
company. Mr. Garnreiter is a Certified Public Accountant in California, New
Mexico and Arizona and retired from Andersen in March 2002.

JEFF SMIT has served as our Senior Vice President-Restaurant Operations
since June 2001. Mr. Smit served as our Vice President of Operations from
September 1998 to June 2001. Mr. Smit joined us in 1994 and has been a general
and regional manager. Prior to joining us, Mr. Smit worked for Carlson
Restaurants Worldwide as a general manager in its T.G.I. Friday's operation.
Prior to that, Mr. Smit worked in a variety of capacities in various
restaurants.

16

MICHAEL J. HERRON has served as our General Counsel since March 2001 and
has been our Secretary since June 2001. Prior to joining us, Mr. Herron was
actively engaged in the private practice of law in Miami Beach, Florida. During
that time he served as outside General Counsel for a restaurant franchisor known
as the Orange Bowl, a restaurant concept exclusively located in regional
shopping centers through the United States. He thereafter engaged in the private
practice of law in Aspen, Colorado, and from April 1990 to February 2001, Mr.
Herron was a member of the law firm of Garfield & Hecht, P.C. Mr. Herron is a
former President of the Miami Beach, Florida Bar Association and was a member of
the Florida Bar Association's standing Ethics Committee.

MATTHEW J. WICKESBERG has served as our Vice President of Financial
Planning and Analysis since June 2002. Mr. Wickesberg served as our Director of
Strategic Planning from May 2000 to June 2002. Prior to joining our company, Mr.
Wickesberg was a Senior Consultant with PricewaterhouseCoopers in Dallas, Texas.
As a member of the Financial Advisory Services group, he worked in the area of
corporate restructuring, bankruptcy, corporate finance and litigation support.
Mr. Wickesberg is a Chartered Financial Analyst and attended programs at the
London School of Economics, and received his Bachelors in Finance from Oklahoma
State University.

STEPHANIE BARBINI has served as our Vice President of Human Resources and
Training since September 2002. Prior to joining our company, from 1994 to
September 2002 Ms. Barbini held a variety of senior level HR positions with
Conoco / Phillips. During her eight year tenure, she provided strategic human
resource support to retail operations, corporate headquarters, petroleum
refining and distribution through 5 separate multi billion dollar acquisitions.
Ms. Barbini holds a BA in Psychology from Oklahoma University and a Master's in
Organizational Psychology from Columbia University.

17

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, IN ADDITION TO THE
OTHER INFORMATION IN THIS REPORT, IN EVALUATING OUR COMPANY AND OUR BUSINESS.

WE FACE RISKS ASSOCIATED WITH CHANGES IN GENERAL ECONOMIC AND POLITICAL
CONDITIONS THAT EFFECT CONSUMER SPENDING.

Our country currently is in a recession and we believe that these weak
general economic conditions will continue through 2003. As the economy
struggles, we are concerned that our customers may become more apprehensive
about the economy and reduce their level of discretionary spending. We believe
that a decrease in discretionary spending could impact the frequency with which
our customers choose to dine out or the amount they spend on meals while dining
out, thereby decreasing our revenues. Additionally, the continued military
responses to terrorist attacks and the prospect of a protracted war may
exacerbate current economic conditions and lead to further weakening in the
economy. Adverse economic conditions and any related decrease in discretionary
spending by our customers could have an adverse effect on our revenues and
operating results.

OUR FUTURE SUCCESS IS DEPENDENT ON OUR BAMBOO CLUB CONCEPT.

In July 2000, we acquired the Bamboo Club's two operating restaurants and
the entire concept. Since then, we have opened seven new restaurants. Average
weekly sales in 2002 for the original locations were $49,633 and for the new
restaurants opened in 2001 and 2002, the average weekly sales were $51,973. As
discussed previously, the national economy has struggled and we have experienced
significant economic difficulties in certain regions of the United States and
shifting buying habits of consumers. As a result, our sales expectations were
not met. Our ability to finance future growth in Bamboo Clubs is dependant upon
our ability to improve our revenue and achieve our profitability expectations.
We believe the overall economy needs to improve and a resolution to the
geopolitical uncertainties must be provided to strengthen consumer confidence
and increase discretionary restaurant spending. In addition, we are evaluating
other promotions, advertising, and other operational considerations to improve
overall profitability. There can be no assurance that any of these measures will
be successful.

WE PERFORM PERIODIC ASSET IMPAIRMENT TESTS.

When we encounter a "triggering" event, decide to close a restaurant, or
perform a periodic review of our marginally performing locations (particularly
in the fourth quarter of each year), we record appropriate asset impairment
charges if necessary. The amount of impairment charges and the allocation of
goodwill, if any, is based upon assessments of current and future economic
conditions and their estimated impact on our ability to recover our investment
in long-lived assets. Even in strong economic conditions there can be conditions
or local situations that might require the recording of asset impairment
charges. We will continue to perform periodic asset impairment tests and it is
likely that we will record future asset impairment charges.

WE HAVE SIGNIFICANT DEBT.

We have incurred significant indebtedness in connection with our growth
strategy. Our growth strategy in 2002 focused on internal restaurant development
instead of acquisitions. To finance this development, we have used cash flow
from operations and debt borrowed from banks. As of December 30, 2002, we had
long-term debt of approximately $55.5 million (including current portion of $3.5
million), and a working capital deficit of $15.0 million. Our borrowings include
financial covenants generally based on cash flow (EBITDA), which limits the
amount we can borrow. At December 30, 2002, we were in compliance with these
covenants, with the exception of one covenant with a lender with whom we had a
$5.0 million line of credit. We had not drawn upon this line and we cancelled it
in March 2003. If we fail to meet any financial covenants, each lender could
call their loan immediately. There can be no assurance we will continue to meet
these covenants in the future.

Our borrowings will result in interest expense of approximately $4.5
million in 2003 and $4.7 million in 2004, based on currently prevailing interest
rates and assuming outstanding and contemplated indebtedness is paid in
accordance with the existing payment schedules without any prepayments or
additional borrowings. We must make these interest payments regardless of our
operating results. Currently, 54 of our restaurants are pledged to secure our
debt obligations. In addition, our debt agreements have financial covenants that
we must meet each quarter. Although we are in compliance with our covenants at

18

December 30, 2002, there can be no assurance we will continue to meet these
covenants in the future. If we fail to meet any financial covenants, each lender
could call their loan immediately.

WE DEPEND ON A KEY FOOD PRODUCT DISTRIBUTOR.

We entered into an agreement with U.S. Foodservice, a national food
distribution service company, to serve substantially all of our restaurants in
California, Arizona, and Nevada and for all of our Bamboo Club and Redfish
restaurants. U. S. Foodservice is a subsidiary of Royal Ahold, which recently
announced a major financial restatement in their 2001 and earlier financial
statements. If, as a result of these restatements or related consequences, U. S.
Foodservice is unable to continue providing us with a high level of quality and
dependability in the receipt of our supplies, at the cost advantages resulting
from our volume purchases, this could have a material impact on our business.

We believe that all essential products are available from other national
suppliers as well as from local suppliers in the cities in which our restaurants
are located in the event we must purchase our products from other suppliers;
however, there can be no assurance that we will be able to match quality, price
or dependability of supply.

WE DEPEND ON CARLSON RESTAURANTS WORLDWIDE, INC.

We currently operate 56 T.G.I. Friday's restaurants as a T.G.I. Friday's
franchisee. We also manage an additional four T.G.I. Friday's restaurants for
another franchisee. Carlson Restaurants Worldwide, Inc. (formerly T.G.I.
Friday's, Inc.) is the franchisor of T.G.I. Friday's restaurants. As a result of
the nature of franchising and our franchise agreements with Carlson Restaurants
Worldwide, our long-term success depends, to a significant extent, on the
continued vitality of the T.G.I. Friday's restaurant concept and the overall
success of the T.G.I. Friday's system.

We believe that the experience, reputation, financial strength, and
franchisee support of Carlson Restaurants Worldwide represent positive factors
for our business. We have no control, however, over the management or operation
of Carlson Restaurants Worldwide or other T.G.I. Friday's franchisees. A variety
of factors affecting Carlson Restaurants Worldwide or the T.G.I. Friday's
concept could have a material adverse effect on our business. These factors
include the following:

* any business reversals that Carlson Restaurants Worldwide may
encounter;

* a failure by Carlson Restaurants Worldwide to promote the T.G.I.
Friday's name or restaurant concept;

* the inability or failure of Carlson Restaurants Worldwide to support
its franchisees, including our company;

* the failure to operate successfully the T.G.I. Friday's restaurants
that Carlson Restaurants Worldwide itself owns; and

* negative publicity with respect to Carlson Restaurants Worldwide or
the T.G.I. Friday's name.

The future results of the operations of our restaurants will not necessarily
reflect the results achieved by Carlson Restaurants Worldwide or its other
franchisees, but will depend upon such factors as the effectiveness of our
management team, the locations of our restaurants, and the operating results of
those restaurants.

FRANCHISE AGREEMENTS IMPOSE RESTRICTIONS AND OBLIGATIONS ON OUR BUSINESS.

Our franchise agreement with Carlson Restaurants Worldwide for each T.G.I.
Friday's restaurant that we own generally requires us to pay an initial
franchise fee of $50,000, pay royalties of 4% of the restaurant's gross sales,
and spend up to 4% of the restaurant's gross sales on advertising, which may
include contributions to a national marketing pool administered by Carlson
Restaurants Worldwide.

Carlson Restaurants Worldwide requires us and its other franchisees to
contribute a percentage of gross sales to the national marketing pool. The rate
was 2.1% in 2000 and through the first eight months 2001; 1.7% in the last four

19

months of 2001, since Carlson had no national campaign during that period; 2.7%
in 2002; and it is expected to be 3.25% in 2003. We must pay or accrue these
amounts regardless of whether or not our restaurants are profitable.

If we fail to satisfy these requirements or otherwise default under the
franchise agreements, we could be subject to potential damages for breach of
contract and could lose our franchise rights for some or all of our T.G.I.
Friday's restaurants. We also could lose our rights to develop additional T.G.I.
Friday's restaurants.

OUR DEVELOPMENT AGREEMENTS WITH CARLSON RESTAURANTS WORLDWIDE REQUIRE US TO OPEN
ADDITIONAL T.G.I. FRIDAY'S RESTAURANTS.

We may not be able to secure sufficient restaurant sites that we believe
are suitable or we may not be able to develop restaurants on terms and
conditions that we consider favorable in order to satisfy the requirements of
the development agreements. The development agreements give Carlson Restaurants
Worldwide certain remedies in the event that we fail to comply with the
development schedule in a timely manner or if we breach the confidentiality or
noncompete provisions of the development agreements. These remedies include,
under certain circumstances, the right to reduce the number of restaurants we
may develop in the related development territory or to terminate our exclusive
right to develop restaurants in the related development territory.

At our request, Carlson Restaurants Worldwide from time to time has agreed
to amend the development schedules to extend the time by which we were required
to develop new restaurants in certain development territories. We requested
those amendments because we were unable to secure sites that we believed to be
attractive on favorable terms and conditions. Carlson Restaurants Worldwide may
decline to extend the development schedule in the future if we experience any
difficulty in satisfying the schedule for any reason, including a shortage of
capital.

WE MAY NOT BE ABLE TO COMPLY WITH ALL OF THE REQUIREMENTS OF OUR DEVELOPMENT
AGREEMENTS.

We expect to fulfill our obligations under the terms of our development
agreements with Carlson Restaurants Worldwide for the Southwestern and Midwest
areas and for California. However, we can provide no assurance that we will
successfully fulfill these obligations.

WE FACE RISKS ASSOCIATED WITH THE ACQUISITION AND INTEGRATION OF THE REDFISH,
BAMBOO CLUB, AND ALICE COOPER'STOWN RESTAURANTS, AND ANY OTHER ACQUIRED
RESTAURANTS, WITH OUR EXISTING OPERATIONS.

We must integrate the operations of our Redfish, Bamboo Club, and Alice
Cooper'stown restaurants with our existing operations in order to enhance
revenue, realize cost savings, and achieve anticipated operating efficiencies.
Because Redfish, Bamboo Club, and Alice Cooper'stown restaurants feature diverse
menus served in an upscale atmosphere, these restaurants present operating
requirements that differ from our existing T.G.I. Friday's restaurants. These
requirements could result in unanticipated challenges to our management team. We
may also wish to acquire other complementary restaurant operations in the
future.

We strive to take advantage of the opportunities created by the combination
of acquired operations to achieve significant revenue opportunities and
substantial cost savings, including increased product offerings and decreased
operating expenses as a result of the elimination of duplicative facilities and
personnel associated with sales, marketing, administrative, and purchasing
functions. Significant uncertainties, however, accompany any business
combination. We may not be able to achieve revenue increases; integrate
facilities, functions, and personnel in order to achieve operating efficiencies;
or otherwise realize cost savings as a result of acquisitions. The inability to
achieve revenue increases or cost savings could have a material adverse effect
on our business, financial condition, and operating results.

WE FACE RISKS ASSOCIATED WITH THE EXPANSION OF OUR OPERATIONS.

The success of our business depends on our ability to expand the number of
our restaurants, either by developing or acquiring additional restaurants. Our
success also depends on our ability to operate and manage successfully our
growing operations. Our ability to expand successfully will depend upon a number
of factors, including the following:

20

* the availability and cost of suitable restaurant locations for
development;

* the availability of restaurant acquisition opportunities;

* the hiring, training, and retention of additional management and
restaurant personnel;

* the availability of adequate financing;

* the continued development and implementation of management information
systems;

* competitive factors; and

* general economic and business conditions.

Increased construction costs and delays resulting from governmental
regulatory approvals, strikes, or work stoppages, adverse weather conditions,
and various acts of God may also affect the opening of new restaurants. Newly
opened restaurants may operate at a loss for a period following their initial
opening. The length of this period will depend upon a number of factors,
including the time of the year the restaurant is opened, the sales volume, and
our ability to control costs.

We may not successfully achieve our expansion goals. Additional restaurants
that we develop or acquire may not be profitable. In addition, the opening of
additional restaurants in an existing market may have the effect of drawing
customers from and reducing the sales volume of our existing restaurants in
those markets.

WE WILL NEED ADDITIONAL CAPITAL FOR EXPANSION.

The development of new restaurants requires funds for construction, tenant
improvements, furniture, fixtures, equipment, training of employees, permits,
initial franchise fees, and other expenditures. We expect that cash flow from
operations will be sufficient to develop the one new T.G.I. Friday's restaurant
and the two new Bamboo Club restaurants that we plan to open during 2003. We
will require funds to develop additional T.G.I. Friday's and Bamboo Club
restaurants after 2003 and to pursue any additional restaurant development or
restaurant acquisition opportunities that may develop. As a result of our
current financial capabilities (see "Liquidity and Capital Resources" section
for additional information), other than the one T.G.I. Friday's location we
currently have under construction (Desert Ridge Mall, Arizona), we do not
anticipate building additional T.G.I Friday's locations during 2003. With regard
to our development agreement with Carlson Restaurants Worldwide (which requires
the development of five T.G. I. Friday's in 2003), we have every expectation,
based on waivers and amendments received in prior years, that we will be
successful in obtaining the appropriate waivers for 2003.

In the future, we may seek additional equity or debt financing to provide
funds so that we can develop or acquire additional restaurants. Such financing
may not be available or may not be available on satisfactory terms. If financing
is not available on satisfactory terms, we may be unable to satisfy our
obligations under our development agreements with Carlson Restaurants Worldwide
or otherwise to expand our restaurant operations. While debt financing will
enable us to add more restaurants than we otherwise would be able to add, debt
financing increases expenses and is limited as to availability due to our
financial results, and we must repay the debt regardless of our operating
results. Future equity financings could result in dilution to our stockholders.

WE WILL BE SUBJECT TO THE RISKS ASSOCIATED WITH FRANCHISING OPERATIONS IF WE
BEGIN FRANCHISING THE REDFISH OR BAMBOO CLUB CONCEPTS.

We will be subject to the risks associated with franchising if we begin
franchising activities in the future. If we develop a franchising program, our
success as a franchisor will depend upon our ability to develop and implement a
successful system of concepts and operating standards and to attract and
identify suitable franchisees with adequate business experience and access to
sufficient capital to enable them to open and operate restaurants in a manner
consistent with our concepts and operating standards. We cannot provide
assurance that we would be able to successfully meet these challenges as a
franchisor. In addition, as a franchisor we would be subject to a variety of
federal and state laws and regulations, including Federal Trade Commission
regulations, governing the offer and sale of franchises. These laws and
regulations could result in significant increased expenses and potential
liabilities for our company in the event we engage in franchising activities in
the future.

21

WE FACE RISKS THAT AFFECT THE RESTAURANT INDUSTRY IN GENERAL.

A variety of factors over which we have no control may affect the ownership
and operation of restaurants. These factors include adverse changes in national,
regional, or local economic or market conditions; increased costs of labor or
food products; fuel, utility, and energy and other price increases; competitive
factors; the number, density and location of competitors; and changing
demographics, traffic patterns, and consumer tastes, habits, and spending
priorities.

Third parties may file lawsuits against us based on discrimination,
personal injury, claims for injuries or damages caused by serving alcoholic
beverages to an intoxicated person or to a minor, or other claims. As a
multi-unit restaurant operator, our business could be adversely affected by
publicity about food quality, illness, injury, or other health and safety
concerns or operating issues at one restaurant or a limited number of
restaurants operated under the same name, whether or not we actually own or
manage the restaurants in question. We cannot predict any of these factors with
any degree of certainty. Any one or more of these factors could have a material
adverse effect on our business.

Employees may file claims or lawsuits against us based on discrimination or
wrongful termination or based upon their rights created by the state laws
wherein we do business. These claims or lawsuits could result in unfavorable
publicity and could have a material adverse effect on our business.

WE FACE RISING INSURANCE COSTS.

The cost of insurance (workers compensation insurance, general liability
insurance, health insurance, and directors and officers liability insurance) has
risen significantly in the past year and is expected to continue to increase in
2003. In California, new legislation effective January 1, 2003, provides
significantly increased benefits and higher costs to companies for workers'
compensation claims. Approximately 50% of our owned restaurants are in
California. These increases could have a negative impact on our profitability if
we are unable to make the improvements in our operations that mitigate the
effects of these increased costs.

WE FACE INTENSE COMPETITION.

The restaurant business is highly competitive with respect to price,
service, and food type and quality. Restaurant operators also compete for
attractive restaurant sites and qualified restaurant personnel and managers. Our
restaurants compete with a large number of other restaurants, including national
and regional restaurant chains and franchised restaurant systems, as well as
with locally owned, independent restaurants. Many of our competitors have
greater financial resources, more experience, and longer operating histories
than we possess.

WE DEPEND UPON OUR SENIOR MANAGEMENT.

Our success depends, in large part, upon the services of our senior
management. The loss of the services of any members of our senior management
team could have a material adverse effect on our business.

WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION.

Various federal, state, and local laws affect our business. The development
and operation of restaurants depend to a significant extent on the selection and
acquisition of suitable sites. These sites are subject to zoning, land use,
environmental, traffic, and other regulations of state and local governmental
agencies. City ordinances or other regulations, or the application of such
ordinances or regulations, could impair our ability to construct or acquire
restaurants in desired locations and could result in costly delays.

The delay or failure to obtain or maintain any licenses or permits
necessary for operations could have a material adverse effect on our business.
In addition, an increase in the minimum wage rate, employee benefit costs, or
other costs associated with employees could adversely affect our business. We
also are subject to the Americans with Disabilities Act of 1990 that, among
other things, may require us to install certain fixtures or accommodations in
new restaurants or to renovate existing restaurants to meet federally mandated
requirements.

Sales of alcoholic beverages represent an important source of revenue for
each of our restaurants. The temporary suspension or permanent loss or the
inability to maintain a liquor license for any restaurant would have an adverse

22

effect on the operations of that restaurant. We do not plan to open a restaurant
in any location for which we believe we cannot obtain or maintain a liquor
license.

WE FACE INCREASED EXPENDITURES OF TIME AND MONEY ASSOCIATED WITH COMPLIANCE WITH
CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE.

Keeping abreast of, and in compliance with, changing laws, regulations, and
standards relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, new SEC regulations, and Nasdaq National Market
rules, has required an increased amount of management attention and external
resources. We remain committed to maintaining high standards of corporate
governance and public disclosure. As a result, we intend to invest all
reasonably necessary resources to comply with evolving standards, and this
investment may result in increased general and administrative expenses and a
diversion of management time and attention from revenue generating activities to
compliance activities.

LITIGATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

We are from time to time the subject of complaints or litigation from
guests alleging food-borne illness, injury or other food quality, health or
operational concerns. We may be adversely affected by publicity resulting from
such allegations regardless of whether such allegations are valid or whether we
are liable. We are also subject to complaints or allegations from former or
prospective employees from time to time. A lawsuit or claim could result in an
adverse decision against us that could have a material adverse effect on our
business.

We are subject to state "dram shop" laws and regulations, which generally
provide that a person injured by an intoxicated person may seek to recover
damages from an establishment that wrongfully served alcoholic beverages to such
person. While we carry liquor liability coverage as part of our existing
comprehensive general liability insurance, we may still be subject to a judgment
in excess of our insurance coverage and we may not be able to obtain or continue
to maintain such insurance coverage at reasonable costs, or at all.

THE MARKET PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE.

Historically, the market price of our common stock has been volatile. In
the future, the market price of our common stock will be subject to wide
fluctuations as a result of a variety of factors, including the following:

* quarterly variations in our operating results or those of other
restaurant companies;

* changes in analysts' estimates of our financial performance;

* changes in national and regional economic conditions, the financial
markets, or the restaurant industry;

* natural disasters; and

* other developments affecting our business or other restaurant
companies.

The trading volume of our common stock has been limited, which may increase
the volatility of the market price for our stock. In addition, the stock market
has experienced extreme price and volume fluctuations in recent years. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons not necessarily related to the operating
performances of these companies.

According to NASDAQ rules, if the price of a company's Common Stock falls
below $1.00 for 20 consecutive trading days, NASDAQ will notify the company that
its stock is subject to being de-listed. NASDAQ can allow the company's stock to
remain listed and traded for up to six additional months based upon information
provided by the registrant of its actions in this regard. To date, we have not
received any such formal notification. If our stock price remains below $1.00,
our stock may be de-listed.

OUR MANAGEMENT CONTROLS A SIGNIFICANT PORTION OF THE VOTING POWER OF OUR COMMON
STOCK.

Our directors and officers currently own, directly or indirectly,
approximately 5,680,658 shares, or 40.2%, of our outstanding common stock. These
directors and officers also hold options to purchase an aggregate of 2,439,500

23

shares of common stock at exercise prices ranging from $1.88 to $5.81 per share.
As a result, these persons voting together will have significant voting power.

THE EXISTENCE OF STOCK OPTIONS AND WARRANTS MAY ADVERSELY AFFECT THE TERMS OF
FUTURE FINANCINGS.

Stock options to persons other than directors or officers to acquire an
aggregate of 1,047,922 shares of common stock currently are outstanding. An
additional 821,000 shares of common stock have been reserved for issuance upon
exercise of options that may be granted under our existing stock option plans.
In addition, warrants to acquire 231,000 shares of common stock currently are
outstanding. During the terms of those options and warrants, the holders of
those securities will have the opportunity to profit from an increase in the
market price of our common stock. The existence of options and warrants may
adversely affect the terms on which we can obtain additional financing in the
future, and the holders of options and warrants can be expected to exercise
those options and warrants at a time when, in all likelihood, we would be able
to obtain additional capital by offering shares of common stock on terms more
favorable to us than those provided by the exercise of such options and
warrants.

SALES OF LARGE NUMBERS OF SHARES COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON
STOCK.

Sales of substantial amounts of common stock in the public market, or even
the potential for such sales, could adversely affect prevailing market prices
for our common stock and could adversely affect our ability to raise capital. As
of March 12, 2003, there were 14,141,928 shares of our common stock outstanding.
All of these shares are freely transferable without restriction under the
securities laws, unless they are held by our "affiliates," as that term is
defined in the securities laws. Affiliates also are subject to certain of the
resale limitations of Rule 144. Generally, under Rule 144, each person that
beneficially owns restricted securities with respect to which at least one year
has elapsed since the later of the date the shares were acquired from us or one
of our affiliates may, every three months, sell in ordinary brokerage
transactions or to market makers an amount of shares equal to the greater of 1%
of our then-outstanding common stock or the average weekly trading volume for
the four weeks prior to the proposed sale of such shares.

WE DO NOT ANTICIPATE THAT WE WILL PAY DIVIDENDS.

We have never paid any dividends on our common stock, and we do not
anticipate that we will pay dividends in the foreseeable future. We intend to
apply any earnings to the expansion and development of our business. In
addition, the terms of our credit facilities limit our ability to pay dividends
on our common stock.

ITEM 2. PROPERTIES

In January 2003, we entered into a 10-year lease renewal and modification
agreement for our corporate offices. This agreement increased the size of the
existing space, allowing us to combine our three office locations into one
contiguous space. This will result in a reduction in total space leased and will
provide a reduction in annual rent expense. We believe that the leased space is
adequate for our current and reasonably anticipated future needs.

We also lease space for all of our restaurants. The initial lease terms
range from 10 to 20 years and usually contain renewal options for up to 20
years. The leases typically provide for a fixed rental payment plus a percentage
of our revenue in excess of a specified amount.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are subject to routine contract, negligence,
employment related, and other litigation in the ordinary course of business.

In January 2002, we were served with a lawsuit filed on behalf of a current
employee, seeking damages, under California law, for both missed breaks and
missed meal breaks the employee alleges she did not receive. This lawsuit seeks
to establish a class action relating to our California operations. We intend to
vigorously defend this lawsuit, both on the merits of the employee's case and
the issues relating to class action status.

Other than the preceding, we are not subject to any pending litigation that
we believe will have a material adverse effect on our business or financial
condition, results of operations or liquidity.

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

Not applicable.

24

PART II

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

Our common stock has been quoted on the Nasdaq National Market under the
symbol "MAIN" since 1992. The following table sets forth the quarterly high and
low sales prices of our common stock for the periods indicated as reported by
the Nasdaq National Market.

HIGH LOW
------ ------
2001
First Quarter............................ $ 3.13 $ 2.50
Second Quarter........................... 4.15 2.94
Third Quarter............................ 5.91 3.35
Fourth Quarter........................... 5.81 3.55
2002
First Quarter............................ $ 6.00 $ 4.00
Second Quarter........................... 6.37 5.73
Third Quarter............................ 6.00 3.07
Fourth Quarter........................... 3.25 1.72
2003
First Quarter (through March 12, 2003)... $ 2.12 $ .70

On March 12, 2003, there were 889 holders of record of our common stock. On
March 12, 2003, the closing sale price of our common stock on the Nasdaq
National Market was $.70 per share. See "The market price of our common stock
has been volatile" in the "Risk Factors" section, for de-listing considerations.

We have never declared or paid any cash dividends. We intend to retain any
earnings to fund the growth of our business and do not anticipate paying any
cash dividends in the foreseeable future. In addition, our existing debt
obligations limit our ability to pay cash dividends.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data for our
company for the periods indicated. The selected consolidated financial data for
each of the five fiscal years in the period ended December 30, 2002 has been
derived from our consolidated financial statements, which have been audited by
Arthur Andersen LLP, our former independent accountants, for the period through
December 25, 2000, and for the years ended December 31, 2001 and December 30,
2002, by KPMG LLP, our current independent accountants.

25

This data should be read in conjunction with, and are qualified by
reference to, our consolidated financial statements and the notes thereto and
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Report.



FISCAL YEAR ENDED
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
------------------------------------------------------------------
DEC. 30, DEC. 31, DEC. 25, DEC. 27, DEC. 28,
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------

STATEMENT OF OPERATIONS DATA:
Revenue ........................................ $ 220,151 $ 211,823 $ 186,542 $ 140,294 $ 114,242
Restaurant operating expenses:
Cost of sales ............................... 61,270 59,139 53,671 39,960 33,242
Payroll and benefits ........................ 67,603 64,435 55,971 42,405 33,701
Depreciation and amortization ............... 7,895 7,845 7,490 4,664 3,730
Other operating expenses .................... 65,912 61,285 52,008 38,923 31,004
Reduction of disputed liabilities ........... -- -- (1,591) -- --
---------- ---------- ---------- ---------- ----------
Total restaurant operating expenses ....... 202,680 192,704 167,549 125,952 101,677
---------- ---------- ---------- ---------- ----------
Income from restaurant operations .............. 17,471 19,119 18,993 14,342 12,565
Amortization of intangibles ................. 461 1,831 996 990 983
General and administrative expenses ......... 8,946 8,105 7,868 5,955 4,906
Pre-opening expenses ........................ 1,619 1,417 1,370 2,228 661
New manager training expenses ............... 1,820 1,676 1,914 1,748 731
Impairment charges and other ................ 7,943 3,453 (92) 494 (17)
Management fee income ....................... -- (432) (611) (865) (1,082)
---------- ---------- ---------- ---------- ----------
Operating income (loss) ........................ (3,318) 3,069 7,548 3,792 6,383

Interest expense and other, net (1) ......... 3,950 3,825 3,620 2,604 2,218
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes .............. (7,268) (756) 3,928 1,188 4,165
Income tax expense (benefit) (3) ............... 1,309 (645) 250 50 --
---------- ---------- ---------- ---------- ----------
Net income (loss)(1)(2) ........................ $ (8,577) $ (111) $ 3,678 $ 970 $ 4,165
========== ========== ========== ========== ==========
DILUTED EARNINGS PER SHARE:
Net income (loss) (2) ....................... $ (0.61) $ (0.01) $ 0.33 $ 0.09 $ 0.39
Weighted average shares outstanding - diluted 14,105 14,048 11,117 10,407 10,608

BALANCE SHEET DATA:
Working capital (deficiency) ................ $ (15,028) $ (7,987) $ (7,692) $ (16,652) $ (2,807)
Total assets ................................ 112,395 112,462 108,261 86,525 70,255
Long-term debt, net of current portion ...... 51,998 47,232 44,395 31,513 28,264
Stockholders' equity ........................ 29,610 40,207 40,499 27,383 26,372


- ----------
(1) Fiscal 2000 and 2002 includes a charge of $16,000 and $46,000,
respectively, for early extinguishment of debt.
(2) Fiscal 1999 includes a charge of $168,000, or $0.02 per share, due to the
cumulative effect of change in accounting principle related to the adoption
of SOP 98-5.
(3) Fiscal 2002 includes a full valuation allowance against deferred tax
assets.

26

QUARTERLY RESULTS OF OPERATIONS

The following table presents unaudited consolidated statements of
operations data for each of the eight quarters in the period ended December 30,
2002. We believe that all necessary adjustments have been included to present
fairly the quarterly information when read in conjunction with our consolidated
financial statements. The operating results for any quarter are not necessarily
indicative of the results for any subsequent quarter.



FISCAL QUARTER ENDED
---------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2002 2001
------------------------------------------- -----------------------------------------
APR. 1 JULY 1 SEPT. 30 DEC. 30 MAR. 26 JUNE 25 SEPT. 24 DEC. 31
-------- -------- -------- -------- -------- -------- -------- --------

Revenue ................................. $ 55,329 $ 57,898 $ 54,026 $ 52,898 $ 51,705 $ 53,229 $ 52,222 $ 54,667
Cost of sales ........................... 15,183 15,775 15,145 15,167 14,598 14,783 14,628 15,130
Income (loss) before income taxes ....... 1,557 1,541 (2,446) (7,920) 788 1,554 723 (3,821)
Net income (loss) (1) (2) (3) ........... $ 1,268 $ 1,264 $ (2,006) $ (9,103) $ 788 $ 1,554 $ 723 $ (3,176)
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per share
before income taxes .................... 0.11 0.11 (0.17) (0.56) 0.06 0.11 0.05 (0.28)
Net income (loss) per share ............. $ 0.09 $ 0.09 $ (0.14) $ (0.64) $ 0.06 $ 0.11 $ 0.05 $ (0.23)
======== ======== ======== ======== ======== ======== ======== ========


- ----------
(1) Fourth quarter fiscal 2002 includes asset impairment charges and estimated
lease termination fees of $6,337,000, including an allocation of $860,000
of goodwill.
(2) Third quarter fiscal 2002 includes asset impairment charges of $1,206,000
and a write-down of land held for sale of $400,000.
(3) Fourth quarter fiscal 2001 includes asset impairment charges of $1,838,000
and write-down of a management agreement receivable of $1,615,000.

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

BACKGROUND

We commenced our restaurant operations in May 1990 with the acquisition of
four T.G.I. Friday's restaurants in Arizona and Nevada. During the past twelve
years, we have grown through acquisitions and development of new restaurants. We
currently own 71 restaurants and manage an additional four restaurants.

In 1996, we had a change in management and implemented a long-term business
strategy to enhance our financial position, to place more emphasis on our casual
dining business in certain designated markets, and to dispose of underperforming
assets.

The first step was to strengthen our financial position by (i) the sale of
1,250,000 shares of common stock for $2,500,000 through a private placement
transaction in January 1997; (ii) the sale of five restaurants in northern
California in January 1997 for $10,800,000, of which $8,000,000 in proceeds were
used to repay debt; (iii) new borrowings of $21,300,000 with a repayment period
of 15 years; and (iv) recording writeoffs related to the disposition of various
non-core assets and the write-down of certain core assets to realizable values.
Proceeds from the new borrowings were used primarily to pay off debt with
shorter repayment periods.

We also renegotiated our development agreements with Carlson Restaurants
Worldwide, Inc. to reduce the number of T.G.I. Friday's restaurants we were
required to build, with the intent to focus on those development territories
that were most economically favorable.

We strengthened our operations and commenced expansion plans, principally
through developing T.G.I. Friday's restaurants. This expansion was financed by
borrowings from various lenders.

27

In 1999, we acquired our Redfish restaurants and in 2000 we acquired the
Bamboo Club restaurants and concept. The Bamboo Club acquisition was financed in
part with cash raised by a rights offering to stockholders in 2000.

In 2001, we entered into a new loan with Bank of America for $15,000,000,
which was sufficient to fund all of the T.G.I. Friday's restaurants completed by
June 2002. We executed an interest rate swap and locked in our interest rate on
$12,500,000 of the loan total. We believe that this is a favorable rate, as our
existing financing is at a higher rate, and that this portion of the loan will
be sufficient to fund our current construction and expansion of T.G.I. Friday's
restaurants. The interest rate is performance based and indexed to the LIBOR
rate plus a predetermined spread based upon our adjusted senior funded debt (as
defined in the loan documents) to EBITDA. As of December 30, 2002, the interest
rate was 8.5%. The interest rate swap qualifies as a cash flow hedge in
accordance with SFAS No. 133. On a quarterly basis, we adjust the fair market
value of the swap on the balance sheet and offset the amount of the change to
other comprehensive income.

In 2001, operations were impacted by soft economic conditions, especially
in the fourth quarter and subsequent to the September 11th attacks on America.
These conditions halted our positive same store sales increase record at 18
consecutive quarters and predicated the fourth quarter impairment write-down of
five owned restaurants and the management agreement receivable impairment
write-down for six stores we managed in Northern California and El Paso, Texas.
The total impairment charges were $3,453,000, of which $1,838,000 related to
owned assets and $1,615,000 related to the management agreement receivable
impairment. We also faced two distinctive challenges in our T.G. I. Friday's
California market, which affected operational profitability: (i) a $0.50 per
hour minimum wage increase effective January 1, 2001, and (ii) controlling
escalating utility prices. To effectively combat these challenges, we
implemented a new labor program for our top store managers to manage multiple
locations, where it was geographically efficient; and we implemented utility
programs to measure optimum usage and to ensure cost efficiency.

We opened seven new restaurants in 2001, including three T.G.I.Friday's,
one Redfish, and three Bamboo Club locations. The T.G.I. Friday's restaurants
are located in West Albuquerque, New Mexico; Roseville, California (Sacramento
area); and Porter Ranch, California (Los Angeles area). The Redfish restaurant
is located in North Scottsdale, Arizona; and the Bamboo Club restaurants are
located in Tampa, Florida; Wellington, Florida (West Palm Beach area); and
Tempe, Arizona (Phoenix area).

We opened six new restaurants in 2002, including one T.G.I. Friday's and
one Redfish in Chandler, Arizona; three Bamboo Clubs in Tucson, Arizona,
Newport, Kentucky, and King of Prussia, Pennsylvania; and one Alice Cooper'stown
in Cleveland, Ohio in the location formally occupied by an underperforming
Redfish restaurant we closed. In addition, we closed an underperforming Redfish
in San Diego, California and subleased the premises to a local San Diego
nightclub operator. We also closed underperforming T.G.I. Friday's restaurants
in Kansas City, Missouri and in El Paso, Texas.

During the third quarter of 2002, we recorded charges for (i) the
write-down of land held for sale of $400,000 and (ii) impairment charges and
other of $1,206,000, including asset impairment for an under-performing
restaurant location that was closed, an allocation of $300,000 of goodwill and
$95,000 in lease cancellation charges related to this closure.

In the fourth quarter of 2002, in response to a difficult and soft national
economy, we decided (i) we would terminate several existing leases for Bamboo
Club locations, where we have not yet built a restaurant; (ii) we would not
renew leases for restaurants whose lease terms expired in 2003, and (iii) we
would record impairment charges for under-performing restaurants. The asset
impairment and estimated lease termination fees recorded in the fourth quarter
of 2002 were $6,037,000, including an allocation of $860,000 of goodwill.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make a number of estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements. Such estimates and assumptions affect the
reported amounts of revenues and expenses during the reporting period. On an
ongoing basis, we evaluate our estimates and assumptions based upon historical

28

experience and various other factors and circumstances. We believe our estimates
and assumptions are reasonable in the circumstances; however, actual results may
differ from these estimates under different future conditions.

We believe that the estimates and assumptions that are most important to
the portrayal of our financial condition and results of operations, in that they
require management's most difficult, subjective or complex judgments, form the
basis for the accounting policies deemed to be most critical to our operations.
These critical accounting policies relate to the valuation and amortizable lives
of long-lived assets, goodwill, and to other identifiable intangible assets,
valuation of deferred tax assets, reserves related to self-insurance for workers
compensation and general liability, and recognition of stock based employee
compensation. These policies are as follows:

(1) We periodically perform asset impairment analysis of long-lived assets
related to our restaurant locations, goodwill, and other identifiable intangible
assets. We perform these tests whenever we experience a "triggering" event, such
as a decision to close a location or major change in the locations operating
environment, or other event that might impact our ability to recover our asset
investment. Also, we have a policy of reviewing the financial operations of our
restaurant locations on at least a quarterly basis. Locations that are not
meeting expectations are identified and continue to be watched closely
throughout the year. Primarily in the fourth quarter, actual results are
reviewed and budgets for the ensuing year are analyzed. If we deem that a
locations results will continue to be below expectations, alternatives for its
continued operation are considered. At this time, we perform an asset impairment
test, if it is determined that the asset's fair value is less than book value
and we will be unable to recover our investment through operations, an
impairment charge is recorded. Upon an event such as a formal decision for
abandonment (restaurant closure), we may record additional impairment of assets
and an allocation of goodwill if the location was one that was acquired. Any
carryover basis of assets is depreciated over the respective remaining useful
lives.

(2) Periodically we record (or reduce) the valuation allowance against our
deferred tax assets to the amount that is more likely than not to be realized,
based upon recent past financial performance, tax reporting positions and
expectations of future taxable income.

(3) We use an actuarial based methodology utilizing our historical
experience factors to periodically adjust self-insurance reserves for workers
compensation and general liability claims and settlements. These estimates are
adjusted based upon annual information received in July of each year in
connection with policy renewals. Estimated costs for the following year are
accrued on a monthly basis and progress against this estimate is reevaluated
based upon actual claim data received each quarter.

(4) We use the method of accounting for employee stock options allowed
under APB Opinion 25 and have adopted the disclosure provisions of SFAS No. 123,
which require pro forma disclosure of the impact of using the fair value at date
of grant method of recording stock-based employee compensation.

We believe estimates and assumptions related to these critical accounting
policies are appropriate under the circumstances; however, should future events
or occurrences result in unanticipated consequences, there could be a material
impact on our future financial condition or results of operations.

29

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentages
that certain items of income and expense bear to total revenue:



FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 30, DECEMBER 31, DECEMBER 25,
2002 2001 2000
----- ----- -----

Revenue ................................. 100.0% 100.0% 100.0%
Restaurant operating expenses:
Cost of sales ........................ 27.8 27.9 28.8
Payroll and benefits ................. 30.7 30.4 30.0
Depreciation and amortization ........ 3.6 3.7 4.0
Other operating expenses ............. 29.9 28.9 27.9

Reduction of disputed liabilities .... -- -- (0.9)
----- ----- -----
Total restaurant operating expenses .. 92.1 91.0 89.8
----- ----- -----
Income from restaurant operations ....... 7.9 9.0 10.2
Amortization of intangibles .......... 0.2 0.9 0.6
General and administrative expenses .. 4.1 3.8 4.2
Preopening expenses .................. 0.7 0.7 0.7
New manager training expenses ........ 0.8 0.8 1.0
Impairment charges and other ......... 3.6 1.6 0.0
Management fee income ................ -- (0.2) (0.3)
----- ----- -----
Operating income (loss) ................. (1.5) 1.4 4.0
Interest expense and other, net ......... 1.8 1.8 1.9
----- ----- -----
Income (loss) before income taxes ....... (3.3)% (0.4)% 2.1%
===== ===== =====


FISCAL 2002 COMPARED TO FISCAL 2001

Revenue for the fiscal year ended December 30, 2002 increased 3.9% to
$220.2 million compared with $211.8 million for the year ended December 31,
2001. This increase was primarily a result of opening six new restaurants in
2002 and the full year of revenues for the seven restaurants opened in 2001.
Same-store sales increased 0.4% for fiscal 2002 as compared with an increase in
same-store sales of 1.9% for 2001. Same-stores sales percentages represent sales
for stores that have been open for at least 18 months. Revenue from alcoholic
beverages accounted for 24.4% of revenue in 2002 and 24.2% in 2001.

Cost of sales as a percentage of revenue decreased slightly to 27.8% in
2002 from 27.9% in 2001. This decrease was due primarily to lower prices on
certain proteins and partially offset by higher costs for produce, seafood, and
grocery products.

Payroll and benefit costs increased as a percentage of revenue to 30.7% in
2002 from 30.4% for the comparable period in 2001. This increase was primarily
due to a $0.50 per hour minimum wage increase in our California market effective
January 1, 2002, and increases in management labor and benefits resulting from
lower turnover. As discussed below, new manager labor expense is charged to the
new manager training expense account. Therefore, when turnover is lower, less
labor is charged to the new manager training expense account and more labor
remains in the payroll and benefits account. Payroll and benefits increases were
also the result of higher health insurance costs.

Depreciation and amortization before income from restaurant operations
includes depreciation of restaurant property and equipment and amortization of
franchise fees and liquor licenses. Depreciation and amortization decreased as a
percentage of revenue to 3.6% in 2002 from 3.7% for the comparable period in
2001, primarily due to a reduction in depreciation expense due to the impairment
of assets for several under-performing locations recorded in December 2001, and
additional asset impairments recorded in the third quarter of 2002.

30

Other operating expenses include rent, real estate taxes, common area
maintenance charges, advertising, insurance, maintenance, and utilities. Other
operating expenses increased as a percentage of revenue to 29.9% in 2002 from
28.9% for the comparable period in 2001. The increase was due primarily to
additional unit level advertising costs, store rent increases related to new
store openings, and marketing fee increases. The franchise agreements between
Carlson Restaurants Worldwide and our company require a 4% of net sales royalty
and up to a 4% of net sales marketing contribution. Each year we contribute to a
T.G.I. Friday's national marketing pool. In 2001, the pool contribution was 2.1%
of net sales for the first three fiscal quarters and 1.7% of net sales for the
fourth quarter. The pool contribution percentage decreased because Carlson
Restaurants Worldwide cancelled its T.G.I. Friday's national advertising
campaign for the entire fourth quarter of 2001. In 2002, the contribution to the
fund was 2.7% of sales, resulting in an increase over the prior year. This
contribution offsets a portion of our general 4% marketing requirement.

Depreciation and amortization after income from restaurant operations
includes depreciation of corporate property and equipment, amortization of
identifiable intangibles, and amortization of goodwill as applicable.
Depreciation and amortization decreased as a percentage of revenue to 0.2% in
2002 from 0.9% for the comparable period in 2001, as a result of the elimination
of goodwill amortization under SFAS No. 142, effective as of January 1, 2002.

General and administrative expenses increased as a percentage of revenue to
$8,946,000, or 4.1% in 2002 from $8,105,000, or 3.8% for the comparable period
in 2001. The increase was due primarily to increases in salaries, benefits and
travel related to building of the Bamboo Club infrastructure and increases in
technology support costs, higher legal costs and higher rent due to additional
office space.

Pre-opening expenses were $1,619,000, or 0.7% of revenue, at December 30,
2002 as compared to $1,417,000, or 0.7% of revenue, for the year ended December
31, 2001. Although we opened six stores in 2002 compared to seven stores in
2001, our expenses were higher in 2002 due primarily to incurring costs in 2002
for new store openings in 2003, combined with increases in employee recruiting
and training, new store opening team travel, and promotional events. The
majority of pre-opening expenses occur during the two months prior to opening a
store.

New manager training expenses are those costs incurred in training newly
hired or promoted managers, as well as those costs incurred to relocate those
managers to permanent management positions. New manager training expenses were
$1,820,000, or 0.8% of revenue, for the year ended December 31, 2002 as compared
with $1,676,000, or 0.8% of revenue, for the period in 2001. Although new
manager training expenses were consistent as a percentage of revenue, the
increases in 2002 were primarily the result of new store openings in 2002
compared to 2001 and expenses incurred in 2002 related to new stores to be
opened in early 2003.

In 2002, the impairment charges and other account included the impairment
of certain leasehold improvements and other operating assets. The account
included (i) $3,908,000 to primarily reduce the carrying value of these assets
on under-performing locations to their estimated fair value, (ii) $1,160,000 of
goodwill allocated to one closed location (Kansas City, Missouri), and two
impaired California locations where we have decided not to renew the lease when
the initial terms expire in 2003, (iii) $760,000 in lease cancellation charges
and $415,000 in asset write downs for three Bamboo Club locations that we have
elected not to open, and (iv) lease cancellation costs of $1,300,000 for one
location where we decided to cancel a lease early (Leawood, KS). During the
third quarter of 2002, we also reduced the value of the land and building we are
holding for sale in El Paso, Texas by $400,000. During the fourth quarter of
2001, we recorded an impairment expense of $1,615,000 against a management
agreement with CNL.

Under management agreements, we manage four T.G.I. Friday's stores in
Northern California and managed one T.G. I. Friday's store in El Paso, Texas.
During the fourth quarter 2002, the El Paso, Texas location was closed. Under
these agreements, we are entitled to a management fee if certain cash flow
levels are achieved. Based on the cash flow provisions of the management
agreements, we were unable to record management fee income during 2002 compared
to $432,000, or 0.2% of revenue, in 2001.

Interest expense and other, net was approximately $3,950,000, or 1.8% of
revenue in 2002 compared with $3,825,000, or 1.8% of revenue in 2001. Although
we incurred additional debt and a corresponding increase in interest expense in
2002, the increased expenses compared with 2001 were offset by more favorable

31

interest rate conditions on our variable interest rate debt. As of December 30,
2002, approximately 59% of our total debt was tied to variable interest rates.
During the years ended December 30, 2002 and December 31, 2001 we had average
outstanding borrowings of $54,200,000 and $48,300,000, respectively, with
effective interest rates of 7.3% and 7.9%, respectively.

As a result of a substantial net loss during 2002, we provided an
additional valuation allowance to fully reserve all of its net deferred tax
asset. An income tax benefit of $645,000 was recorded in 2001 because we offset
net operating loss carryforwards against taxable income. We were in a taxable
income situation in 2001 due to the recognition of various timing differences
from 2000. At December 30, 2002, we had approximately $7,463,000 of net
operating loss carryforwards and tax credit carryforwards available to offset
future income for federal income tax purposes.

FISCAL 2001 COMPARED TO FISCAL 2000

Revenue for the fiscal year ended December 31, 2001 increased 13.6% to
$211.8 million compared with $186.5 million for the year ended December 25,
2000. This increase was primarily a result of opening seven new restaurants in
2000 and seven new restaurants in 2001. Same-store sales increased 1.9% for
fiscal 2001 as compared with an increase in same-store sales of 5.1% for the
comparable period in 2000. Same-stores sales percentages represent sales for
stores that have been open for at least 18 months. Revenue from alcoholic
beverages accounted for 24.5% of revenue in 2001 and 24.4% in 2000.

Cost of sales as a percentage of revenue decreased to 27.9% in 2001 from
28.8% in 2000. This decrease from the comparable period in 2000 resulted from
multiple factors. Food costs were higher in 2000 because we were required to
find alternative food suppliers to replace Ameriserve, our primary food supplier
who declared bankruptcy in the first quarter of 2000. Additionally, we
experienced increased food costs in 2001 due to sales mix changes and increases
in meat and cheese costs. We offset these increases through improved operations,
better margins on alcohol sales, and maturing relationships with our suppliers
that led to more favorable contract terms.

Payroll and benefit costs increased as a percentage of revenue to 30.4% in
2001 from 30.0% for the comparable period in 2000. This increase was primarily
due to a $0.50 per hour minimum wage increase in our California market effective
January 1, 2001 and higher management labor and benefits resulting from lower
turnover. As discussed below, new manager labor expense is charged to the new
manager training expense account. Therefore, when turnover is lower, less labor
is charged to the new manager training expense account and more labor remains in
the payroll and benefits account.

In total, depreciation and amortization increased as a percentage of
revenue to 4.1% in 2001 from 4.0% for the comparable period in 2000. The
increase was due primarily to the number of new restaurants we opened in 2000
and 2001.

Other operating expenses include rent, real estate taxes, common area
maintenance charges, advertising, insurance, maintenance, and utilities. In
addition, the franchise agreements between Carlson Restaurants Worldwide and our
company require a 4% of net sales royalty and a 4% of net sales marketing
contribution. Each year we contribute to a T.G.I. Friday's national marketing
pool. In 2000, the pool contribution was 2.1% of net sales. In 2001, the pool
contribution was 2.1% of net sales for the first three fiscal quarters and 1.7%
of net sales for the fourth quarter. The pool contribution percentage decreased
because Carlson Restaurants Worldwide cancelled its T.G.I. Friday's national
advertising campaign for the entire fourth quarter of 2001. This contribution
offsets a portion of our general 4% marketing requirement. Other operating
expenses increased as a percentage of revenue to 28.9% in 2001 from 27.9% for
the comparable period in 2000. The increase was due primarily to additional unit
level advertising efforts, store rent increases, and additional energy and
workers' compensation costs, especially in California.

Reduction of disputed liabilities in 2000 represents the one-time
settlement proceeds paid to us for the Ameriserve bankruptcy claim. Ameriserve
was our primary food supplier until they declared bankruptcy in the first
quarter of 2000.

32

Amortization of intangible expenses include amortization on capitalized
liquor licenses, loan financing fees, franchise fees, and goodwill. These
amortization expenses decreased as a percentage of revenue to 0.5% in 2001 from
0.6% for the comparable period in 2000. The decrease in 2001 was primarily due
to spreading a small increase in fixed expenses over a larger revenue base.

General and administrative expenses decreased as a percentage of revenue to
$8,105,000, or 3.8% in 2001 from $7,868,000, or 4.2% for the comparable period
in 2000. The decrease was primarily due to reduced legal fees and recruiting
expenses as we hired both an in house attorney and recruiter during 2001. In
addition, reduction in travel expenses related to postponing all non-mandatory
travel during the fourth quarter of 2001 after the events of September 11
contributed to the overall decrease.

Pre-opening expenses of $1,417,000, or 0.7% of revenue, were charged to
operations during the year ended December 31, 2001 as compared to $1,370,000, or
0.7% of revenue, being charged to operations during the year ended December 25,
2000. The increase was due to the opening of two Bamboo Clubs outside of our
Phoenix, Arizona market (Central Florida) that resulted in additional travel
expenses for our new store opening teams.

New manager training expenses are those costs incurred in training newly
hired or promoted managers, as well as those costs incurred to relocate those
managers to permanent management positions. These expenses decreased to
$1,676,000, or 0.8% of revenue, for the year ended December 31, 2001 as compared
to $1,914,000, or 1.0 % of revenue, for the year ended December 25, 2000
primarily as a result of lower turnover.

In 2001 and 2000, impairment charges and other included the impairment of
certain leasehold improvements and other operating assets in accordance with
SFAS No. 121. The charges amounted to $1,838,000 in 2001 and $832,000 in 2000,
to reduce the carrying value of these assets to their estimated fair value. In
addition, we recorded an impairment expense of $1,615,000 in the fourth quarter
of 2001 against a management agreement with CNL for six under-performing
locations we managed in Northern California and one location in El Paso, Texas.
Other charges in 2000 included the final settlement proceeds of $924,000, net,
received from the City and County of San Francisco, California in connection
with condemnation proceedings against a restaurant we owned.

Management fee income represents 3% of store gross revenue charged to five
T.G.I. Friday's locations we managed in Northern California and one location in
El Paso, Texas for CNL. Based on the impairment of the management agreement in
the fourth quarter of 2001, we did not record any management fee income for the
fourth quarter of 2001.

Interest expense and other, net was approximately $3,825,000 in 2001
compared with $3,615,000 in 2000. The net expense decreased as a percentage of
revenue to 1.8% in 2001 from 1.9% for the comparable period in 2000. Although we
incurred additional debt and a subsequent increase in interest expense in 2001,
the increased expenses compared with 2000 were offset by more favorable interest
rate conditions on our variable interest rate debt. As of December 31, 2001,
approximately 50% of our total debt was tied to variable interest rates. During
the years ended December 31, 2001 and December 25, 2000 we had average
outstanding borrowings of $48,300,000 and $42,300,000, respectively, with
effective interest rates of 7.9% and 8.5%, respectively.

An income tax benefit of $645,000 was recorded in 2001 because we offset
net operating loss carryforwards against taxable income. We were in a taxable
income situation in 2001 due to the recognition of various timing differences
from 2000. In 2000, we recorded a $250,000 expense related to state income taxes
due in certain states where net operating loss carryforwards were no longer
available to us.

LIQUIDITY AND CAPITAL RESOURCES

Our primary use of funds over the past five years has been for the
acquisition of existing T.G.I. Friday's restaurants, the development of new
T.G.I. Friday's restaurants, and the acquisition and development of the Redfish
and Bamboo Club restaurants and concepts. These acquisitions were financed
principally through a new stock (rights offering) issuance, the issuance of
long-term debt, and internally generated cash.

In October 2002, we renewed a $5 million revolving line of credit with
Comerica Bank. The agreement contained financial covenants which limit the
amount of total debt we can incur. We did not borrow any amounts under this line

33

and had no amounts outstanding at December 30, 2002. Because of the restrictions
placed by the financial covenants of this agreement, we cancelled this agreement
in March 2003.

In July 2002, we amended our Bank of America development facility to
provide for an additional $1,000,000 in financing. During 2002, we borrowed an
additional $9,465,000 to fund construction on two locations (T.G.I. Friday's San
Tan, Chandler, Arizona and Porter Ranch, California) and to refinance two
existing locations (T.G. I. Friday's Cerritos, California and Oxnard,
California) for which we paid off higher rate debt. By September 30, 2002, we
had fully utilized our development facility with Bank of America. We are
currently in negotiations with Bank of America to finance the T. G. I. Friday's
location being built at Desert Ridge Mall, Arizona.

In October 2002, we secured a $15 million financing commitment through GE
Franchise Finance. The terms include $6 million for financing of equipment and
leasehold improvements for the seven Bamboo Clubs already open and approximately
$9 million for new Bamboo Club development. At December 30, 2002, there were no
amounts borrowed under this commitment.

All of our loan agreements contain various financial covenants that are
generally measured at the end of each quarter. At December 30, 2002, we met all
of the financial covenants for all debt agreements, with the exception of one
covenant with Comerica Bank with whom we had a $5.0 million line of credit. Due
to the restrictive covenants contained in this agreement, at December 30, 2002
we were unable to utilize the line of credit. Since we were required to pay a
non-use fee under this financing agreement, we made the decision to cancel this
line in March 2003. Our recent operations have been negatively impacted by an
economic slow down, and resulting same-store sales declines. We have reduced new
store development, and cancelled certain leases on locations where construction
has not yet begun to reduce the need for capital. If the economic trend worsens,
coupled with the new restaurant development planned in 2003, and resulting
borrowings to finance the cost of building these new restaurants, we may violate
one or more of these covenants with any one of our lenders at the end of the
second quarter of 2003. Based on our debt covenants, at December 30, 2002, we
have no significant borrowing capabilities under any of our debt agreements.
Some of our financial covenants are dependant upon profitable operations and
limit the total amount of debt we can have outstanding. If economic conditions
remain depressed, this could have a material adverse effect on our business and
prevent us from having the cash availability to fund new restaurant development.

We believe we will remain in compliance with our current debt agreements or
will receive the necessary modifications, if needed, to our debt covenants, and
if there is an improvement in the general economic conditions in our key
markets, we believe that our current cash resources, additional debt financing
commitments, sale of assets, and expected cash flows from operations will be
sufficient to fund our planned development through 2003. As discussed previously
discussed, other than the one T.G. I. Friday's we currently have under
construction (Desert Ridge Mall, Arizona), we do not anticipate building
additional T.G. I. Friday's during 2003. With regard to our development
agreement (which requires the development of five T.G. I. Friday's locations in
2003), we have every expectation, based on amendments and waivers received in
prior years, that we will receive the appropriate waivers for 2003. We believe
we may need to obtain capital to fund additional growth beyond 2003. Potential
sources of any such capital include bank financing, strategic alliances, and
additional offerings of our equity or debt securities. We cannot provide
assurance that such capital will be available from these or other potential
sources, and the lack of capital could have a material adverse effect on our
business.

Net cash flows from operating activities were $9,195,000 in 2002, and
$12,529,000 in 2001, and $3,824,000 in 2000. These were supplemented by net cash
flows from financing of $5,538,000 in 2002, $3,864,000 in 2001, $22,496,000 in
2000, which we used to fund our acquisitions and development of new restaurants.

Net cash used in investing activities was $18,578,000 in 2002, $11,492,000
in 2001, and $24,810,000 in 2000, which we used primarily to fund property and
equipment purchases for our new restaurants and to acquire franchise rights and
goodwill related to both the purchase and opening of new restaurants. These
amounts were offset by cash received from the sale of assets related to our
sale-leaseback transactions.

Our current liabilities exceed our current assets due in part to cash
expended on our development requirements and because the restaurant business
receives substantially immediate payment for sales, while payables related to

34

inventories and other current liabilities normally carry longer payment terms,
usually 15 to 30 days. At December 30, 2002, we had a working capital deficit of
approximately $15,028,000.

At December 30, 2002, we had a cash balance of $5,621,000, long-term debt
of $51,998,000 and current portion of long-term debt of $3,502,000. Monthly cash
receipts have been sufficient to pay all obligations as they become due.

Approximately $16,535,000 of this debt is a term loan comprised of five
notes payable to one lender. Three of the notes bear interest at 9.5% per annum
and two of the notes bear interest at the one month LIBOR rate plus 320 basis
points. The notes mature on May 1, 2012.

During November 1999, we entered into two working capital revolving loan
agreements with another lender. One agreement provides for a maximum of
$8,050,000 to finance up to 80% of the costs to develop seven T.G.I. Friday's
restaurants. Borrowings under this agreement will mature in 10 years. These
borrowings are secured by the assets financed with the borrowings and are
guaranteed by certain of our subsidiaries. The other agreement provides for a
maximum of $3,150,000 to finance 80% of the costs to furnish and equip seven
T.G.I. Friday's restaurants. Borrowings under this agreement are secured by the
assets financed with the borrowings and will mature in seven years. Borrowings
under both agreements bear interest at 2.65% over the "30-Day Dealer Commercial
Paper Rate," as defined in the agreements, or a combined rate of 3.95% at
December 30, 2002. At December 30, 2002, we had outstanding borrowings of
$5,484,985 under these agreements. These agreements include covenants related to
our fixed charge coverage ratio and debt to adjusted cash flow ratio. We were in
compliance with these covenants at December 30, 2002.

The remainder of our long-term debt consists of notes payable to various
lending institutions. These notes bear interest at rates ranging from 3.9% to
10.6% and mature at various times over the next 15 years.

We lease all of our restaurants with terms ranging from 10 to 20 years. Our
future debt, lease, and purchase obligations are summarized by year as follows
(in thousands):

CONTRACTUAL OBLIGATIONS AND COMMITMENTS:



Greater
Less than One to Three Three to five than five
Total one year years years years
-------- -------- -------- -------- --------

Debt Maturities $ 55,500 $ 3,502 $ 7,960 $ 9,150 $ 34,888
Minimum Lease Commitments 129,221 11,499 21,065 18,935 77,722
Purchase Commitments 2,511 2,511 -- -- --
-------- -------- -------- -------- --------
Total $187,232 $ 17,512 $ 29,025 $ 28,085 $112,610
======== ======== ======== ======== ========


Minimum lease commitments represent operating leases, which are off-balance
sheet financings. We have no other off-balance sheet financings. A default under
a lease agreement could result in damages or the acceleration of amounts due
under the lease. Total purchase commitments include remaining construction costs
for the three restaurants currently under construction (one T. G. I. Friday's at
Desert Ridge Mall, Arizona, and the two Bamboo Club restaurants one in Novi,
Michigan and one at Desert Ridge Mall, Arizona).

As a result of our substantial loss in 2002, we submitted a quick refund
application to the Internal Revenue Service for refund of an overpayment of
federal taxes of approximately $850,000.

We believe that our current resources and expected cash flows from
operations will be sufficient to fund our capital needs and debt maturities
during the next 12 months. Prolonged future adverse geopolitical and economic
conditions could have a material adverse effect on our financial capabilities.

35

NEW ACCOUNTING PRONOUNCEMENTS

During 2002, we adopted the provisions of SFAS No. 142 which eliminates the
amortization of all existing and newly acquired goodwill on a prospective basis
and requires companies to assess goodwill impairment, at least annually, based
on the fair value of the reporting unit. As of the date of adoption, January
2002, we had unamortized goodwill of $25,149,000 that is subject to the
transition provisions of SFAS Nos.141 and 142. Accumulated amortization related
to goodwill is $5,914,000 as of the date of adoption. During 2002, we wrote off
$1,160,000 of allocated goodwill associated with one closed location (Kansas
City, Missouri) and two impaired locations (Palm Desert, California and Citrus
Heights, California). After this goodwill write off, at December 30, 2002, we
performed a valuation in accordance with SFAS No.142 for the purpose of
determining the amount of goodwill impairment. Based on the results of the
valuation, no additional impairment was required. Additionally, during 2002, we
reclassified $994,000 of goodwill to franchise area goodwill which is classified
as an intangible asset that requires amortization under SFAS No.142. Franchise
area goodwill represents the estimated value the company paid to acquire the
franchise rights to develop restaurants in certain locations, at the date of
original purchase. As a result of these transactions, net goodwill was
$22,995,000 at the end of 2002.

During 2002, we adopted SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While Statement
No. 144 supersedes Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, it retains many
of the fundamental provisions of that Statement. In 2002, we recognized asset
impairments of $4,454,000 on under-performing properties.

In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS
NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS. This Statement rescinds the requirement to report gains and losses
from extinguishment of debt as an extraordinary item. Additionally, this
statement amends Statement 13 to require sale-leaseback accounting for certain
lease modifications that have economic effects similar to sale-leaseback
transactions. The provisions of this statement relating to Statement 4 are
applicable in fiscal years beginning after May 15, 2002. The provisions of this
Statement related to Statement 13 are effective for transactions occurring after
May 15, 2002. All other provisions of this Statement are effective for financial
statements issued on or after May 15, 2002. We adopted FASB No. 145 related to
Statement No. 4 for year ended December 30, 2002; the implementation of this
statement did not have a material effect on our financial statements. The
adoption of SFAS No. 145 related to Statement No. 13 had no effect on our
financial statements for the year ended December 30, 2002.

In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED
WITH EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity". For purposes of this
Statement, an exit activity includes, but is not limited to, a restructuring as
that term is defined in IAS 37, "Provisions, Contingent Liabilities, and
Contingent Assets". The Statement is effective for exit or disposal activities
initiated after December 31, 2002. If we have restructuring activities in the
future, we will adopt SFAS No. 146.

In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION-TRANSITION AND DISCLOSURE. This statement amends prior statements
to provide alternative methods of transition for an entity that voluntarily
changes to fair value based method of accounting for stock based employee
compensation. We did not adopt the cost recognition method of recording
stock-based employee compensation under SFAS No. 123 (which adoption was and
remains optional), however, we provide the pro forma disclosures in notes to our
annual financial statements as if we had adopted the cost recognition method
under SFAS 123. We will adopt the new required disclosures about those effects
in future interim financial information.

In June 2001, FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. SFAS No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development, and/or normal use
of the assets. The Company also records a corresponding asset that is

36

depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement obligation, the obligation will be adjusted at the end of
each period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The Company is required to adopt SFAS No.
143 on January 1, 2003. The adoption of SFAS No. 143 is not expected to have a
material effect on the Company's financial statements.

In November 2002, the FASB issued Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS TO OTHERS, AN INTERPRETATION OF FASB STATEMENTS NO.
5, 57 AND 107 AND A RESCISSION OF FASB INTERPRETATION NO. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company's
financial statements. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 15, 2002.

In January 2003, the FASB issued Interpretation No. 46, CONSOLIDATION OF
VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51. This Interpretation
addresses the consolidation by business enterprises of variable interest
entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For public enterprises with a variable interest
in a variable interest entity created before February 1, 2003, the
Interpretation is applied to the enterprise no later than the beginning of the
first interim or annual reporting period beginning after June 15, 2003. The
application of this Interpretation is not expected to have a material effect on
the Company's financial statements. The Interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that the Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 30, 2002, we were participating in three derivative
financial instruments for which fair value disclosure is required under SFAS No.
133. The fair value liability of the interest rate swap agreements discussed in
note 2 to the financial statements increased to $2,638,104 using "hedge
accounting" under SFAS No. 133.

Our market risk exposure is limited to interest rate risk associated with
our credit instruments. We incur interest on loans made at variable interest
rates of 3.20% over LIBOR, 2.75% over LIBOR, and 2.65% over "30-Day Dealer
Commercial Paper Rates." At December 30, 2002, we had outstanding borrowings on
these loans of approximately $32,792,589. Our net interest expense for 2002 was
$3,950,000; a one percent variation on any of the variable rates would have
increased or decreased our total interest expense by approximately $328,000 for
the year.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the consolidated financial statements, the report
thereon, the notes thereto, and the supplementary data commencing at page F-1 of
this report, which consolidated financial statements, report, notes, and data
are incorporated by reference.

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

On August 27, 2001, we engaged the accounting firm of KPMG LLP as our new
independent public accountants and dismissed Arthur Andersen LLP. The decision
to change our accounting firm was recommended and approved by the audit
committee of our board of directors and approved by our board of directors.
During the two most recent fiscal years and subsequent interim reporting periods
preceding the date of this report, there were no disagreements between us and
Arthur Andersen LLP on any matter of accounting principles or practices,
financial statement disclosure, accounting scope or procedures, or any
reportable events. The report of Arthur Andersen LLP on our consolidated
financial statements for the last two fiscal years in which they did report
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope, or accounting principles. Prior to
their engagement, we had not consulted with KPMG LLP on either the application
of accounting principles or type of opinion KPMG LLP might issue on our
consolidated financial statements. Arthur Andersen LLP agreed with the above
statements and a letter from it was attached to our Form 8-K filed on August 27,
2001.

37

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item relating to our directors is
incorporated by reference to our Proxy Statement to be filed for our 2003 Annual
Meeting of Stockholders. The information required by this Item relating to our
executive officers is included in Item 1, "Business - Executive Officers."

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to our
Proxy Statement to be filed for our 2003 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

All of our equity based compensation plans have been adopted with
stockholder approval. Other than the preceding, the information required by this
Item is incorporated by reference to our Proxy Statement to be filed for our
2003 Annual Meeting of Stockholders.

The following table sets forth information with respect to our common stock
that may be issued upon the exercise of stock options under our various stock
option Plans as of December 30, 2002:



Number of Securities
Remaining Available for
(a)Number of securities to Future Issuance Under
be Issued Upon Exercise of (b)Weighted Average Exercise Equity Compensation Plans
Outstanding Options, Price of Outstanding (Excluding Securities
Plan Category Warrants and Rights Options, Warrants and Rights Reflected in Column (a))
- ------------- ------------------- ---------------------------- ------------------------

Equity Compensation Plans
Approved by Stockholders ........ 3,487,420 $ 3.32 821,078

Equity Compensation Plans Not
Approved by Stockholders ........ -- -- --
----------- ----------- -----------

Total ........................... 3,487,420 $ 3.32 821,078
=========== =========== ===========


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to our
Proxy Statement to be filed for our 2003 Annual Meeting of Stockholders.

ITEM 14. CONTROLS AND PROCEDURES

As of a date 90 days prior to the date of filing this report, our Chief
Executive Officer and Chief Financial Officer have reviewed and evaluated the
effectiveness of our disclosure controls and procedures, which included inquires
made to certain other of our employees. Based on their evaluations, our Chief
Executive Officer and Chief Financial Officer have each concluded that our
disclosure controls and procedures are effective and sufficient to ensure that
we record, process, summarize, and report information required to be disclosed
by us in our periodic reports filed under the Securities Exchange Act within the
time period specified by the Securities and Exchange Commission's rules and
forms. Subsequent to the date of their evaluation, there have not been any
significant changes to our internal controls or in other factors that could
significantly affect these controls, including any corrective action with regard
to significant deficiencies and material weaknesses.

38

PART IV

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

(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.

(1) Financial statements are listed in the index to the consolidated
financial statements on page F-1 of this Report.

(2) No financial statement schedules are included because they are not
applicable or are not required or the information required to be set
forth therein is included in the consolidated financial statements or
notes thereto.

(b) REPORTS ON FORM 8-K.

Not applicable.

(c) EXHIBITS

EXHIBIT
NUMBER EXHIBIT
- ------ -------
3.1 Certificate of Incorporation of the Company(1)
3.2 Certificate of Amendment of Restated Certificate of
Incorporation(l)
3.3 Amended and Restated Bylaws of the Company(1)
10.1 Company's 1990 Stock Option Plan(2)
10.5 Form of Franchise Agreement between the Company and TGI Friday's,
Inc.(3)
10.9 Form of Management Agreement between Main St. California II, Inc.
and Main St. California, Inc., a wholly owned subsidiary of the
Company(4)
10.10 Master Incentive Agreements between Main St. California II, Inc.
and Main St. California, Inc., a wholly owned subsidiary of the
Company(4)
10.11 Employment Agreement with Bart A. Brown, Jr.(5)
10.11A Employment Agreement dated January 1, 1999 between the Company
and Bart A. Brown, Jr.(6)
10.13 Promissory Note between the Company and CNL Financial I, Inc.(5)
10.14 Promissory Note between the Company and CNL Financial I, Inc.(5)
10.15 Promissory Note between the Company and CNL Financial I, Inc.(5)
10.16 1995 Stock Option Plan(7)
10.17 Amended and Restated Development Agreement between TGI Friday's,
Inc. and Cornerstone Productions, Inc., a wholly owned subsidiary
of the Company(8)
10.18 Amended and Restated Development Agreement between TGI Friday's,
Inc. and Main St. California, Inc., a wholly owned subsidiary of
the Company(8)
10.18A First Amendment to Development Agreement dated February 10, 1999,
between TGI Friday's, Inc. and Main St. California, Inc., a
wholly owned subsidiary of the Company(6)
10.18B Second Amendment to Development Agreement dated November 6, 2001,
between T.G.I. Friday's. Inc. and Main St. California, Inc., a
wholly owned subsidiary of the Company.
10.19 Amended and Restated Development Agreement between TGI Friday's,
Inc. and Main St. Midwest, Inc., a wholly owned subsidiary of the
Company(8)
10.20 Amended and Restated Purchase Agreement between RJR Holdings,
Inc. and Main St. California, Inc., a wholly owned Subsidiary of
the Company(8)
10.21 Development Agreement dated April 22, 1998 between Main St.
California, Inc. and TGI Fridays, Inc., and First Amendment to
Development Agreement dated February 10, 1999 between TGI
Friday's, Inc. and Main St. California, Inc., a wholly owned
subsidiary of the Company (6)
10.21A Second Amendment to Development Agreement dated October 20, 1999
between T.G.I. Friday's, Inc. and Main St. California, Inc., a
wholly owned subsidiary of the Company.
10.21B Third Amendment to Development Agreement dated November6, 2001
between T.G.I. Friday's, Inc. and Main St. California, Inc., a
wholly owned subsidiary of the Company.
10.22 Stock Option Agreement dated August 5, 1996, between the Company
and John F. Antioco for 800,000 shares of Common Stock(9)

39

EXHIBIT
NUMBER EXHIBIT
- ------ -------
10.22A Stock Option Agreement dated June 15, 1998, between the Company
and John F. Antioco amending the Stock Option Agreement dated
August 5, 1996(9)
10.23 Stock Option Agreement dated December 16, 1996, between the
Company and Bart A. Brown, Jr. for 250,000 shares of Common
Stock. (The Company issued three additional Stock Option
Agreements that are substantially identical in all material
respects, except as to number of shares. The four Stock Option
Agreements give rights to purchase a total of 625,000 shares of
Common Stock.)(9)
10.23A Schedule of Stock Option Agreements substantially identical to
Exhibit 10.23(9) Stock Option Agreement dated July 14, 1997,
between the Company and Bart A. Brown, Jr. for 75,000 shares of
Common Stock. (The Company issued one additional Stock Option
Agreement that is substantially identical in all material
respects, except as to number of shares. The two
10.24 Stock Option Agreements give rights to purchase a total of
175,000 shares of Common Stock.)(9) 10.24A Schedule of Stock
Option Agreements substantially identical to Exhibit 10.24(9)
10.25 Stock Option Agreement dated June 15, 1998, between the Company
and James Yeager for 15,000 shares of Common Stock. (The Company
issued two additional Stock Option Agreements that are
substantially identical in all material respects, except as to
option holder and number of shares. The three Stock Option
Agreements give rights to purchase a total of 50,000 shares of
Common Stock.)(9)
10.25A Schedule of Stock Option Agreements substantially identical to
Exhibit 10.25(9)
10.26 Stock Option Agreement dated December 31, 1998, between the
Company and Tim Rose for 10,000 shares of Common Stock. (The
Company issued one additional Stock Option Agreement that is
substantially identical in all material respects, except as to
option holder and number of shares. The two Stock Option
Agreements give rights to purchase a total of 160,000 shares of
Common Stock.)(9)
10.26A Schedule of Stock Option Agreements substantially identical to
Exhibit 10.26(9)
10.27 Registration Rights Agreement dated August 5, 1996, between the
Company and John F. Antioco(10)
10.28 1999 Incentive Stock Plan.(11)
10.29 Working Capital Management Agreement Reducing Revolver Loan
Agreement dated November 2, 1999, between the Company and Merrill
Lynch Business Financial Services, Inc. (12)
10.30 Working Capital Management Agreement Reducing Revolver Loan
Agreement dated November 22, 1999, between the Company and
Merrill Lynch Business Financial Services, Inc. (12)
10.31 Form of Unconditional Guaranty executed in connection with
Working Capital Management Agreement Reducing Revolver Loan
Agreement dated November 22, 1999. (Such guarantees were executed
by Main St. California, Inc., Cornerstone Productions, Inc., and
Redfish America, LLC.) (12)
10.32 Form of Security Agreement executed in connection with Working
Capital Management Agreement Reducing Revolver Loan Agreement
dated November 22, 1999. (Such security agreements were executed
by Main St. California, Inc. and Cornerstone Productions, Inc.)
(12)
10.35 Credit Agreement dated April 2, 1999, between the Company and
Imperial Bank (13)
10.35A First Amendment to Credit Agreement dated August 2, 1999, between
the Company and Imperial Bank (13)
10.35B Second Amendment to Credit Agreement dated July 13, 2000, between
the Company and Imperial Bank (13)
10.35C Third Amendment to Credit Agreement and First Amendment to
Promissory Note dated July 5, 2001, between the Company and
Imperial Bank
10.36 Revolving Promissory Note dated July 13, 2000, in the principal
amount of $5,000,000 from the Company, as Borrower, to Imperial
Bank, as Lender (13)
10.37 Term Promissory Note dated July 13, 2000, in the principal amount
of $5,000,000 from the Company, as Borrower, to Imperial Bank, as
Lender (13)

40

EXHIBIT
NUMBER EXHIBIT
- ------ -------
10.38 Unconditional Guarantee of Payment of Term Promissory Note
executed by John F. Antioco, as Guarantor, in favor of Imperial
Bank, as Lender (13)
10.39 Unconditional Guarantee of Payment of Term Promissory Note
executed by Bart A. Brown, Jr., as Guarantor, in favor of
Imperial Bank, as Lender (13)
10.40 401(k) Profit Sharing Plan (14)
10.41 Loan and Security Agreement dated January 31, 2001, between Bank
of America, N.A., the Company, and certain subsidiaries of the
Company listed therein (15)
16 Letter from Arthur Andersen LLP regarding the change in
certifying accountant (16)
21 List of Subsidiaries
23.1 Consent of KPMG LLP
23.2 Notice Regarding Consent of Arthur Andersen LLP
99.1 Certification of the Chief Executive Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

- ----------
(1) Incorporated by reference to the Company's Form 10-K for the year ended
December 30, 1991, filed with the Securities and Exchange Commission on or
about March 31, 1992.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-40993), which became effective in September 1991.
(3) Incorporated by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission on or about April 15, 1994.
(4) Incorporated by reference to the Company's Form 8-K Report filed with the
Commission in January 1997.
(5) Incorporated by reference to the Company's Form 10-K for the year ended
December 30, 1996, filed with the Securities and Exchange Commission on or
about April 14, 1997.
(6) Incorporated by reference to the Company's Form 10-K for the year ended
December 28, 1998, filed with the Securities and Exchange Commission on
March 29, 1999.
(7) Incorporated by reference to Company's Proxy Statement for its 1995 Annual
Meeting of Stockholders.
(8) Incorporated by reference to the Company's Form 10-K for the year ended
December 29, 1997, filed with the Securities and Exchange Commission on
March 27, 1998.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 333-78155), filed with the Securities and Exchange
Commission on May 10, 1999.
(10) Incorporated by reference to the Company's Registration Statement on Form
S-3 (Registration No. 333-78161) as declared effective on May 14, 1999.
(11) Incorporated by reference to Company's Registration Statement on Form S-8
(Registration No. 333-89931), filed with the Securities and Exchange
Commission on October 29, 1999.
(12) Incorporated by reference to the Company's Form 10-K for the year ended
December 27, 1999, filed with the Securities and Exchange Commission on
March 28, 2000
(13) Incorporated by reference to the Company's Form 8-K dated July 21, 2000, as
filed with the Securities and Exchange Commission on July 24, 2000.
(14) Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 333-55100) filed with the Securities and Exchange
Commission on February 6, 2001.
(15) Incorporated by reference to the Company's Form 10-K for the year ended
December 25, 2000, filed with the Securities and Exchange Commission on
March 29, 2001.
(16) Incorporated by reference to the Company's Form 8-K dated September 4,
2001, as filed with the Securities and Exchange Commission on September 4,
2001.

41

SIGNATURES

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

MAIN STREET AND MAIN INCORPORATED

Date: March 29, 2003 By: /s/ Bart A. Brown
------------------------------------
Bart A. Brown, Jr.
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange 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.

SIGNATURE POSITION DATE
--------- -------- ----

/s/ John F. Antioco Chairman of the Board March 29, 2003
- ------------------------
John F. Antioco

/s/ Bart A. Brown, Jr. Chief Executive Officer March 29, 2003
- ------------------------ and Director (Principal
Bart A. Brown, Jr. Executive Officer)

/s/ William G. Shrader President, Chief Operating March 29, 2003
- ------------------------ Officer, and Director
William G. Shrader

/s/ Michael Garnreiter Chief Financial Officer, March 29, 2003
- ------------------------ Executive Vice President
Michael Garnreiter and Treasurer

/s/ Michael J. Herron Secretary and General Counsel March 29, 2003
- ------------------------
Michael J. Herron

/s/ Jane Evans Director March 29, 2003
- ------------------------
Jane Evans

/s/ John C. Metz Director March 29, 2003
- ------------------------
John C. Metz

/s/ Debra Bloy Director March 29, 2003
- ------------------------
Debra Bloy

/s/ Wanda Williams Director March 29, 2003
- ------------------------
Wanda Williams

42

CERTIFICATIONS

I, Bart A. Brown, Jr., certify that:

1. I have reviewed this annual report on Form 10-K of Main Street and Main
Incorporated;

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

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations, and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 29, 2003

/s/ Bart A. Brown, Jr.
------------------------------
Bart A. Brown, Jr.
Chief Executive Officer

43

I, Michael Garnreiter, certify that:

1. I have reviewed this annual report on Form 10-K of Main Street and Main
Incorporated;

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

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations, and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 29, 2003

/s/ Michael Garnreiter
------------------------------
Michael Garnreiter
Chief Financial Officer

44

MAIN STREET AND MAIN INCORPORATED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report - KPMG LLP .................................. F-2

Independent Auditors' Report - Arthur Andersen LLP ...................... F-3

Consolidated Balance Sheets as of December 30, 2002 and
December 31, 2001 ...................................................... F-4

Consolidated Statements of Operations for the fiscal years ended
December 30, 2002, December 31, 2001, and December 25, 2000 ............ F-5

Consolidated Statements of Changes in Stockholders' Equity and
Comprehensive Income (Loss) for the fiscal years ended
December 30, 2002, December 31, 2001, and December 25, 2000 ............ F-6

Consolidated Statements of Cash Flows for the fiscal years ended
December 30, 2002, December 31, 2001, and December 25, 2000 ............ F-7

Notes to Consolidated Financial Statements ............................... F-8

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Main Street and Main Incorporated:

We have audited the accompanying 2002 and 2001 consolidated balance sheets of
Main Street and Main Incorporated and subsidiaries as of December 30, 2002 and
December 31, 2001, and the related consolidated statements of operations,
changes in stockholders' equity and comprehensive income (loss) and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. The
statements of operations, changes in stockholders' equity and comprehensive
income (loss) and cash flows for the year ended December 25, 2000 were audited
by other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those financial statements in their report dated March
12, 2001.

We conducted our audits in accordance with auditing standards generally accepted
in United States of America. Those standards require that we plan and perform
the audits 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the 2002 and 2001 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Main
Street and Main Incorporated and subsidiaries as of December 30, 2002 and
December 31, 2001 and the results of their operations and their cash flows for
the years then ended, in conformity with accounting principles generally
accepted in United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets"
which changed the Company's method of accounting for goodwill and other
intangible assets effective January 1, 2002.

As discussed above, the consolidated statements of operations, changes in
stockholders' equity and comprehensive income (loss) and cash flows for the year
ended December 25, 2000 of Main Street and Main Incorporated were audited by
other auditors who have ceased operations. As described in Note 2, these
consolidated financial statements have been revised to include the transitional
disclosures required by Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets", which was adopted by the Company as of
January 1, 2002. In our opinion, the disclosures for 2000 in Note 2 are
appropriate. However, we were not engaged to audit, review, or apply any
procedures to the 2000 consolidated financial statements of the Company, other
than with respect to such disclosures and, accordingly, we do not express an
opinion or any other form of assurance on the 2000 consolidated financial
statements taken as a whole.

/s/ KPMG LLP

Phoenix, Arizona
March 4, 2003

F-2

ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

THIS REPORT OF INDEPENDENT CERFIFIED PUBLIC ACCOUNTANTS IS A COPY OF A REPORT
PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR
ANDERSEN LLP

To Main Street and Main Incorporated:

We have audited the accompanying consolidated balance sheet of MAIN STREET AND
MAIN INCORPORATED (a Delaware corporation) AND SUBSIDIARIES, (the Company) as of
December 25, 2000 and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for the years ended December 25, 2000 and
December 27, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 25,
2000 and the results of its operations and its cash flows for each of the years
ended December 25, 2000 and December 27, 1999, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Arthur Andersen LLP

Phoenix, Arizona
March 12, 2001

F-3

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AND SHARE DATA)



DECEMBER 30, DECEMBER 31,
2002 2001
--------- ---------

ASSETS
Current assets:
Cash and cash equivalents ............................... $ 5,621 $ 9,466
Accounts receivable ..................................... 1,997 2,683
Inventories ............................................. 2,832 2,416
Prepaid expenses ........................................ 2,104 1,255
--------- ---------
Total current assets ............................. 12,554 15,820
Property and equipment, net ................................ 71,265 65,222
Other assets, net .......................................... 2,449 2,319
Deferred tax asset, net of valuation allowance ............. -- 1,650
Goodwill, net .............................................. 22,995 24,155
Franchise area fees, net ................................... 3,132 3,296
--------- ---------

Total assets ..................................... $ 112,395 $ 112,462
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ....................... $ 3,502 $ 3,012
Accounts payable ........................................ 8,073 7,336
Other accrued liabilities ............................... 16,007 13,459
--------- ---------
Total current liabilities .......................... 27,582 23,807
Long-term debt, net of current portion ..................... 51,998 47,232
Other liabilities and deferred credits ..................... 3,205 1,216
--------- ---------

Total liabilities ............................ 82,785 72,255
--------- ---------
Commitments, contingencies and subsequent events
(see notes 4, 7, 8, 9 and 10)

Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares
authorized, no shares issued and outstanding in
2002 and 2001 ........................................... -- --
Common stock, $.001 par value, 25,000,000 shares ...........
authorized, 14,142,000 and 14,052,600 shares issued
and outstanding in 2002 and 2001, respectively .......... 14 14
Additional paid-in capital ................................. 53,927 53,645
Accrued other comprehensive loss ........................... (2,504) (202)
Accumulated deficit ........................................ (21,827) (13,250)
--------- ---------
Total stockholders' equity ....................... 29,610 40,207
--------- ---------
Total stockholders' equity and liabilities ... $ 112,395 $ 112,462
========= =========


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

F-4

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



YEARS ENDED
------------------------------------------
DECEMBER 30, DECEMBER 31, DECEMBER 25,
2002 2001 2000
--------- --------- ---------

Revenue ............................................... $ 220,151 $ 211,823 $ 186,542
--------- --------- ---------
Restaurant operating expenses
Cost of sales ....................................... 61,270 59,139 53,671
Payroll and benefits ................................ 67,603 64,435 55,971
Depreciation and amortization ....................... 7,895 7,845 7,137
Other operating expenses ............................ 65,912 61,285 52,008
Reduction of disputed liabilities ................... -- -- (1,591)
--------- --------- ---------
Total restaurant operating expenses ............. 202,680 192,704 167,196
--------- --------- ---------
Income from restaurant operations ..................... 17,471 19,119 19,346

Other operating expense and income:
Amortization of intangible assets ................... 461 1,831 1,349
General and administrative expenses ................. 8,946 8,105 7,868
Pre-opening expenses ................................ 1,619 1,417 1,370
New manager training expenses ....................... 1,820 1,676 1,914
Impairment charges and other ........................ 7,943 3,453 (92)
Management fee income ............................... -- (432) (611)
--------- --------- ---------
Operating income (loss) ............................... (3,318) 3,069 7,548

Non-operating gain .................................. -- -- (11)
Interest expense and other, net ..................... 3,950 3,825 3,631
--------- --------- ---------

Net income (loss) before income taxes ................. (7,268) (756) 3,928
Income tax expense (benefit) ........................ 1,309 (645) 250
--------- --------- ---------
Net income (loss) ................................. $ (8,577) $ (111) $ 3,678
========= ========= =========
Basic earnings per share:
Net income (loss) ................................. $ (0.61) $ (0.01) $ 0.34
========= ========= =========
Diluted earnings per share:
Net income (loss) ................................. $ (0.61) $ (0.01) $ 0.33
========= ========= =========
Weighted average number of shares outstanding:
Basic ........................................... 14,105 14,048 10,944
========= ========= =========
Diluted ......................................... 14,105 14,048 11,117
========= ========= =========


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

F-5

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)



COMMON STOCK ACCUMULATED
-------------------- ADDITIONAL OTHER
PAR PAID-IN ACCUMULATED COMPREHENSIVE
SHARES VALUE CAPITAL DEFICIT LOSS TOTAL
-------- -------- -------- -------- -------- --------

BALANCES, December 27, 1999 ................ 10,026 $ 10 $ 44,190 $(16,817) $ -- $ 27,383
Shares issued in connection with rights
offering (net) ......................... 4,012 4 9,421 -- -- 9,425
Shares issued to employees ............... 7 -- 13 -- -- 13
Net income ............................... -- -- -- 3,678 -- 3,678
-------- -------- -------- -------- -------- --------
BALANCES, December 25, 2000 ................ 14,045 14 53,624 (13,139) -- 40,499
-------- -------- -------- -------- -------- --------
Shares issued in connection with
options exercised (net) ................ 7 -- 21 -- -- 21
Shares issued to employees ............... 1 -- -- -- -- --
Comprehensive income (loss):
Unrealized loss on hedging contract, net
of $135 tax benefit .................. -- -- -- -- (202) (202)
Net loss ............................... -- -- -- (111) -- (111)
-------- -------- -------- -------- -------- --------
Comprehensive loss: (313)
--------

BALANCES, December 31, 2001 ................ 14,053 $ 14 $ 53,645 $(13,250) $ (202) $ 40,207
Shares issued in connection with .........
options exercised (net) ................ 89 -- 282 -- -- 282
Comprehensive income (loss):
Unrealized loss on hedging contract .... -- -- -- -- (2,302) (2,302)

Net loss ............................... -- -- -- (8,577) -- (8,577)
-------- -------- -------- -------- -------- --------
Comprehensive loss: (10,879)
--------
BALANCES, December 30, 2002 ................ 14,142 $ 14 $ 53,927 $(21,827) $ (2,504) $ 29,610
======== ======== ======== ======== ======== ========


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

F-6

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)



YEARS ENDED
----------------------------------------
DECEMBER 30, DECEMBER 31, DECEMBER 25,
2002 2001 2000
------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $ (8,577) $ (111) $ 3,678
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ......................... 8,356 9,676 8,486
Gain on sale of assets ................................ -- -- (289)
Impairment charges and other .......................... 5,674 3,453 (92)
Deferred income taxes ................................. 1,650 (1,048) 250
Extraordinary loss from debt extinguishments .......... -- -- 16
Changes in assets and liabilities:
Accounts receivable ................................... 686 1,994 (2,829)
Inventories ........................................... (416) (792) (171)
Prepaid expenses ...................................... (849) (511) (123)
Other assets, net ..................................... (300) (580) (664)
Accounts payable ...................................... 737 (1,892) (4,805)
Other accrued liabilities ............................. 2,234 2,340 367
-------- -------- --------
Cash provided by operating activities .............. 9,195 12,529 3,824
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property and equipment .................. (18,548) (14,013) (18,103)
Cash paid to acquire franchise rights and goodwill ....... (30) (330) (12,139)
Cash received from the sale of assets .................... -- 2,851 5,432
-------- -------- --------
Cash used by investing activities .................. (18,578) (11,492) (24,810)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ....................... -- -- 9,541
Financing and offering costs paid ........................ -- -- (103)
Proceeds received from the exercise of stock options ..... 282 21 --
Long-term debt borrowings ................................ 9,465 6,583 16,442
Principal payments on long-term debt ..................... (4,209) (2,740) (3,384)
-------- -------- --------
Cash provided by financing activities .............. 5,538 3,864 22,496
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ..................... (3,845) 4,901 1,510

CASH AND CASH EQUIVALENTS, BEGINNING ........................ 9,466 4,565 3,055
-------- -------- --------
CASH AND CASH EQUIVALENTS, ENDING ........................... $ 5,621 $ 9,466 $ 4,565
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year for interest ................... $ 4,139 $ 4,259 $ 4,163
======== ======== ========
Cash paid during the year for income taxes ............... $ 118 $ 1,408 $ 539
======== ======== ========


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

F-7

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Main Street and Main Incorporated (the "Company") is a Delaware corporation
engaged in the business of acquiring, developing, and operating restaurants. The
Company currently owns 56 T.G.I. Friday's restaurants and operates four T.G.I.
Friday's restaurants under a management agreement. The Company also owns and
operates eight Bamboo Clubs, five Redfish, and one Alice Cooper'stown
restaurant.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany transactions have
been eliminated in consolidation. All references herein refer to the Company and
its subsidiaries.

FISCAL YEAR

The Company operates on a fiscal year that ends on the Monday on or before
December 31.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make a number of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Such estimates and
assumptions affect the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, we evaluate estimates and assumptions
based upon historical experience and various other factors and circumstances. We
believe our estimates and assumptions are reasonable in the circumstances;
however, actual results may differ from these estimates under different future
conditions.

We believe that the estimates and assumptions that are most important to
the portrayal of our financial condition and results of operations, in that they
require management's most difficult, subjective or complex judgments, form the
basis for the accounting policies deemed to be most critical to our operations.
These critical accounting policies relate to the valuation and amortizable lives
of long-lived assets, goodwill, and to other identifiable intangible assets,
valuation of deferred tax assets, and reserves related to self-insurance for
workers compensation and general liability:

(1) We periodically perform asset impairment analysis of long-lived assets
related to our restaurant locations, goodwill, and other identifiable intangible
assets. We perform these tests whenever we experience a "triggering" event, such
as a decision to close a location or major change in the locations operating
environment, or other event that might impact our ability to recover our asset
investment. Also, we have a policy of reviewing the financial operations of its
restaurant locations on at least a quarterly basis. Locations that are not
meeting expectations are identified and continue to be watched closely
throughout the year. Primarily in the fourth quarter, actual results are
reviewed and budgets for the ensuing year are analyzed. If we deem that a
locations results will continue to be below expectations, alternatives for its
continued operation are considered. At this time, we perform an asset impairment
test, if it is determined that the asset's fair value is less than book and we
will be unable to recover the value through operations, an impairment charge is
recorded. Upon an event such as a formal decision for abandonment (restaurant
closure), the Company may record additional impairment of assets, including an
allocation of goodwill. Any carryover basis of assets is depreciated over the
respective remaining useful lives.

(2) Periodically, we record (or reduce) the valuation allowance against our
deferred tax assets to the amount that is more likely than not to be realized
based upon recent past financial performance, tax reporting positions and
expectations of future taxable income.

(3) We use an actuarial based methodology utilizing our historical
experience factors to periodically adjust self-insurance reserves for workers
compensation and general liability claims and settlements. These estimates are
adjusted based upon annual information received in July of each year in
connection with policy renewals. Estimated costs for the following year are

F-8

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

accrued on a monthly basis and progress against this estimate is reevaluated
based upon actual claim data each quarter.

(4) We use the method of accounting for employee stock options under APB
Opinion 25 and have adopted the pro forma disclosure provisions of SFAS No. 123,
which require disclosure of the impact of using the fair value at date of grant
method of recording stock-based employee compensation.

We believe estimates and assumptions related to these critical accounting
policies are appropriate under the circumstances; however, should future events
or occurrences result in unanticipated consequences, there could be a material
impact on our future financial condition or results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

During 2002, we adopted the provisions of SFAS No. 142 which eliminates the
amortization of all existing and newly acquired goodwill on a prospective basis
and requires companies to assess goodwill impairment, at least annually, based
on the fair value of the reporting unit. As of the date of adoption, January
2002, we had unamortized goodwill of $25,149,000 that is subject to the
transition provisions of SFAS Nos.141 and 142. Accumulated amortization related
to goodwill is $5,914,000 as of the date of adoption. During 2002, we wrote off
$1,160,000 of allocated goodwill associated with one closed location (Kansas
City, Missouri) and two impaired locations (Palm Desert, California and Citrus
Heights, California). After this goodwill write off, at December 30, 2002, we
performed a valuation in accordance with SFAS No.142 for the purpose of
determining the amount of goodwill impairment. Based on the results of the
valuation, no additional impairment was required. Additionally, during 2002, we
reclassified $994,000 of goodwill to franchise area goodwill which is classified
as an intangible asset that requires amortization under SFAS No.142. Franchise
area goodwill represents the estimated value the company paid to acquire the
franchise rights to develop restaurants in certain locations, at the date of
original purchase. As a result of these transactions, net goodwill was
$22,995,000 at the end of 2002.

During 2002, we adopted SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While Statement
No. 144 supersedes Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, it retains many
of the fundamental provisions of that Statement. In 2002, we recognized asset
impairments of $4,454,000 on under-performing properties.

In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS
NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS. This Statement rescinds the requirement to report gains and losses
from extinguishment of debt as an extraordinary item. Additionally, this
statement amends Statement 13 to require sale-leaseback accounting for certain
lease modifications that have economic effects similar to sale-leaseback
transactions. The provisions of this statement relating to Statement 4 are
applicable in fiscal years beginning after May 15, 2002. The provisions of this
Statement related to Statement 13 are effective for transactions occurring after
May 15, 2002. All other provisions of this Statement are effective for financial
statements issued on or after May 15, 2002. We adopted FASB No. 145 related to
Statement No. 4 for year ended December 30, 2002, the implementation of this
statement did not have a material effect on our financial statements. The
adoption of SFAS No. 145 related to Statement No. 13 had no effect on our
financial statements for the year ended December 30, 2002.

In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED
WITH EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity". For purposes of this
Statement, an exit activity includes, but is not limited to, a restructuring as
that term is defined in IAS 37, "Provisions, Contingent Liabilities, and
Contingent Assets". The Statement is effective for exit or disposal activities
initiated after December 31, 2002. If we have restructuring activities in the
future, we will adopt SFAS No. 146.

F-9

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION-TRANSITION AND DISCLOSURE. This statement amends prior statements
to provide alternative methods of transition for an entity that voluntarily
changes to fair value based method of accounting for stock based employee
compensation. We did not adopt the cost recognition method of recording
stock-based employee compensation under SFAS No. 123 (which adoption was and
remains optional), however, we provide the pro forma disclosures in notes to our
annual financial statements as if we had adopted the cost recognition method
under SFAS 123. We will adopt the new required disclosures about those effects
in future interim financial information.

In June 2001, FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. SFAS No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development, and/or normal use
of the assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement obligation, the obligation will be adjusted at the end of
each period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The Company is required to adopt SFAS No.
143 on January 1, 2003. The adoption of SFAS No. 143 is not expected to have a
material effect on the Company's financial statements.

In November 2002, the FASB issued Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS TO OTHERS, AN INTERPRETATION OF FASB STATEMENTS NO.
5, 57 AND 107 AND A RESCISSION OF FASB INTERPRETATION NO. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company's
financial statements. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 15, 2002.

In January 2003, the FASB issued Interpretation No. 46, CONSOLIDATION OF
VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51. This Interpretation
addresses the consolidation by business enterprises of variable interest
entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For public enterprises with a variable interest
in a variable interest entity created before February 1, 2003, the
Interpretation is applied to the enterprise no later than the beginning of the
first interim or annual reporting period beginning after June 15, 2003. The
application of this Interpretation is not expected to have a material effect on
the Company's financial statements. The Interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that the Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective.

2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES

The consolidated financial statements reflect the application of the
following accounting policies:

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include funds on hand, short-term money market
investments, and certificate of deposit accounts with original maturities of 90
days or less.

REVENUE RECOGNITION

The Company's principal source of revenue is from customer dining
transactions. Revenue is recognized at the time the meal is paid for by the
customer, in the form of cash or credit card.

F-10

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DEFERRED GAINS

Deferred gains on sale-leaseback transactions are accreted to income as a
reduction of rent expense over the related lease terms in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 98, ACCOUNTING FOR
LEASES.

MANAGEMENT FEE INCOME

The Company earns management fees on restaurants operated under contracts
with a single owner. The management fees are based upon a percentage of adjusted
revenues in accordance with the respective management agreements for each
restaurant. During 2002, two restaurants were closed by the owner (San
Francisco, California and El Paso, Texas), terminating the management agreements
for those restaurants and reducing the number of restaurants operated under
management agreements to four. Management fee income has not been recorded by
the Company since September 2001 as a result of not meeting the cash flow
provisions pursuant to the management agreement.

INVENTORIES

Inventories consist primarily of food, beverages, and supplies and are
stated at the lower of cost, determined on a first-in, first-out basis (FIFO),
or net realizable value.

FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash equivalents, accounts receivable, other assets,
accounts payable, accrued liabilities, and other liabilities approximate fair
value due to the short-term nature of these instruments. The revolving lines of
credit approximate fair value as they bear interest at indexed rates. Fixed rate
long-term debt is currently at rates similar to current quotations for similar
debt.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives, while leaseholds are
amortized over the shorter of 20 years or the lease term including option
periods, which have economic penalties, and consist of the following (in
thousands):



USEFUL LIVES
(YEARS) DECEMBER 30, 2002 DECEMBER 31, 2001
------------ ----------------- -----------------

Land .................................................... -- $ 534 $ 534
Land held for sale ...................................... -- 1,203 --
Building and leasehold improvements ..................... 5-20 58,599 53,650
Kitchen equipment ....................................... 5-7 22,913 21,591
Restaurant equipment .................................... 5-10 10,183 9,094
Smallwares and decor .................................... 5-10 7,677 7,557
Office equipment, software, and furniture ............... 5-7 6,445 4,711
--------- ---------
107,554 97,137

Less: Accumulated depreciation and amortization ......... (39,854) (33,277)
--------- ---------
67,700 63,860

Construction in progress ................................ 3,565 1,362
--------- ---------
Total ................................................ $ 71,265 $ 65,222
========= =========


F-11

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Depreciation expense was $8,038,000 for 2002, $7,912,000 for 2001, and
$7,087,000 for 2000.

Construction in progress (CIP) represents costs incurred by the Company
during the development of future restaurant sites for fixtures and building
improvements. As a result of lease cancellations of not yet built Bamboo Club
locations (Fairfax, Virginia, San Antonio, Texas, and Fort Worth Texas), we
wrote off Construction in progress costs of $415,000.

FRANCHISE FEES

Franchise fees represent the value assigned to the franchise agreements in
the regions acquired and to the licenses to operate the restaurants. These
agreements provide for an initial term of 20 to 30 years, with two renewal terms
of 10 years each. Franchise area goodwill represents goodwill allocated to the
geographic area for developing T.G.I. Friday's purchased and it qualifies as an
intangible asset with a determinable life. These costs are being amortized on a
straight-line basis over the life of the agreement and consist of the following
(in thousands):



AMORTIZATION
PERIOD
(YEARS) DECEMBER 30, 2002 DECEMBER 31, 2001
------------ ----------------- -----------------

Franchise area goodwill ................ 20 $ 994 $ 994
Franchise fees and license costs ....... 20-30 3,173 3,163
Less: Accumulated amortization ........ (1,035) (861)
------- -------
Total ............................... $ 3,132 $ 3,296
======= =======


GOODWILL

The Company has recorded significant goodwill in conjunction with major
acquisitions. During 2002, the Company adopted FASB Statement No. 142, GOODWILL
AND OTHER INTANGIBLE ASSETS. Statement 142 eliminates the amortization of all
existing and newly acquired goodwill on a prospective basis and requires
companies to assess goodwill impairment, at least annually, based on the fair
value of the reporting unit. Effective January 1, 2002 the Company discontinued
amortizing goodwill.

The following table presents reported net loss and loss per share exclusive
of goodwill amortization expense for the years ended December 30, 2002, December
31, 2001 and December 25, 2000 (in thousands):

2002 2001 2000
-------- -------- --------
Reported net income (loss) $ (8,577) $ (111) $ 3,678
Add back goodwill amortization -- 1,455 1,019
-------- -------- --------
Adjusted net income (loss) $ (8,577) $ 1,344 $ 4,697
======== ======== ========

Basic Income (loss) Per Share:
Reported net income (loss) per common share $ (0.61) $ (0.01) $ 0.34
Add back goodwill amortization -- 0.11 0.09
-------- -------- --------
Adjusted net income (loss) per share $ (0.61) $ 0.10 $ 0.43
======== ======== ========
Diluted Income (loss) Per Share:
Reported net income (loss) per common share $ (0.61) $ (0.01) $ 0.33
Add back goodwill amortization -- 0.11 0.09
-------- -------- --------
Adjusted net income (loss) per share $ (0.61) $ 0.10 $ 0.42
======== ======== ========

F-12

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

During 2002 we wrote off goodwill related to closing one T.G.I. Friday's
location (Kansas City, MO) and impairing two other under-performing locations
(Palm Desert, California and Citrus Heights, California) in anticipation of
closing these locations in 2003 when their leases expire.



GOODWILL ALLOCATED TO AREAS DECEMBER 30, 2002 DECEMBER 31, 2001
----------------- -----------------

Acquisition of California T.G.I. Friday's ............. $10,750 $11,991
Acquisition of Midwest and Arizona T.G.I. Friday's .... 1,495 1,414
Acquisition of Redfish ................................ 450 450
Acquisition of Bamboo Club ............................ 10,300 10,300
------- -------
Total ........................................ $22,995 $24,155
======= =======


OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following (in thousands):



DECEMBER 30, 2002 DECEMBER 31, 2001
----------------- -----------------

Accrued payroll............................... $ 3,736 $ 2,264
Accrued property and sales tax................ 1,912 1,763
Accrued insurance............................. 1,415 2,616
Accrued rent.................................. 3,142 2,120
Gift certificate liability.................... 1,249 951
Other accrued liabilities..................... 4,553 3,745
------- -------
Total................................ $16,007 $13,459
======= =======


INCOME TAXES

The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred taxes are provided
based on temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities, using enacted tax rates in the
years in which the differences are expected to reverse. Deferred tax assets are
reviewed periodically for recoverability and valuation allowances are provided
as necessary.

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share ("EPS") is computed by dividing earnings
(loss) available to stockholders by the weighted-average number of shares
outstanding for the period. Diluted earnings (loss) per share reflects the
potential dilution that could occur if securities or contracts to issue common
stock were exercised or converted to stock or resulted in the issuance of stock
or resulted in the issuance of stock that then shared in the earnings or losses
of the Company. The assumed exercise of outstanding stock options and warrants
has been excluded from the calculations of diluted net loss per share as their
effect is antidilutive.

F-13

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company has calculated earnings per share ("EPS") in accordance with
SFAS No. 128, "EARNINGS PER SHARE." The following table sets forth basic and
diluted EPS computations for the years ended December 30, 2002, December 31,
2001, and December 25, 2000 (in thousands, except per share amounts):



2002 2001 2000
----------------------------- ---------------------------- ----------------------------
PER PER PER
NET SHARE NET SHARE NET SHARE
LOSS SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------- ------- ------- ------- ------- ------- ------- -------

Basic EPS .................. $(8,577) 14,105 $ (0.61) $ (111) 14,048 $ (0.01) $ 3,678 10,944 $ 0.34
Effect of stock options
and warrants ............. -- 594 -- -- 533 -- -- 173 0.01
Anti-dilutive stock
options and warrants ..... -- (594) -- -- (533) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Diluted EPS ................ $(8,577) 14,105 $ (0.61) $ (111) 14,048 $ (0.01) $ 3,678 11,117 $ 0.33
======= ======= ======= ======= ======= ======= ======= ======= =======


SEGMENT REPORTING

The Company has three operating segments that are managed based on its
restaurant concepts, T.G.I. Friday's, Redfish, Bamboo Club and Alice
Cooper'stown. SFAS No. 131 allows for aggregation of similar operating segments
into a single reportable operating segment if the components are considered
similar under certain criteria. As a result of the foregoing, the Company
believes that its restaurants meet the criteria supporting aggregation of all
restaurants into one reporting unit. Accordingly, the Company has not presented
separate financial information for each of its operating segments, as the
Company's consolidated financial statements present its one reporting unit.

STOCK-BASED COMPENSATION PLANS

FASB Statement No.123, ACCOUNTING FOR STOCK-BASED COMPENSATION was issued
by the FASB in 1995 and, if fully adopted, changes the methods for recognition
of cost on plans similar to those of the Company. Adoption of FASB Statement No.
123 is optional; however, pro forma disclosures as if the Company had adopted
the cost recognition method are required. Had compensation cost for stock
options awarded under these plans been determined consistent with FASB Statement
No. 123, the Company's net income (loss) and earnings (loss) per share would
have reflected the following pro forma amounts:

DECEMBER 30, DECEMBER 31, DECEMBER 25,
2002 2001 2000
-------- -------- --------
(In Thousands, Except Per Share Amounts)
Net Income (loss):
As Reported ........ $ (8,577) $ (111) $ 3,678
Pro Forma .......... $ (9,624) $ (961) $ 2,736

Diluted EPS:
As Reported ........ $ (0.61) $ (0.01) $ 0.33
Pro Forma .......... (0.68) (0.07) 0.25

The weighted average fair value at the date of grant for options granted
during fiscal 2002, 2001 and 2000 were estimated using the Black-Scholes pricing
model with the following assumptions: weighted average risk-free interest rate
of 2.73%, 5.22%, and 6.29%; weighted average volatility of 53.72%, 50.00%, and
52.70% and; expected life of 4 years; and weighted average dividend yield of
0.0%.

F-14

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Details regarding the options outstanding as of December 30, 2002 are as
follows:



OUTSTANDING EXERCISABLE
------------------------------------------ ----------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE
PRICE SHARES CONTRACTUAL LIFE PRICE SHARES PRICE
- ----------------- ---------- ---------------- -------- ---------- --------

$1.88 - $2.75 1,055,167 4.07 years $2.27 1,035,722 $2.30
$3.00 - $3.65 1,678,003 6.73 years $3.35 1,347,391 $3.30
$4.00 - $6.01 754,250 8.01 years $4.66 241,667 $4.71
---------- ----------
Total............... 3,487,420 2,624,780
========== ==========


DERIVATIVE FINANCIAL INSTRUMENTS

The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company utilizes an
interest rate swap agreement to hedge the effects of fluctuations in interest
rates related to one of its long-term debt instruments. The interest rate swap
agreement meets the criteria for cash flow hedge accounting. Amounts receivable
or payable due to settlement of the interest rate swap agreement are recognized
as interest expense on a monthly basis. A mark-to-market adjustment is recorded
as a component of stockholders' equity, net of taxes, to reflect the fair value
of the interest rate swap agreement. The Company discontinues hedge accounting
prospectively if it is determined that the derivative is no longer effective.

In conjunction with the Bank of America development facility, the Company
entered into an interest rate swap agreement with Bank of America which fixes
the Company's base interest rate at 6.26% per annum on a notional amount of
$12,500,000 from July 2002 through June 2014. The swap qualifies as a cash flow
hedge in accordance with SFAS No. 133. On a periodic basis, the Company adjusts
the fair market value of the swap on the balance sheet and offsets the amount of
the change to other comprehensive income. As of December 30, 2002, the fair
value of the hedge resulted in a liability of $1,884,919.

On March 26, 2002, the Company entered into an interest rate swap agreement
with Bank of America on a note held by CNL Funding with a remaining unpaid
balance of $5,516,000. The interest rate on the note, 9.457%, is the same as the
interest rate to be received under the interest rate swap agreement. The swap
effectively floats the 9.457% note to a 30-day LIBOR base plus a spread of 4.34%
on a notional amount of $5,516,000. On a quarterly basis, the Company adjusts
the fair market value of the swap on the balance sheet and offsets the amount of
the change to other comprehensive income. As of December 30, 2002, the fair
value of the hedge resulted in an asset of $450,114.

On April 18, 2002, the Company entered into an additional interest rate
swap agreement with Bank of America. This swap agreement effectively fixes the
Company's interest rate to 5.65% per annum (plus credit spread) on a notional
amount of $10,700,000 from May 2002 through May 2012. The swap qualifies as a
cash flow hedge in accordance with SFAS No. 133. On a periodic basis, the
Company adjusts the fair market value of the swap on the balance sheet and
offsets the amount of the change to other comprehensive income. As of December
30, 2002, the fair value of the hedge resulted in a liability of $1,203,299.

F-15

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



COMPREHENSIVE INCOME (LOSS) DECEMBER 30, 2002 DECEMBER 31, 2001
----------------- -----------------

Net Income (loss) ................................ $ (8,577) $ (111)
Other comprehensive income (loss), net of
taxes of $0 and $135,000 for the periods
ended December 30, 2002 and December 31, 2001,
respectively ................................... (2,302) (202)
-------- --------
Comprehensive income (loss) ...................... $(10,879) $ (313)
======== ========


RECLASSIFICATIONS

Certain amounts in 2001 and 2000 have been reclassified to conform to the
current year presentation.

ACCOUNTING FOR LONG-TERM ASSETS AND IMPAIRMENT CHARGES

Long-lived assets are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the asset may not be
recoverable. If the sum of the expected future cash flows (undiscounted and
without interest charges) from an asset to be held and used in operations is
less than the carrying value of the asset, an impairment loss must be recognized
in the amount of the difference between the carrying value and the fair value of
the assets.

The Company has a policy of reviewing the financial operations of its
restaurant locations on at least a quarterly basis. Locations that are not
meeting expectations are identified and continue to be watched closely
throughout the year. Primarily in the fourth quarter, actual results are
reviewed and budgets for the ensuing year are analyzed. If management deems that
a locations results will continue to be below expectations, alternatives for its
continued operation are considered. At that time, the Company performs asset
impairment testing, if it is determined that the fair value of an asset is
greater than its carrying value, an impairment charge is recorded. Upon a
triggering event such as a formal decision for abandonment (restaurant closure),
the Company may record additional impairment of assets, including an allocation
of goodwill. Any carryover basis of assets is depreciated over the respective
remaining useful lives.

Fair value of assets is determined primarily on the likelihood of future
use of the assets through operations or by the value that could be received for
the asset if sold.

Other charges include write-offs of allocated goodwill, severance, contract
termination, professional service costs, and settlement of litigation. During
the fourth quarter 2001, the Company recorded an impairment charge of
approximately $1,615,000 against its management agreement with CNL for five
Northern California locations and the El Paso location. Other charges in 2000
represent the final settlement gain (in excess of book value) the Company
received from the City and County of San Francisco, California in connection
with condemnation proceedings against a restaurant the Company operated.

As a result of applying this policy, during fiscal years ended 2002, 2001,
and 2000, the Company recognized a loss (gain) on the sale of assets and
impairment of certain assets as follows (in thousands):

F-16

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



DECEMBER 30, 2002 DECEMBER 31, 2001 DECEMBER 25, 2000
----------------- ----------------- -----------------

IMPAIRMENT CHARGES AND OTHER:
Long-lived asset impairments and other .............. $4,323 $1,838 $ 832
Condemnation settlement (San Francisco, CA) ......... -- -- (924)
Write-off of goodwill allocated to closed stores .... 1,160 -- --
Lease cancellation charges .......................... 2,060 -- --
Impairment of receivables (Mngmt Agreement) ......... -- 1,615 --
Write-down of land (El Paso, Texas) ................. 400 -- --
------ ------ ------
Total impairment charges and other .................. $7,943 $3,453 $ (92)
====== ====== ======


The long-lived asset impairment amount in the table above represents the
net book value of the fixed assets which will not be recovered through regular
operations, computed on a discounted cash flow basis. This amount in 2002
consists primarily of impairments related to six Fridays locations, three not
yet built Bamboo Club locations and one Redfish location.

REDUCTION OF DISPUTED LIABILITIES

During the first quarter of 2000, the Company's primary food distributor
(Ameriserve) declared bankruptcy. Leading up to the bankruptcy, the Company
experienced a reduction in performance by Ameriserve, causing disruption in the
Company's operations and an increase in delivery and food costs as the Company
searched for alternative sources of supply. The level of service provided by
Ameriserve continued to decline subsequent to the bankruptcy. When Ameriserve
declared bankruptcy, the Company had open accounts payable due Ameriserve, but
also had the right of offset for costs incurred because Ameriserve dissolved its
causal dining business. As of December 25, 2000, the Company was in negotiation
to resolve the dispute with Ameriserve. A final settlement was reached which
reduced the liability due by approximately $1,591,000. This amount was recorded
in the fourth quarter of 2000.

VALUATION RESERVES

Valuation reserves for the years ended December 30, 2002, December 31,
2001, and December 25, 2000, consist of the following:



BALANCE AT
BEGINNING OF EXPENSE BALANCE AT
PERIOD RECORDED PAYMENTS MADE END OF PERIOD
------------ ------------ ------------- -------------

RESERVE FOR LEGAL SETTLEMENT LOSSES:
Year ended December 30, 2002 $ 34,000 $ (30,000) $ (4,000) $ --
Year ended December 31, 2001 149,000 -- (115,000) 34,000
Year ended December 25, 2000 1,153,000 90,000 (1,094,000) 149,000

INSURANCE AND CLAIMS RESERVES:
Year ended December 30, 2002 $ 2,616,300 $ 9,629,935 $(10,830,935) 1,415,300
Year ended December 31, 2001 1,668,700 5,258,539 (4,310,939) 2,616,300
Year ended December 25, 2000 1,593,800 3,764,600 (3,689,700) 1,668,700


In 2001, the Company paid the balance of the legal fees reserved for in
2000 amounting to $111,000. The remaining balance of $34,000 represents a
reserve for the settlement of the remaining outstanding gift certificates from
stores acquired in California during 1998.

F-17

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

3. INCOME TAXES

Income tax expense (benefit) consists of the following (in thousands):

CURRENT DEFERRED TOTAL
------- -------- -------
Year ended December 30, 2002:
U.S. Federal ................ $ (341) $ 1,536 $ 1,195
State and local ............. -- 114 114
------- ------- -------
$ (341) $ 1,650 $ 1,309
======= ======= =======
Year ended December 31, 2001:
U.S. Federal ................ $ 228 $ (913) $ (685)
State and local ............. 175 (135) 40
------- ------- -------
$ 403 $(1,048) $ (645)
======= ======= =======
Year ended December 25, 2000:
U.S. Federal ................ $ -- $ -- $ --
State and local ............. -- 250 250
------- ------- -------
$ -- $ 250 $ 250
======= ======= =======

Deferred income taxes arise due to differences in the treatment of income
and expense items for financial reporting and income tax purposes. In the
current year, the Company generated a net operating loss. The effect of
temporary differences and carryforwards that gave rise to deferred tax balances
at December 30, 2002 and December 31, 2001, were as follows (in thousands):



NET DEFERRED TAX ASSETS/(LIABILITIES) DECEMBER 30, 2002 DECEMBER 31, 2001
- ------------------------------------- ----------------- -----------------
(In Thousands)

Temporary differences:
Basis differences in investments ..................... $ 366 $ 652
Basis differences in depreciable and amortizable
assets ............................................. (4,942) (3,944)
Provision for estimated expenses ..................... 3,403 2,301
Revenue recognition .................................. 50 63
Interest rate swap ................................... 921
Tax carryforwards:
General business and AMT credits ..................... 5,791 5,958
Net operating loss and capital loss carryforwards .... 3,621 2,320
Valuation reserve ...................................... (9,210) (5,700)
------- -------
Total ............................................ $ -- $ 1,650
======= =======


The net change in the total valuation allowance for the year ended December
30, 2002 is the result of providing a full valuation allowance against all
deferred tax assets because of the significant loss in 2002. At December 30
2002, the Company had approximately $7,463,000 federal net operating and tax
credit carryforwards to be used to offset future income for federal income tax
purposes. These carryforwards expire in the years 2003 to 2020.

Management believes that its ability to utilize its net operating loss
carryforwards and certain of its general business and AMT credits to offset
future taxable income within the carryforward periods under existing tax laws
and regulations is subject to future profitability. However, because the Company
has suffered significant net losses in the last two years it has concluded that
a 100% valuation allowance against its net deferred tax assets is warranted.
Reconciliations of the federal income tax rate to the Company's effective tax
rate were as follows:

F-18

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



DECEMBER 30, 2002 DECEMBER 31, 2001 DECEMBER 25, 2000
----------------- ----------------- -----------------

Statutory federal rate ............... (34.0)% (34.0)% 34.0%
State taxes, net of federal benefit .. 1.2 51.4 6.0
Nondeductible expenses ............... 0.23 4.4 0.4
Benefit of FICA credit ............... -- -- (17.5)
Expiration of Capital loss 13.3
Change in valuation allowance ........ 37.2 (107.1) (16.5)
------- ------- -------
18.0% (85.3)% 6.4%
======= ======= =======


At December 30, 2002 and December 31, 2001, $1,216,000, and $1,072,000,
respectively, of estimated income tax payments are included in prepaid expenses.
As a result of our significant loss in 2002, we have submitted an application of
quick refund to the Internal Revenue Service for approximately $850,000.

4. LINE OF CREDIT

During the quarter ended September 21, 2001, we renewed our $5 million
operating line at 1.125% over prime. The line of credit matured on July 15, 2002
and was renewed with similar terms in October 2002. No amounts were outstanding
under this line in 2001 or 2002. The renewal agreement contained financial
covenants which limit the amount of total debt we can borrow. At December 30,
2002, we violated one of the financial covenants and were unable to borrow on
the line. As a result of the financial restrictions placed by the financial
covenants of this agreement, we cancelled this agreement in March 2003.

5. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):



INTEREST RATES ANNUAL
MATURITY AS OF DECEMBER 30, PRINCIPAL DECEMBER 30, DECEMBER 31,
DATES 2002 PAYMENTS 2002 2001
----- ------------------ -------- ------------ ------------

CNL Term Loan II, secured by assets of
16 T.G.I Friday's Restaurants ......... 2012 9.457% and the $ 1,004 $ 16,535 $ 17,539
one month LIBOR
rate plus 320
basis points
Bank of America.......................... 2013 3.75% 252 15,738 6,525
Merrill Lynch............................ 2007-15 3.96% 440 5,485 5,925
FFCA..................................... 2002-16 10.5% 174 32 985
GE Capital............................... 2002-14 4.81% 288 2,774 3,442
FMAC..................................... 2010-15 7.64%-11.0% 891 14,936 15,828
-------- -------- --------
Total................................ $ 3,049 55,500 50,244
Less current portion..................... ======== (3,502) (3,012)
-------- --------
Total................................ $ 51,998 $ 47,232
======== ========


As of September 30, 2002, we had fully utilized our $15,000,000 development
facility with Bank of America to finance construction or refinance T.G.I.
Friday's restaurants.

F-19

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In October 2002, we secured a $15 million financing commitment through GE
Franchise Finance. The terms include $6 million for financing of equipment and
leasehold improvements for the seven Bamboo Clubs already open and approximately
$9 million for new Bamboo Club development. At December 30, 2002 there were no
borrowings outstanding under this commitment.

In July 2002, we amended our Bank of America development facility to
provide for an additional $1,000,000 in financing. During 2002, we borrowed an
additional $9,465,000 to fund construction on two locations (T.G.I. Friday's San
Tan, Chandler, Arizona and Porter Ranch, California) and to refinance two
existing locations (T.G. I. Friday's Cerritos, California and Oxnard,
California) for which we paid off higher rate debt. By September 30, 2002, we
had fully utilized our development facility with Bank of America.

All of our loan agreements contain various financial covenants that are
generally measured at the end of each quarter. At December 30, 2002, we met all
of the financial covenants for all debt agreements.

All long-term debt is secured by certain assets of various restaurant
locations.

Maturities of long-term debt, giving effect to the borrowings discussed
above, were as follows at December 30, 2002 (in thousands):

2003....................................... $ 3,502
2004....................................... 3,792
2005....................................... 4,168
2006....................................... 4,412
2007....................................... 4,738
Thereafter................................. 34,888
---------
Total................................. $ 55,500
=========

6. STOCKHOLDERS' EQUITY

In October 2000, the Company completed a rights offering by selling
4,011,740 shares of its common stock to its existing stockholders. The net
proceeds were $9,425,000.

STOCK OPTIONS

On April 30, 2002, the Company's Board of Directors adopted, and on June
24, 2002, its stockholders approved, the 2002 Incentive Stock Option Plan (the
"2002 Plan"). The 2002 Plan provides for the issuance of options to acquire up
to 1,000,000 shares of the Company's Common Stock. The options are intended to
qualify as incentive stock options within the meaning of Section 422A of the
Internal Revenue Code or as options which are not intended to meet the
requirements of such section ("non-qualified stock options"). Awards granted
under the 2002 Plan also may include stock appreciation rights and restricted
stock awards.

The exercise price of all incentive stock options granted under the 2002
Plan must be at least equal to the fair market value of such shares as of the
date of grant or, in the case of incentive stock options granted to the holder
of 10% or more of the Company's Common Stock, at least 110% of the fair market
value of such shares on the date of grant. The plan administrator (currently the
Board of Directors) shall set the term of each stock option, but no incentive
stock option shall be exercisable more than 10 years after the date such option
is granted. The Company also has granted options under the 1990, 1995, and 1999
Incentive Stock option Plans, all of which contain similar terms to the 2002
Incentive Stock Option Plan.

On July 22, 2002, the Company's Board of Directors approved the issuance of
an additional 262,000 options to acquire the Company's Common Stock. The record

F-20

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

date of the awards was set to the close of business on July 23, 2002. The market
price of the Company's Common Stock on July 23, 2002 was $4.16.

The Company is also authorized to issue or has outstanding options under
all of its unexpired stock option plans. In addition, the Company's Board of
Directors approved the issuance of 50,000 non-statutory stock options to one of
the Company's officers during 2000 and 150,000 non-statutory stock options to
one of the Company's officers in 2001.

A summary of the status of the Company's stock option plans at December 30,
2002, December 31, 2001, and December 25, 2000 and changes during the years then
ended is presented in the table and narrative below:



2002 2001 2000
------------------------ ------------------------ ------------------------
WTD. AVG. WTD. AVG. WTD. AVG.
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ---------- --------- ---------- ---------

Options outstanding at beginning
of period .................... 3,234,497 $ 3.14 2,733,000 $ 3.05 2,439,000 $ 3.22
Granted ........................ 444,250 2.87 644,000 3.79 473,000 3.38
Exercised ...................... (117,664) 3.26 (6,999) 3.02 -- --
Cancelled ...................... (73,663) 3.43 (135,504) 3.47 (179,000) 2.88
---------- ---------- ----------
Options outstanding at end
of period .................... 3,487,420 3.30 3,234,497 3.14 2,733,000 3.05
========== ========== ==========

Exercisable at end of period ... 2,624,780 3.03 2,112,332 2.96 1,859,333 2.91
========== ========== ==========
Weighted average fair value of
options granted .............. $ 3.04 $ 2.56 $ 1.52
====== ====== ======


COMMON STOCK WARRANTS

As of December 30, 2002 and December 31, 2001, the Company had 231,277
outstanding warrants to acquire its common stock with its lenders in connection
with the issuances of previously paid off debt. The warrants are exercisable at
$9.08 per share and expire in March 2004.

7. COMMITMENTS AND CONTINGENCIES

DEVELOPMENT AGREEMENTS

The Company is obligated under separate development agreements with Carlson
Restaurants Worldwide to open 5 new T.G.I. Friday's restaurants through 2003.
The development agreements give Carlson Restaurants Worldwide certain remedies
in the event the Company fails to timely comply with the development agreements,
including the right, under certain circumstances, to reduce the number of
restaurants the Company may develop in related franchised territory or to
terminate the Company's exclusive rights to develop restaurants in the related
franchised territory. The Company's development territories include Arizona,
Nevada, New Mexico, California, and the Kansas City and El Paso metropolitan
areas. The Company currently has one T.G.I. Friday's restaurant under
construction and does not anticipate building any additional T.G.I. Friday's
during 2003. With regard to the development agreements, the Company, based on
past history, expects to receive the appropriate waivers from Carlson
Restaurants Worldwide.

FRANCHISE, LICENSE, AND MARKETING AGREEMENTS

In accordance with the terms of the T.G.I. Friday's restaurant franchise
agreements, the Company is required to pay franchise fees of $50,000 for each
restaurant opened. The Company also is required to pay a royalty of up to 4% of
gross sales. Royalty expense was approximately $7,476,000, $7,444,000, and
$6,656,000, under these agreements during 2002, 2001, and 2000, respectively. In
addition, the Company could be required to spend up to 4% of gross sales on

F-21

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

marketing. Marketing expense for T.G.I. Friday's locations under these
agreements were approximately $5,250,000, $4,772,000, and $4,163,000, during
2002, 2001, and 2000, respectively.

OPERATING LEASES

The Company leases land and restaurant facilities under operating leases
having terms expiring at various dates through January 2020. The restaurant
leases have from two to three renewal clauses of five years each at the option
of the Company, and have provisions for contingent rentals based upon a
percentage of gross sales. The Company's minimum future lease payments as of
December 30, 2002, were as follows (in thousands):

2003....................................... $ 11,499
2004....................................... 10,835
2005....................................... 10,230
2006....................................... 9,708
2007....................................... 9,227
Thereafter................................. 77,722
---------
Total................................. $ 129,221
=========

Rent expense during 2002, 2001, and 2000 was approximately $11,950,000,
$10,836,000, and $8,662,000, respectively. In addition, the Company paid
contingent rentals of $1,061,000, $1,060,000, and $957,000 during 2002, 2001,
and 2000, respectively. The difference between rent expense and rent paid is
included in other liabilities and deferred credits in the accompanying
consolidated balance sheets.

SALE-LEASEBACK TRANSACTIONS

Historically, the Company has entered into sale-leaseback transactions in
order to provide further funds for development activities. There were no
sale-leaseback transactions in 2002. During the first quarter of fiscal 2001,
the Company completed three sale-leaseback transactions with regard to the
buildings, fixtures, and improvements at two restaurant sites whereby the
Company leased back the restaurant sites under operating leases over a
twenty-year period under terms similar to those in the preceding paragraph. The
Company received proceeds of approximately $4,993,000. The transactions resulted
in a deferred loss of approximately $41,000, which will be accreted to income as
a reduction of rent over the twenty-year lease terms. Pursuant to the lease
agreements, annual base rent was approximately $833,000 as of December 30, 2002,
with 10% increases in base rent occurring in 2005, 2010, and 2015. In addition,
the Company may be required to pay percentage rent if revenue levels reach
certain break points. In 2002 and 2001, no percentage rent was required for
these locations.

During fiscal 2000, the Company completed five sale-leaseback transactions
at an aggregate selling price of $14,494,000. The transactions resulted in a
deferred gain of approximately $1,009,000, which will be accreted to income as a
reduction of rent expense over the twenty-year lease terms. Pursuant to the
lease agreements, annual base rent equals approximately $1,449,000 as of
December 30, 2002, with 10% increases in base rent occurring in 2005, 2010, and
2015. In addition, the Company may be required to pay percentage rent if revenue
levels reach certain break points. In 2002, 2001 and 2000, no percentage rent
was required for these locations.

CONTINGENCIES

In the normal course of business, the Company is named as a defendant in
various claims and litigation matters. From time to time, we are subject to
routine contract, negligence, employment related, and other litigation in the
ordinary course of business. In January 2002, we were served with a lawsuit
filed on behalf of a current employee, seeking damages, under California law,
for both missed breaks and missed meal breaks the employee alleges she did not
receive. This lawsuit seeks to establish a class action relating to our
California operations. We intend to vigorously defend this lawsuit, both on the
merits of the employee's case and the issues relating to class action status.

F-22

MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Other than the preceding, we are not subject to any pending litigation that we
believe will have a material adverse effect on our business or financial
condition, results of operations or liquidity.

The Company is also subject, from time to time, to audit by various taxing
authorities reviewing the Company's income, property, sales, use, and payroll
taxes. Management believes that any finding from such audits will not have a
material impact on its financial position, results of operations, or liquidity.

8. BENEFIT PLANS

The Company maintains a 401(k) Savings Plan for all of its employees. The
Company currently matches 50% of the participants' contributions for the first
4% of the participants' compensation. Contributions by the Company were
approximately $257,000, $ 248,000, and $174,000 during 2002, 2001, and 2000,
respectively.

9. RELATED PARTY TRANSACTIONS

In December 1993, the Company entered into a five-year lease agreement for
corporate office space with an entity controlled by Steven Sherman, who served
as a director of the Company until February 2000. During 1998 the lease was
amended to extend the original term through January 31, 2004. Approximately
$315,000, $253,000, and $224,000, were paid in rent for this leased space during
2002, 2001, and 2000, respectively. In addition, a new lease was entered into
with the same entity in 2002 wherein the Company leased additional office space
with a 10- year term commencing on April 1, 2002.

The Company is under contract to manage four restaurants with an unrelated
party. The Company is obligated to provide restaurant management to the
operations. The Company receives a management fee for these services if certain
cash flow provisions are met. The fees totaled $432,000 and $611,000 in each of
fiscal years 2001 and 2000, respectively. Management fee income has not been
earned or recorded by the Company since the end of the first quarter of 2001 as
a result of not meeting the cash flow provisions pursuant to the management
agreement. At December 31, 2001, the Company recorded an impairment charge
against the management agreement of $1,615,000. The Company had receivables of
approximately $471,000 and $1,167,000 as of December 30, 2002 and December 31,
2001, respectively, related to the funding of operations.

10. SUBSEQUENT EVENT

In January 2003, we entered into a 10-year lease renewal and modification
agreement for our corporate offices. This agreement increased the size of the
existing space, allowing us to combine our three office locations into one
contiguous space. This will result in a reduction in total space leased and a
reduction in annual rent expense. We believe that the leased space is adequate
for our current and reasonably anticipated future needs.

F-23