UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q/A
AMENDMENT NO. 1 TO FORM 10-Q

[X](Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JUNE 28, 200027, 2001 OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ____ TO ____

Commission File Number 1-13226

PHOENIX RESTAURANT GROUP, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)------------------------------
(Exact Name of Registrant as Specified in its Charter)

GEORGIA 58-1861457
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

7373 N. SCOTTSDALE ROAD
SUITE D-120, SCOTTSDALE AZ 852531210 BRIARVILLE RD
MADISON, TENNESSEE 37115
- ---------------------------------------- ----------
(address(Address of principal executive offices) (zip code)

(480) 483-7055Principal Executive Offices) (Zip Code)

(615)277-1234
----------------------------------------------------
(registrant's telephone number, including area code)(Registrant's Telephone Number, Including Area Code)

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 [ ]

The number of outstanding shares of the issuer's class of common stock as of the
latest practicable date, is as follows: 13,081,821 shares ofRegistrant's Common Stock, $.10 par
value, as of August 16, 2000.
17, 2001, is 13,925,111.

PHOENIX RESTAURANT GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q/A10-Q
FOR THE QUARTER ENDED JUNE 28, 200027, 2001

TABLE OF CONTENTS

PAGE
----
PART I. FINANCIAL INFORMATION

ITEM 1 Unaudited1. Financial Statements

Condensed Consolidated Balance Sheets -
December 29, 199927, 2000 and June 28, 2000................................ 327, 2001..............................1

Condensed Consolidated Statements of Operations -
13-Week Periods ended June 30, 199928, 2000 and
June 28, 200027, 2001 and 26-Week Periods
ended June 30, 199928, 2000 and June 28, 2000 ................................... 427, 2001............................2

Condensed Consolidated Statements of Cash Flows -
13-Week Periods ended June 30, 199928, 2000 and June 28, 200027, 2001
and 26-Week Periods ended June 30, 199928, 2000 and June 28, 2000.................................... 527, 2001........3

Notes to Condensed Consolidated Financial Statements............... 6Statements.............4

ITEM 22. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 8Operations..............................8

ITEM 33. Quantitative and Qualitative Disclosures about Market Risk......... 14Risk........20

PART II. OTHER INFORMATION.................................................. 15

SIGNATURES......................................................... 16

EXPLANATORY NOTE:

Phoenix Restaurant Group, Inc. is filing this Amendment No. 1 to its Form
10-Q for the quarter ended June 28, 2000, to correct the amounts indicated for
Basic and Diluted Net Income (Loss) Per Share for the 13-week and 26-week
periods ended June 30, 1999.

2
INFORMATION................................................21

SIGNATURES................................................................22

PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

PHOENIX RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)THOUSANDS EXCEPT FOR SHARE DATA)

ASSETS DECEMBER 29,27, 2000 JUNE 28,
1999 2000
--------- ---------
ASSETS (Unaudited)27, 2001
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 1,4912,681 $ 2,4652,714
Receivables 2,244 2,1801,412 1,162
Inventories 1,087 1,011
Deferred income taxes 11,700 11,7001,059 1,111
Other current assets 4,761 1,4511,134 3,262
Net assets held for sale 42,128 42,809
--------- ---------42,649 23,973
---------- ------------
Total current assets 63,411 61,61648,935 32,222
PROPERTY AND EQUIPMENT - Net 20,619 20,05418,859 18,397
INTANGIBLE ASSETS - Net 11,117 10,9348,768 8,622
OTHER ASSETS 3,220 3,212
--------- ---------2,808 4,160
---------- ------------

TOTAL $ 98,36779,370 $ 95,816
========= =========63,401
========== ============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 17,77815,257 $ 21,02613,850
Accrued compensation 5,237 5,1465,324 4,766
Accrued taxes 4,733 3,6144,302 5,930
Other current liabilities 14,082 14,06728,544 37,904
Current debt obligations 25,651 25,711
--------- ---------79,040 69,914
---------- -----------
Total current liabilities 67,481 69,564132,467 132,364
LONG-TERM DEBT OBLIGATIONS -
Less current portion 54,908 51,8771,096 1,008
OTHER LONG-TERM LIABILITIES 5,214 4,662
--------- ---------

Total liabilities 127,603 126,103
--------- ---------
COMMITMENTS AND CONTINGENCIES (note 3)6,929 6,354
---------- -----------

TOTAL LIABILITIES 140,492 139,726
---------- -----------

SHAREHOLDERS' DEFICITDEFICIT:
Preferred stock, $.01 par value;
authorized, 5,000,000 shares;
issued and outstanding, none
Common stock, $.10 par value;
authorized, 40,000,000 shares;
13,485,277 and 13,925,111 shares
issued and outstanding at
December 27, 2000 and June 27,
2001, respectively 1,349 1,3491,393
Additional paid-in capital 35,869 35,86934,982 34,942
Treasury stock, at cost, 403,456 shares -- (1,139)(252) (252)
Accumulated deficit (66,454) (66,366)
--------- ---------(97,201) (112,408)
---------- -----------

TOTAL SHAREHOLDERS' DEFICIT (29,236) (30,287)
--------- ---------(61,122) (76,325)
---------- -----------

TOTAL $ 98,36779,370 $ 95,816
========= =========63,401
========== ===========

See accompanying notes to condensed consolidated financial statements

3
statements.

PHOENIX RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN(DOLLARS IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)

13-WEEK PERIODPERIODS ENDED 26-WEEK PERIODPERIODS ENDED
(UNAUDITED) (UNAUDITED)

---------------------- ----------------------
JUNE 30, JUNE 28, 2000 JUNE 30,27, 2001 JUNE 28, 1999 2000 1999 2000
--------- --------- --------- ---------JUNE 27, 2001

RESTAURANT SALES $ 61,801 $ 55,523 $ 122,74246,494 $ 111,994 $ 94,083
--------- --------- --------- -------------------

RESTAURANT OPERATING
EXPENSES:
Food and beverage costs 16,775 15,263 33,23812,860 30,484 25,984
Payroll and payroll related costs 21,341 19,202 42,16017,860 38,574 35,949
Other operating expenses 14,671 16,081 29,551 31,203
Loss on sale of note receivable - - - 389
Restructuring expenses - 700 - 700
Depreciation and amortization 1,676 633 3,361680 1,309 Other1,352
--------- --------- --------- ----------
Total restaurant operating
expenses 17,425 14,671 34,296 29,551
Charge for impaired assets 3,000 -- 3,000 --49,769 48,181 99,918 95,577
--------- --------- --------- ---------
Total operating expenses 60,217 49,769 116,055 99,918----------

RESTAURANT OPERATING INCOME
(LOSS) 5,754 (1,687) 12,076 (1,494)

ADMINISTRATIVE EXPENSES 3,100 4,081 6,074 7,220
--------- --------- --------- ---------

RESTAURANT OPERATING INCOME 1,584 5,754 6,687 12,076

ADMINISTRATIVE EXPENSES 2,950 3,100 5,781 6,074
--------- --------- --------- -------------------

OPERATING INCOME (LOSS) (1,366) 2,654 906(5,768) 6,002 (8,714)

INTEREST EXPENSE - Net 3,389 3,043 5,9953,277 5,914 6,477
--------- --------- --------- -------------------

INCOME (LOSS) BEFORE INCOME
TAXES (4,755) (389) (5,089)(9,045) 88 (15,191)

INCOME TAX (BENEFIT) (596) -- (731) --EXPENSE - 5 - 16
--------- --------- --------- ---------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (4,159) (389) (4,358) 88

EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT net of
income tax benefit of $686 (1,273) -- (1,273) --
--------- --------- --------- -------------------

NET INCOME (LOSS) $ (5,432) $ (389) $ (5,631)(9,050) $ 88 $ (15,207)
========= ========= ========= ===================

Basic and diluted income
(loss) per share
Before extraordinary item $ (.31)share:
Applicable to common shareholders $ (.03) $ (.32)(.67) $ .01 $ (1.14)
========= ========= ========= =========
Net income (loss) $ (.39) $ (.03) $ (.41) $ .01
========= ========= ========= ===================

Basic and diluted weighted
average shares Outstanding:outstanding:
Basic 13,485 13,081 13,48513,522 13,081 13,321
========= ========= ========= ===================
Diluted 13,485 13,081 13,48513,522 13,559 13,321
========= ========= ========= ===================

See accompanying notes to condensed consolidated financial statements.

4
2

PHOENIX RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)(DOLLARS IN THOUSANDS)

13-WEEK PERIODPERIODS ENDED 26-WEEK PERIODPERIODS ENDED
(UNAUDITED) (UNAUDITED)

------------------ ------------------
JUNE 30, JUNE 28, 2000 JUNE 30,27, 2001 JUNE 28, 1999 2000 1999 2000
------- ------- ------- -------JUNE 27, 2001

CASH FLOWS FROM OPERATING
ACTIVITIESACTIVITIES:
Net income (loss) $(5,432) $ (389) $(5,631)$ (9,050) $ 88 $ (15,207)
Adjustments to reconcile net
lossincome (loss) to net cash
provided by (used in) operating
activities:
Restructuring expenses - 700 - 700
Depreciation and amortization 1,676 633 3,361680 1,309 1,352
Amortization of deferred
financing costs 90 -- 181- 2 187 Charge for impaired assets 3,000 -- 3,000 --
Extraordinary items 1,273 -- 1,273 --
Deferred income taxes (596) -- (731) --4
Loss on sale of note receivable - - - 389
Deferred rent (8) 82 5350 197 103
Other - net (319) (31) (534)(219) (34) 6
Changes in operating assets
and liabilities
net of dispositions:liabilities:
Receivables (558) 720 (529)57 65 250
Inventories 99 37 501 76 (52)
Other current assets 424 (217) 590(1,191) (98) (2,794)
Accounts payable and
accrued liabilities 395 204 (698)11,013 1,755 ------- ------- ------- -------
Net cash provided by operating activities 44 1,039 385 3,545
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (948) (584) (2,407) (1,014)
Purchase of intangibles (84) -- (120) --
Proceeds from sale of assets -- 145 -- 145
------- ------- ------- -------11,310
--------- --------- --------- ----------
Net cash provided by (used in)
operating activities (1,032)1,039 2,043 3,545 (3,939)
--------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (584) (841) (1,014) (1,485)
Proceeds from sale of assets 145 (82) 145 2,937
--------- --------- --------- ----------
Net cash (used in) provided by
investing activities (439) (2,527)(923) (869) ------- ------- ------- -------1,452
--------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 5,521 -- 6,378 --
Debt issuance costs (1,033) -- (1,033) --ACTIVITIES:
Proceeds from borrowings - - - 1,533
Note receivable collections 595 112 7336 197 103
Proceeds from sale of note
receivable - - - 973
Issuance of common stock - - - 4
Principal reductions onof
long-term obligations (878)debt (1,108) (1,786)(48) (1,899) ------- ------- ------- -------(93)
--------- --------- --------- ----------
Net cash used in(used in) provided
by financing activities 4,205 (996) 4,292(42) (1,702) ------- ------- ------- -------2,520
--------- --------- --------- ----------
NET CHANGE(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 3,217 (396) 2,1501,078 974 33
CASH AND CASH EQUIVALENTS,
AT
BEGINNING OF PERIOD 1,263 2,861 2,3301,636 1,491 ------- ------- ------- -------2,681
--------- --------- --------- ----------
CASH AND CASH EQUIVALENTS, AT END OF
PERIOD $ 4,4802,465 $ 2,714 $ 2,465 $ 4,480 $ 2,465
======= ======= ======= =======2,714
========= ========= ========= ==========
SUPPLEMENTAL SCHEDULEDISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for
interest: $ 2,191interest $ 2,289 $ 4,0646 $ 4,237 $ 51
Cash paid during the period for
income taxes $ - $ 5 $ - $ 16
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
CancellationExchange of related party notes:note receivable for
common stock and note payable
Subordinated debenture - - $ 1,456 -
Note receivable - - $ 2,600 -
Treasury stock - - $ 1,139252 -
Additional paid-in capital - - $ 887 -

See accompanying notes to condensed consolidated financial statements

5
statements.

3
PHOENIX RESTAURANT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN(DOLLARS IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)

(1) BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
Phoenix Restaurant Group, Inc. ("PRG") and Subsidiariessubsidiaries (collectively, the
"Company") have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission for Form 10-Q and do not include all
of the information and footnotes required by accounting principles generally
accepted accounting principlesin the United States of America for completeaudited financial statements. In
ourmanagement's opinion, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
However, these operating results are not necessarily indicative of the
results expected for the full year. These statements should be read in
conjunction with the consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") included in ourPRG's Annual Report on Form 10-K for the
fiscal year ended December 29, 1999.

We currently operate 189 family-oriented, full-service restaurants27, 2000 and MD&A in 20 states,
primarily in the southwestern, midwestern, western, and southeastern United
States. We own and operate 92 Black-eyed Pea restaurants, primarily in Texas,
Arizona, Oklahoma, and the Washington, D.C. area. We also own and operate 97
Denny's restaurants, which represents approximately 5.4% of the Denny's system
and makes us the largest Denny's franchisee in terms of revenue and the number
of restaurants operated.

(2) ACQUISITIONS AND DIVESTITURES

We sold or closed two Denny's and sixteen Black-eyed Pea restaurants in 1999 and
one Denny's and one Black-eyed Pea restaurant in the first six months of 2000.
All of these restaurants were underperforming and geographically undesirable. We
believe that these sales and closures have improved our restaurant portfolio. We
will continue to evaluate the operating results of all remaining restaurants
after our currently anticipated sales. We will sell or close any of those
restaurants that do not meet our criteria for operating results.

In October 1999, we retained CNL Advisory Services to act as our agent in the
sale of our remaining Denny's restaurants. On June 22, 2000, we entered into an
agreement to sell 56 Denny's restaurants to an existing Denny's franchisee for
$35.6 million in cash. The consummation of the sale is subject to usual and
customary conditions to closing, including the buyer's satisfactory completion
of its due diligence and inspection of the restaurants and the buyer's obtaining
financing for the transaction. As of June 28, 2000, we received letters of
interest for the proposed sale of the other 41 Denny's restaurants. These
proposals are subject to usual and customary conditions to closing, including
the buyers' obtaining financing for such transactions. To the extent that we
sell some or all of our remaining Denny's restaurants, we intend to apply the
proceeds to reduce our outstanding indebtedness and pay customary fees
associated with the closing of the transactions.

It is anticipated that the sale of all Denny's restaurants will be completed by
the end of fiscal 2000.

(3) OTHER MATTERS

On June 30, 1999, CNL APF Partners, LP acquired the remaining outstanding
indebtedness under our existing senior credit facility and advanced an
additional $5.4 million to us. As partPart I, Item 2 of this
transaction, we issued to CNL a
$20.1 million interim balloon note. In August 1999, this debt was modified to be
interest only through January 31, 2000. As of January 31, 2000 the entire
principal balance was due. We are currently in defaultQuarterly Report on the note and have
classified it as a current liability. In May 2000, we entered into a non-binding
letter of intent with CNL to extend the maturity date of the note to September
30, 2000. We cannot provide assurance, however, that we and CNL will agree to
any further extension or other revisions of the payment terms of the note that
will be acceptable to us.

Included in other current assets at December 31, 1999 was a $2.5 million note
receivable from shareholders bearing interest at 6%. The note was secured by
Series B Notes with a face amount of approximately $1.5 million and 403,456
shares of our company's common stock. In the first quarter of fiscal 2000, we
entered into an agreement with the holder of the note whereby the securities
collateralizing the note were used to redeem the receivable. The common stock
thus acquired has been classified as treasury stock with a value of $1,139,000
representing the difference in carrying value between the note receivable and
the Series B Notes redeemed.

(4) BUSINESS SEGMENTS

We operate family-oriented, full-service restaurants under two separate
concepts, Black-eyed Pea and Denny's. We own the Black-eyed Pea brand and
operate the Denny's restaurants under the terms of franchise agreements. Our
revenue and restaurant operating income for the thirteen-week and twenty
six-week periods ended June 28, 2000 and June 30, 1999 are as follows:

13-WEEK PERIOD ENDED 26-WEEK PERIOD ENDED
---------------------- ----------------------
REVENUES June 30, June 28, June 30, June 28,
1999 2000 1999 2000
--------- --------- --------- ---------

Black-eyed Pea $ 35,288 $ 29,612 $ 70,901 $ 61,090
Denny's 26,513 25,911 51,841 50,904
--------- --------- --------- ---------
Total revenues $ 61,801 $ 55,523 $ 122,742 $ 111,994
========= ========= ========= =========

RESTAURANT OPERATING INCOME
Black-eyed Pea $ 2,504 $ 2,771 $ 5,946 $ 6,158
Denny's 1,898 2,955 3,559 5,824
Charge for impaired assets (3,000) -- (3,000) --
Gain on sale of assets 182 28 182 94
--------- --------- --------- ---------
Total restaurant operating income 1,584 5,754 6,687 12,076
Administrative expenses 2,950 3,100 5,781 6,074
--------- --------- --------- ---------
Total operating income (loss) $ (1,366) $ 2,654 $ 906 $ 6,002
========= ========= ========= =========

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

We currently operate 92 Black-eyed Pea restaurants in 8 states, including 81
restaurants in Texas, Oklahoma, and Arizona. Through June 28, 2000, comparable
same-store sales decreased 12.3%, and average weekly sales decreased 5.4% as
compared with the first quarter of fiscal 1999. This decrease is primarily
attributable to the shift from television advertising to local store marketing.
Carry-out sales accounted for approximately 13.0% and 11.4% of restaurant sales
for the 13-week period and 12.9% and 11.5% for the 26-week period ended June 28,
2000 and June 30, 1999.

As of June 28, 2000, we operated 97 Denny's restaurants in 17 states, including
54 restaurants in Texas, Florida, and Arizona. Through June 28, 2000, comparable
same-store sales increased 1.0%, and average weekly sales remained constant at
$20,200 per unit as compared with the first two quarters of fiscal 1999. The
increase is the result of the disposal of certain underperforming restaurants
and the improvement in the overall asset base.

COMPARISON OF RESULTS OF OPERATIONS

The following table presents, for the periods indicated, certain items in
the condensed consolidated statements of operations expressed as a percentage of
total restaurant sales.

13-WEEK PERIOD ENDED 26-WEEK PERIOD ENDED
---------------------- ----------------------
June 30, June 28, June 30, June 28,
1999 2000 1999 2000
--------- --------- --------- ---------

Restaurant sales 100% 100% 100% 100%
----- ----- ----- -----
Restaurant operating expenses:
Food and beverage costs 27.1 27.5 27.1 27.2
Payroll and payroll related costs 34.5 34.6 34.4 34.4
Depreciation and amortization 2.7 1.1 2.7 1.2
Other restaurant operating expenses 28.2 26.4 28.0 26.4
Charge for impaired assets 4.9 -- 2.4 --
----- ----- ----- -----
Total operating expenses 97.4 89.6 94.6 89.2
----- ----- ----- -----
Restaurant operating income 2.6 10.4 5.4 10.8
Administrative expenses 4.8 5.6 4.7 5.4
----- ----- ----- -----
Operating income (2.2) 4.8 .7 5.4
Interest expense 5.5 5.5 4.9 5.3
----- ----- ----- -----
Income (loss) before income taxes and
extraordinary items (77) (0.7) (4.2) .1
Income tax benefit (1.0) -- (0.6) --
----- ----- ----- -----
Loss before extraordinary items (6.7) (0.7) (3.6) .1
Extraordinary items (2.1) -- (1.0) --
----- ----- ----- -----
Net income (loss) (8.8%) (0.7%) (4.6%) .1%
===== ===== ===== =====

THIRTEEN-WEEK PERIOD ENDED JUNE 28, 2000 COMPARED WITH THIRTEEN-WEEK PERIOD
ENDED JUNE 30, 1999

RESTAURANT SALES. Restaurant sales decreased $6.3 million, or 10.2%, to
$55.5 million for the thirteen-week period ended June 28, 2000 as compared with
restaurant sales of $61.8 million for the thirteen-week period ended June 30,
1999. This decrease was primarily attributable to a decline in same-store sales
of $4.1 million for the Black-eyed Pea restaurants due to a reduced emphasis on
television advertising and a decline of $3.5 million due to the closure or sale
of Black-eyed Pea and Denny's restaurants offset by sales from new stores. Our
Denny's restaurants increased same-store sales by 0.5% during the second quarter
of 2000. Restaurant sales attributable to the Black-eyed Pea restaurants for the
second quarter of 2000 and 1999 totaled 53% and 57% of total restaurant sales,
respectively.

FOOD AND BEVERAGE COSTS. Food and beverage costs increased to 27.5% of
restaurant sales for the thirteen-week period ended June 28, 2000 as compared
with 27.1% of restaurant sales for the thirteen-week period ended June 30, 1999.
This increase is primarily due to increases in pork and coffee costs.

PAYROLL AND PAYROLL RELATED COSTS. Payroll and payroll related costs were
34.6% of restaurant sales for the thirteen-week period ended June 28, 2000 as
compared with 34.5% of restaurant sales for the thirteen-week period ended June
30, 1999. This increase was primarily attributable to the lower sales volumes
from the change in the Black-eyed Pea restaurants marketing program and higher
average wages offset by the closing of higher cost restaurants.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization of restaurant
equipment, leasehold improvements, intangible assets, and other items was
$633,000 for the thirteen-week period ended June 28, 2000, as compared with $1.7
million for the thirteen-week period ended June 30, 1999. In September 1999, we
committed to a plan to sell all of our Denny's restaurants. In accordance with
SFAS No. 121, the assets of these restaurants were reclassified as being held
for sale and depreciation ceased. The decrease in depreciation and amortization
of $1.0 million is primarily due to the cessation of depreciation on these
assets.

OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating expenses
were 26.4% of restaurant sales for the thirteen-week period ended June 28, 2000
as compared with 28.2% of restaurant sales for the thirteen-week period ended
June 30, 1999. As a result of a change in accounting principles, new store
opening costs of approximately zero and $380,000, were expensed when incurred in
the second quarter of 2000 and 1999, respectively. Occupancy costs were reduced
by $813,000 in the second quarter of 2000 due to the renegotiation of an
equipment lease. Excluding these items, other restaurant operating expenses
would have been $15.5 million, or 27.9% of sales, for the thirteen-week period
ended June 28, 2000 and $17.0 million, or 27.6% of sales, for the thirteen-week
period ended June 30, 1999. The remaining decrease of $1.6 million is primarily
due to the reduction in television advertising.

RESTAURANT OPERATING INCOME. Restaurant operating income increased to $5.8
million, or 10.4% of restaurant sales, for the thirteen-week period ended June
28, 2000, as compared with $1.6 million, or 2.6% of restaurant sales, for the
thirteen-week period ended June 30, 1999. Restaurant operating income in 1999
included a $3.0 million charge for impaired assets. Excluding this charge,
restaurant operating income would have been $4.6 million, or 7.4% of restaurant
sales in 1999. This increase was principally the result of the reduced level of
expenses described above.

ADMINISTRATIVE EXPENSES. Administrative expenses were $3.1 million, or 5.6%
of restaurant sales, for the thirteen-week period ended June 28, 2000, as
compared with $3.0 million, or 4.8% of restaurant sales, for the thirteen-week
period ended June 30, 1999. The increase of $150,000 was due to increases in
legal and professional fees offset by the reduction in administrative costs
associated with the restaurants sold and closed. Administrative expenses
expressed as a percentage of restaurant sales, however, increased primarily as a
result of decreased same-store sales at the Black-eyed Pea restaurants.

INTEREST EXPENSE - NET. Interest expense, net, was $3.0 million, or 5.5% of
restaurant sales, for the thirteen-week period ended June 28, 2000 as compared
with $3.4 million, or 5.5% of restaurant sales, for the thirteen-week period
ended June 30, 1999. The change is the result of the increase in outstanding
debt in 2000 offset by the recording of approximately $239,000 in 2000 and
$600,000 in 1999, which represents the accrual of the compound effect of the
interest associated with the Series B notes.

INCOME TAX (BENEFIT). We did not record additional tax expense (benefit)
associated with the operating loss in 2000 due to the uncertainty of the future
utilization of the deferred income tax asset.

EXTRAORDINARY ITEMS. The extraordinary item related to the expensing of
certain deferred financing costs associated with the early payoff of certain
debt obligations.

NET INCOME (LOSS). We recorded a net loss of approximately $389,000 for the
thirteen-week period ended June 28, 2000 and a net loss of $5.4 million for the
thirteen-week period ended June 30, 1999, as a result of the factors described
above.

TWENTY-SIX WEEK PERIOD ENDED JUNE 28, 2000 COMPARED WITH TWENTY-SIX WEEK PERIOD
ENDED JUNE 30, 1999

RESTAURANT SALES. Restaurant sales decreased $10.7 million, or 8.8%, to
$112.0 million for the twenty-six week period ended June 28, 2000 as compared
with restaurant sales of $122.7 million for the twenty-six week period ended
June 30, 1999. This decrease was primarily attributable to a decline in
same-store sales of $7.8 million for our Black-eyed Pea restaurants due to a
reduced emphasis on television advertising and a decline of $7.3 million due to
the closure or sale of Black-eyed Pea and Denny's restaurants offset by sales
from new stores. Our Denny's restaurants increased same-store sales by 1.0%
during the first two quarters of 2000. Restaurant sales attributable to our
Black-eyed Pea restaurants for the fiscal 2000 and 1999 periods totaled 55% and
58% of total restaurant sales, respectively.

FOOD AND BEVERAGE COSTS. Cost of food and beverage increased to 27.2% of
restaurant sales for the twenty-six week period ended June 28, 2000 as compared
with 27.1% of restaurant sales for the twenty-six week period ended June 30,
1999. This increase is primarily due to increases in pork and coffee costs.

PAYROLL AND PAYROLL RELATED COSTS. Payroll and payroll related costs
remained constant at 34.4% of restaurant sales for the twenty-six week periods
ended June 28, 2000 and June 30, 1999. Increases in payroll costs as a
percentage of sales were attributable to the lower sales volumes from the change
in the Black-eyed Pea marketing program and higher average wages, offset by the
closing of higher cost restaurants.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization of restaurant
equipment, leasehold improvements, intangible assets, and other items decreased
to $1.3 million for the twenty-six week period ended June 28, 2000 as compared
with $3.4 million for the twenty-six week period ended June 30, 1999. In
September 1999, we committed to a plan to sell all of our Denny's restaurants.
In accordance with SFAS No. 121, the assets of these restaurants were
reclassified as being held for sale and depreciation ceased. The decrease in
depreciation and amortization of $2.1 million is primarily due to the cessation
of depreciation on these assets.

OTHER RESTAURANT OPERATING COSTS. Other restaurant operating costs were
26.4% of restaurant sales for the twenty-six week period ended June 28, 2000 as
compared with 28.0% of restaurant sales for the twenty-six week period ended
June 30, 1999. As a result of a change in accounting principles, new store
opening costs of approximately zero and $597,000, were expensed when incurred in
the twenty six-week period of 2000 and 1999, respectively. Occupancy costs were
reduced by $813,000 in the second quarter of 2000 due to the renegotiation of an
equipment lease. Excluding these items, other restaurant operating expenses
would have been $30.4 million, or 27.1% of sales, for the twenty six-week period
ended June 30, 2000 and $33.7 million, or 27.5% of sales, for the twenty
six-week period ended June 30, 1999. The decrease of $3.3 million is primarily
due to the reduction in television advertising.

RESTAURANT OPERATING INCOME. Restaurant operating income increased to $12.1
million, or 10.8% of restaurant sales, for the twenty-six week period ended June
28, 2000 as compared with $6.7 million, or 5.4% of restaurant sales, for the
twenty-six week period ended June 30, 1999. Restaurant operating income in 1999
included a $3.0 million charge for impaired assets. Excluding this charge,
restaurant operating income would have been $9.7 million, or 7.9% of restaurant
sales, in 1999. This increase was principally the result of the reduced level of
expenses described above.

ADMINISTRATIVE EXPENSES. Administrative expenses increased to $6.1 million,
or 5.4% of restaurant sales for the twenty-six week period ended June 28, 2000
as compared with $5.8 million, or 4.7% of restaurant sales, for the twenty-six
week period ended June 30, 1999. This increase of $293,000 is primarily
attributable to increased legal and professional fees, offset by the reduction
in administrative costs associated with the restaurants sold and closed.
Administrative expenses expressed as a percentage of restaurant sales, however,
increased primarily as a result of decreased same-store sales at our Black-eyed
Pea restaurants.

INTEREST EXPENSE - NET. Interest expense was $5.9 million, or 5.3% of
restaurant sales, for the twenty-six week period ended June 28, 2000 as compared
with $6.0 million, or 4.9% of restaurant sales, for the twenty-six week period
ended June 30, 1999. The change is the result of the increase in outstanding
debt in 2000 offset by the recording of approximately $430,000 in 2000 and
$600,000 in 1999, which represents the accrual of the compound effect of the
interest associated with the Series B notes.

INCOME TAX BENEFIT. We did not record tax expense (benefit) associated with
the operating income in 2000 due to the uncertainty of the future utilization of
the deferred income tax asset.

EXTRAORDINARY ITEMS. The extraordinary items related to expensing of
certain deferred financing costs associated with the early payoff of certain
debt obligations.

NET INCOME (LOSS). We recorded net income of approximately $88,000 for the
twenty six-week period ended June 28, 2000 and a net loss of $5.6 million for
the twenty six-week period ended June 30, 1999, as a result of the factors
described above.

LIQUIDITY AND CAPITAL RESOURCES

Our strategy has been to: (a) concentrate on developing the Black-eyed Pea
concept and brand identity; (b) focus on restaurants that achieve certain
operational and geographic efficiencies; and (c) sell or close underperforming
restaurants and refinance our indebtedness. We sold or closed two Denny's and
sixteen Black-eyed Pea restaurants in 1999 and one Denny's and one Black-eyed
Pea restaurant in the first six months of 2000. All of these restaurants were
underperforming and geographically undesirable. We believe that these sales and
closures have improved our restaurant portfolio.

To the extent that we sell some or all of our remaining Denny's restaurants, we
intend to apply the proceeds to reduce our outstanding indebtedness and pay
customary fees associated with the closing of the transactions. The assets and
liabilities related to the Denny's restaurants have been reported as net assets
held for sale. We continue to review net assets held for sale to determine
whether events or changes in circumstances indicate that the carrying value of
the net assets may not be recoverable. We will continue to evaluate the
operating results of our restaurants remaining after our currently anticipated
sales. We will sell or close any of those restaurants that do not meet our
criteria for operating results.

We, and the restaurant industry generally, operate primarily on a cash basis
with a relatively small amount of receivables and inventory. Therefore, like
many other companies in the restaurant industry, we operate with a working
capital deficit. Our working capital deficit was $7.9 million at June 28, 2000
and $4.1 million at December 29, 1999. Our working capital deficit increased
$3.8 million primarily due to the cancellation of a current note receivable and
a long-term subordinated note in the first quarter of 2000 as described in
"Other Matters" in the notes under Item 1 of this Form 10-Q. We anticipate that
we will continue to operate with a working capital deficit.

The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. From 1997 through 1999, we haveJune 27,
2001, the Company has experienced net losses aggregating approximately
$51.5 million,$97,490, which includes restructuring charges and asset impairment losses of
$33.4 million. In the first six months of 2000 there
has been a net gain of $88,000.$42,995. As a result, as ofat June 28, 2000 we27, 2001, the Company had a shareholders'
deficit of $30.3 million$76,325 and ourthe Company's current liabilities exceeded our
current
assets by $7.9 million.$100,142. These factors, among others, may indicate that weat some
point in the foreseeable future, the Company will be unable to continue as a
going concern for a reasonable period of
time.concern.

The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should wethe Company
be unable to

12
continue as a going concern. Our continuationContinuation as a going concern
depends upon ourthe Company's ability to generate sufficient cash flow to meet
ourits obligations on a timely basis, to comply with the terms and covenants of
ourits financing agreements, to obtain additional financing or refinancing as
may be required and ultimately to attain successful operations. We areThe Company
is continuing ourits efforts to obtain additional funds so that weit can meet ourits
obligations and sustain its operations. There can be no assurance that
additional financing will be available to usthe Company or available on
satisfactory terms.

(2) ACQUISITIONS AND DIVESTITURES

The Company closed one Denny's restaurant and one Black-eyed Pea restaurant
in 2000 and closed two Denny's restaurants in the first 13 week period of
2001 and one Black-eyed Pea restaurant in the second 13 week period of 2001.
All of these restaurants were underperforming and failed to meet certain
operational and financial goals established by the Company. The Company will
continue to evaluate all remaining restaurants and intends to sell or close
any restaurants that do not meet its criteria for operating results.

In October 1999, the Company retained CNL Advisory Services, Inc. to act as
the agent in the sale of all the Company's Denny's restaurants. On January
26, 2001, the Company sold 23 Denny's restaurants to Mountain Range
Restaurants, LLC ("MRR") for $20,300, consisting of cash of $17,300 and a
note for $3,000. The note is secured by warrants that give the Company the
right to a 40% equity position in MRR in the event of a default by MRR. MRR
is owned by Messrs. William G. Cox and Robert J. Gentz. Mr. Cox was formerly
the Chief Operating Officer of PRG and continues

to serve as a director. Mr. Gentz was formerly an Executive Vice President of
PRG and also continues to serve as a director.

The sales price of $20,300 exceeded the Company's cost basis plus selling
costs by approximately $13,000. The gain on this sale was offset, however, as
a result of management's determination that an additional reserve of
approximately $13,000 was needed to reduce the carrying value of the remaining
Denny's restaurants to their net realizable value. Cash proceeds from the sale
transaction were primarily used to reduce capital lease obligations associated
with these properties by approximately $1,500, retire debt of approximately
$7,700 to CNL APF Partners, LP (collectively, with its affiliates, "CNL"),
retire a note payable of approximately $1,700 to Advantica (Denny's, Inc.'s
parent company), repay approximately $3,100 of accrued interest and infuse
additional working capital into the Company.

(3) DEBT AND OBLIGATIONS UNDER CAPITAL LEASES

On June 30, 1999, CNL APF Partners, LP acquired the remaining outstanding indebtedness under
ourPRG's existing senior credit facility and advanced PRG an additional $5.4 million to us.$5,400.
As part of this transaction, wePRG issued to CNL a $20.1 million$20,100 interim balloon
note. In August 1999, this debt was modified to be interest only through
January 31, 2000. Concurrent with the sale of the restaurants to MRR, the
Company paid CNL all accrued interest outstanding on this note through
December 27, 2000 and received a waiver of defaults along with an extension of
the due date to March 31, 2001. On March 31, 2001, the maturity date of this
note was extended until December 31, 2001. As of January 31, 2000June 27, 2001, accrued and
unpaid interest on the entire
principal balance was due. We arenote due to CNL totaled $1,044. The Company is
currently in default on the note and havehas classified it as a current
liability. In May 2000, we entered into a non-binding
letterPRG intends to pursue an extension of intent with CNL to extend the maturity date and
waiver of default on the note to September
30, 2000. Wefrom CNL. PRG cannot provide assurance,
however, that we and CNL will agree to anany further extension or waiver or that other
revisions ofin the payment terms of the note that will be acceptable to us.the Company.

During the second quarter of 2000, the Company stopped making payments due to
CNL for principal and interest on debt, principal and interest on several
capital leases and rent on several operating leases. On March 29, 2001, $3,700
of these delinquent payments due to CNL was transferred to an affiliate of
CNL with the same terms and conditions of payment. On June 30, 2001, an
additional $2,100 was transferred to an affiliate of CNL with the same terms
and conditions of payment.

During the second quarter of 2000, PRG received a waiver of a substantial
portion of the payments on an operating lease from a secondary lender. The
waiver was for a period of one year expiring on March 31, 2001. As of June
27, 2001, PRG has not received an extension of the waiver from the secondary
lender and has not re-instituted full payments under the terms of the lease
agreement.

At June 28, 2000, we27, 2001, the Company had outstanding $15,563,000 book valueapproximately $16,000 carrying
amount (net of discount) of Series B 13% Subordinated Notes ("Series B
Notes") due 2003. We areThe Company is in default on the Series B Notes due to
non-payment of interest since March 31, 1997. As of June 28, 200027, 2001, accrued
and unpaid interest due to these holders totals $8,383,000.totaled approximately $12,531.
Waivers for non-payment were received from the noteholders through June 1999
but notno interest waivers have been received since that date. The holders of the Subordinated Notes cannot
pursue their rights under a default until thirty months after the default date.
No formal notice of default has been received. The par value of
the Series B Notes at June 27, 2001 was approximately $16,800.

In March 2001, the Company received notice from Mr. Jack Lloyd, PRG's former
Chairman of the Board and Chief Executive Officer and holder (together with
Ms. Cathy Lloyd) of approximately $11,200 par value of the Series B Notes, of
his intention to accelerate the payment of all principal and interest due
under the Series B Notes and to declare all amounts immediately due and
payable. The Company believes that Mr. Lloyd is presently unable to pursue
any remedies for any defaults under the Series B Notes which are subordinated,
unsecured obligations of PRG. To date, PRG has received no further
correspondence from Mr. Lloyd with respect to the Series B Notes.

(4) CONCENTRATION OF RISKS AND USE OF ESTIMATES

As of June 27, 2001, the Company operated 162 restaurants in 19 states,
consisting of two separate concepts, Black-eyed Pea and Denny's. The
majority of the Company's restaurants are located in Texas, Florida, Oklahoma
and Arizona. Both concepts are full-service, dining establishments offering
a broad menu and a comfortable dining atmosphere. The Company believes there
is no concentration of risk with any single customer, supplier or small group
of customers or suppliers whose failure or nonperformance would materially
affect the Company's results of operations.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to use judgments and make estimates that affect the amounts
reported in the Condensed Consolidated Financial Statements. Management
believes that such estimates have been based on reasonable and supportable
assumptions and that the resulting estimates are reasonable for use in the
preparation of the Condensed Consolidated Financial Statements. Changes in
such estimates will be made as appropriate as additional information becomes
available and may affect amounts reported in future periods.

(5) BUSINESS SEGMENTS

The Company owns and operates 92 Black-eyed Pea restaurants, including a
total of 80 restaurants located in Texas, Arizona and Oklahoma. The Company
also operates 70 Denny's restaurants, including a total of 40 restaurants
located in Texas and Florida. The Company owns the Black-eyed Pea brand and
operates the Denny's restaurants under the terms of franchise agreements.

The Company's revenue and restaurant operating income for the thirteen-week
and twenty-six week periods ended June 28, 2000 and June 27, 2001,
respectively, are as follows:

13-WEEK PERIOD 26-WEEK PERIOD
ENDED ENDED

June 28, 2000 June 27, 2001 June 28, 2000 June 27, 2001
REVENUES: ------------- ------------- ------------- -------------

Black-eyed Pea $ 29,612 $ 28,571 $ 61,090 $ 56,392
Denny's 25,911 17,923 50,904 37,691
-------- -------- --------- --------
Total revenues $ 55,523 $ 46,494 $ 111,994 $ 94,083
======== ======== ========= ========

RESTAURANT OPERATING
INCOME (LOSS):

Black-eyed Pea $ 2,771 $ (2,832) $ 6,158 $ (3,433)
Denny's 2,955 1,145 5,824 1,939
Gain on sale of
assets 28 - 94 -
-------- --------- --------- ---------
Total restaurant
operating income
(loss) 5,754 (1,687) 12,076 (1,494)

Administrative
expenses 3,100 4,081 6,074 7,220
-------- --------- --------- ---------
Total operating
income (loss) $ 2,654 $ (5,768) $ 6,002 $ (8,714)
======== ========= ========= =========

(6) OTHER MATTERS

In August 1999, PRG entered into a foreclosure and settlement agreement
whereby a $2,600 note receivable (collateralized by 403,456 shares of PRG's
common stock) was exchanged for $1,456 in Series B Notes payable and the
collateral of 403,456 shares of PRG's common stock. The effective date of
this transaction was January 3, 2000, at which time PRG recorded the
cancellation of the $2,600 note receivable and the $1,456 in Series B Notes
payable at face value while reflecting the transfer of 403,456 shares of
common stock as treasury stock. In the first quarter of 2000, PRG recorded
the transaction as an acquisition of treasury stock for $252, representing
its market value at the effective date, and a reduction of additional paid-in
capital of $887.

During the quarter ended June 27, 2001, the Company executed agreements to
sell 6 of its Denny's restaurants for an aggregate of $7.45 million and
received deposits in the amount of the purchase prices. These agreements
give the Company the right to terminate the agreements upon a refund of the
deposits. Subsequent to the end of the second quarter, the Company entered
into an agreement with an entity owned by William J. Howard, a director of
PRG, to sell 13 of its Denny's restaurants, including 6 of the restaurants
previously discussed, in which case the Company will terminate the previous
agreements with respect to these restaurants. The Company presently
anticipates that the sales of these restaurants will close on or before
September 30, 2001.

(7) SUBSEQUENT EVENTS

In September 1999, the Company committed to a plan to sell all of its Denny's
restaurants. Consequently, the assets of these restaurants were reclassified
as held for sale. On January 26, 2001, the sale of 23 restaurants to MRR was
completed. On August 6, 2001, the Company changed its intent with regard to
selling its remaining Denny's restaurants. The Company will continue its
efforts to sell approximately 29 Denny's restaurants located primarily in
Florida and Colorado. The Company now intends to continue operating in the
family dining segment with Denny's restaurants primarily in its core market
areas of Texas, Oklahoma and Florida. Therefore, as of August 6, 2001 the
carrying amount of the Denny's restaurants not being sold will be
reclassified from net assets held for sale to property, plant and equipment.
The amount of the reclassification will be approximately $10,300, which will
become the new historical cost basis of the assets. Depreciation and
amortization for these assets will commence as of August 6, 2001.

On June 29, 2001 several debt agreements with CNL totaling $16,900 were
modified to be interest only until maturity. Maturity dates for these debt
agreements range from 2002 though 2013. The Company is $16,794,000.currently in default
on these notes due to non-payment of interest.

On July 12, 2001 the Company entered into a purchase agreement to sell 13
Denny's restaurants for $11,000 in cash. It is anticipated that this
transaction will close during the third quarter of 2001.

On July 27, 2001 the Company entered into a purchase agreement to sell 7
Denny's restaurants for $2,250 in cash. It is anticipated that this
transaction will close during the third quarter of 2001.

During the second quarter of fiscal 2001, the Company recorded restructuring
expenses of $700 related to four underperforming Black-eyed Pea restaurants
which the Company closed in July 2001. This adjustment reflects the estimated
liability for future rents, equipment leases, property taxes, and other costs
associated with the closure of these restaurants.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

GENERAL

As of June 27, 2001, the Company operated 92 Black-eyed Pea restaurants in
nine states, including a total of 80 restaurants located in Texas, Arizona
and Oklahoma. During the first 26 weeks of 2001, comparable store sales at
its Black-eyed Pea restaurants decreased 8.1% as compared with the first
twenty-six week period of 2000. The decrease in comparable store sales was
attributable primarily to significant coupon advertising in the first quarter
of 2000, which did not occur in the first quarter of 2001. In addition, the
elimination of television advertising, which occurred in the first quarter of
2000 and continued until the first quarter of 2001, resulted in negative
sales trends throughout 2000 and into 2001. In March 2001, the television
advertising program was re-instituted. Comparable store sales during the
second quarter of 2001 decreased 5.0% as compared with the second quarter of
2000. Carry-out sales accounted for approximately 12.5% and 13.0% of
restaurant sales for the thirteen-week periods and 12.8% and 12.9% for the
twenty-six week periods ended June 27, 2001 and June 28, 2000, respectively.

As of June 27, 2001, the Company operated 70 Denny's restaurants in 14
states, including a total of 40 restaurants located in Texas and Florida.
Through June 27, 2001, comparable store sales at the Company's Denny's
restaurants increased 0.2% as compared with the first twenty-six week period
of 2000. This increase in comparable store sales is the result of the
closure of certain underperforming restaurants and the improvement in the
operations of the remaining restaurants.

COMPARISON OF RESULTS OF OPERATIONS

The following table presents, for the periods indicated, certain items
in the Condensed Consolidated Statements of Operations expressed as a
percentage of total restaurant sales:

13-WEEK PERIOD ENDED 26-WEEK PERIOD ENDED
(Unaudited) (Unaudited)

(All amounts in percentages (%)) JUNE 28, 2000 JUNE 27, 2001 JUNE 28, 2000 JUNE 27, 2001

Restaurant sales 100.0 100.0 100.0 100.0
------ ------ ----- ------
Restaurant operating expenses:
Food and beverage costs 27.5 27.7 27.2 27.6
Payroll and payroll related costs 34.6 38.4 34.4 38.2
Other operating expenses 26.4 34.6 26.4 33.3
Loss on sale of note receivable - - - .4
Restructuring expenses - 1.5 - .7
Depreciation and amortization 1.1 1.5 1.2 1.4
------ ------ ----- ------
Total restaurant operating
expenses 89.6 103.7 89.2 101.6
------ ------ ----- ------
Restaurant operating income (loss) 10.4 (3.7) 10.8 (1.6)
Administrative expenses 5.6 8.8 5.4 7.7
------ ------ ----- ------
Operating income (loss) 4.8 (12.5) 5.4 (9.3)
Interest expense - net 5.5 7.0 5.3 6.9
------ ------ ----- ------
Income (loss) before income taxes (0.7) (19.5) .1 (16.2)
Income tax expense - - - -
------ ------ ----- ------
Net income (loss) (0.7) (19.5) .1 (16.2)
====== ====== ===== ======

THIRTEEN-WEEK PERIOD ENDED JUNE 27, 2001 COMPARED WITH THIRTEEN-WEEK PERIOD
ENDED JUNE 28, 2000

RESTAURANT SALES. The Company's restaurant sales decreased $9.0
million, or 16.3%, to $46.5 million for the thirteen-week period ended June
27, 2001 as compared with restaurant sales of $55.5 million for the thirteen-
week period ended June 28, 2000. This decrease was attributable primarily to
a reduction in sales of $7.3 million due to the sale in January 2001 of 23
Denny's restaurants to Mountain Range Restaurants, LLC ("MRR"). Comparable
store sales at the Denny's restaurants decreased by 0.4% during the second
fiscal quarter of 2001 compared to the second fiscal quarter of 2000. Sales
for the Black-eyed Pea restaurants declined $1.1 million. This reduction was
primarily attributable to a decline in same store sales of 5.0% during the
second quarter of fiscal 2001, or $1.5 million, which was partially offset
by $589,000 in sales generated by a new Black-eyed Pea restaurant opened in
April 2001 in Hendersonville, Tennessee. The Company believes the decrease
in comparable store sales was attributable primarily to the cessation of
television advertising for the Black-eyed Pea restaurants until March 2001.

FOOD AND BEVERAGE COSTS. Food and beverage costs increased to 27.7% of
restaurant sales for the thirteen-week period ended June 27, 2001 as compared
with 27.5% of restaurant sales for the thirteen-week period ended June 28,
2000. This increase was attributable primarily to the increased delivery
costs by the Company's food distributor.

PAYROLL AND PAYROLL RELATED COSTS. Payroll and payroll related costs
were 38.4% of restaurant sales for the thirteen-week period ended June 27,
2001 as compared with 34.6% of restaurant sales for the thirteen-week period
ended June 28, 2000. This increase was attributable primarily to the lower
sales volumes at the Black-eyed Pea restaurants, higher average wages and
higher worker's compensation insurance rates. Also contributing to the
increase in payroll costs for the thirteen-week period ended June 27, 2001
was increased staffing resulting from a renewed commitment to outstanding
customer service.

OTHER OPERATING EXPENSES. Other operating expenses were 34.6% of
restaurant sales for the thirteen-week period ended June 27, 2001 as compared
with 26.4% of restaurant sales for the thirteen-week period ended June 28,
2000. This increase was attributable primarily to (a) lower sales volumes at
the Black-eyed Pea restaurants, (b) an increase in advertising expense of
$1.7 million due to the new television and radio advertising campaign that
began in March 2001, (c) increases in utility costs of $466,000 and (d) an
increase in the Company's general liability insurance premiums. These
increases were partially offset by reductions in occupancy costs of $233,000
due to the expiration of 12 Denny's restaurants' equipment leases.

RESTRUCTURING EXPENSES. In the second fiscal quarter of 2001, the
Company recorded restructuring expenses of $700,000 related to four Black-
eyed Pea restaurants which the Company closed in July 2001. This adjustment
reflects the estimated liability for furture rents, equipment leases,
property taxes, and other costs associated with the closure of these
restaurants.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization of
restaurant equipment, leasehold improvements, intangible assets and other
items was $680,000 for the thirteen-week period ended June 27, 2001, as
compared with $633,000 for the thirteen-week period ended June 28, 2000. In
September 1999, the Company committed to a plan to sell all of its Denny's
restaurants. In accordance with SFAS No. 121, the assets of these
restaurants were reclassified as being held for sale and depreciation ceased.

RESTAURANT OPERATING INCOME (LOSS). Restaurant operating loss was $1.7
million, or 3.7% of restaurant sales, for the thirteen-week period ended June
27, 2001 as compared with restaurant operating income of $5.8 million, or
10.4% of restaurant sales, for the thirteen-week period ended June 28, 2000.
The reduction in restaurant operating income of $7.5 million was due
primarily to lower sales volumes at the Black-eyed Pea restaurants, the sale
of 23 Denny's restaurants to MRR and increased expenses described above.

ADMINISTRATIVE EXPENSES. Administrative expenses were $4.1 million, or
8.8% of restaurant sales, for the thirteen-week period ended June 27, 2001 as
compared with $3.1 million, or 5.6% of restaurant sales, for the thirteen-
week period ended June 28, 2000. This increase was due primarily to an
increase of $253,000 in consulting, professional and temporary agency fees,
$261,000 in costs associated with moving the corporate office to Tennessee
and an increase of $259,000 in travel costs. Reductions in restaurant sales
did not result in a corresponding reduction in administrative expense due to
the transition to the new management team and the preparation for the move of
the corporate office.

INTEREST EXPENSE - NET. Net interest expense was $3.3 million, or 7.0%
of restaurant sales, for the thirteen-week period ended June 27, 2001 as
compared with $3.0 million, or 5.5% of restaurant sales, for the thirteen-
week period ended June 28, 2000. The increase in interest expense of
$234,000 was due primarily to increases in penalties and late fees of
$421,000 and increased interest expense of $210,000 from the Series B Notes.
These increases were partially offset by reductions of approximately $275,000
in interest on CNL notes resulting from the partial payoff of the notes from
the sale of 23 Denny's restaurants to MRR and $60,000 in interest income from
the note receivable resulting from the sale of MRR.

INCOME TAX EXPENSE. The Company did not record a federal tax benefit
associated with the operating losses in 2001 and 2000 due to the uncertainty
of the future realization of any of the Company's tax loss carryforwards.
The Company, however, did record and pay state taxes.

TWENTY-SIX WEEK PERIOD ENDED JUNE 27, 2001 COMPARED WITH TWENTY-SIX WEEK
PERIOD ENDED JUNE 28, 2000

RESTAURANT SALES. The Company's restaurant sales decreased $17.9
million, or 16.0%, to $94.1 million for the twenty-six week period ended June
27, 2001 as compared with restaurant sales of $112.0 million for the twenty-
six week period ended June 28, 2000. This decrease was attributable
primarily to a reduction in sales of $12.2 million due to the sale in January
2001 of 23 Denny's restaurants to MRR. Comparable store sales at the
Company's Denny's restaurants increased by 0.2% during the twenty-six week
period ended June 27, 2001 compared to the twenty-six week period ended June
28, 2000. Sales for the Black-eyed Pea restaurants declined $4.7 million.
This reduction was primarily attributable to a decline in same store sales of
8.1% during the second quarter of fiscal 2001, or $4.7 million, which was
partially offset by $589,000 in sales generated by a new Black-eyed Pea
restaurant opened in April 2001 in Hendersonville, Tennessee. The Company
believes the decrease in comparable store sales was attributable primarily to
the cessation of television advertising until March 2001 and significant
coupon advertising which occurred in the first quarter of 2000 that was not
repeated in 2001.

FOOD AND BEVERAGE COSTS. Food and beverage costs increased to 27.6% of
restaurant sales for the twenty-six week period ended June 27, 2001 as
compared with 27.2% of restaurant sales for the twenty-six week period ended
June 28, 2000. This increase was attributable primarily to the increased
delivery costs by the Company's food distributor.

PAYROLL AND PAYROLL RELATED COSTS. Payroll and payroll related costs
were 38.2% of restaurant sales for the twenty-six week period ended June 27,
2001 as compared with 34.4% of restaurant sales for the twenty-six week
period ended June 28, 2000. This increase was attributable primarily to the
lower sales volumes at the Black-eyed Pea restaurants, higher average wages
and higher worker's compensation insurance rates. Also contributing to the
increase in payroll costs for the twenty-six week period ended June 27, 2001
was increased staffing resulting from a renewed commitment to outstanding
customer service.

OTHER OPERATING EXPENSES. Other operating expenses were 33.3% of
restaurant sales for the twenty-six week period ended June 27, 2001 as
compared with 26.4% of restaurant sales for the twenty-six week period ended
June 28, 2000. This increase was attributable primarily to (a) lower sales
volumes at the Black-eyed Pea restaurants, (b) an increase in advertising
expense of $2.3 million due to the new television and radio campaign that
began in March 2001, (c) increases in utility costs of $1.2 million and (d)
an increase in the Company's general liability insurance premiums. These
increases were partially offset by reductions in rent expense of $420,000 due
to the expiration of 12 Denny's restaurants' equipment leases.

LOSS ON SALES OF NOTE RECEIVABLE. The loss recognized in fiscal 2001
resulted from the sale of a note receivable of approximately $2.4 million to
CNL, the Company's senior lender, for cash of approximately $973,000 and the
payoff of a loan and related interest of approximately $1.0 million.

RESTRUCTURING EXPENSES. In the second fiscal quarter of 2001, the
Company recorded restructuring expenses of $700,000 related to four Black-
eyed Pea restaurants, which the Company closed in July 2001. This adjustment
reflects the estimated liability for future rents, equipment leases, property
taxes, and other costs associated with the closure of these restaurants.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization of
restaurant equipment, leasehold improvements, intangible assets and other
items was $1.4 million for the twenty-six week period ended June 27, 2001, as
compared with $1.3 million for the twenty-six week period ended June 28,
2000. In September 1999, the Company committed to a plan to sell all of its
Denny's restaurants. In accordance with SFAS No. 121, the assets of these
restaurants were reclassified as being held for sale and depreciation ceased.

RESTAURANT OPERATING INCOME (LOSS). Restaurant operating loss was $1.5
million, or 1.6% of restaurant sales, for the twenty-six week period ended
June 27, 2001 as compared with restaurant operating income of $12.1 million,
or 10.8% of restaurant sales, for the twenty-six week period ended June 28,
2000. The reduction in restaurant operating income of $13.6 million was due
primarily to lower sales volumes at the Black-eyed Pea restaurants, the sale
of the 23 Denny's restaurants to MRR and increased expenses described above.

ADMINISTRATIVE EXPENSES. Administrative expenses were $7.2 million, or
7.7% of restaurant sales, for the twenty-six week period ended June 27, 2001
as compared with $6.1 million, or 5.4% of restaurant sales, for the twenty-
six week period ended June 28, 2000. This increase of $1.1 million was due
primarily to an increase of $603,000 in consulting, professional and
temporary agency fees, $261,000 in costs associated with moving the corporate
office to Tennessee and an increase of $304,000 in travel costs. Reductions
in restaurant sales did not result in a corresponding reduction in
administrative expense due to the transition to the new management team and
the preparation for the move of the corporate office.

INTEREST EXPENSE-NET. Net interest expense was $6.5 million, or 6.9% of
restaurant sales, for the twenty-six week period ended June 27, 2001 as
compared with $5.9 million, or 5.3% of restaurant sales, for the twenty-six
week period ended June 28, 2000. The increase in interest expense of $563,000
was due primarily to increases in penalties and late fees of $696,000 and
increased interest expense of $401,000 from the Series B Notes. These
increases were partially offset by reductions of approximately $598,000 in
interest on CNL notes resulting from the partial payoff of the notes from the
sale of 23 Denny's restaurants to MRR and $150,000 in interest income from
the note receivable resulting from the sale to MRR.

INCOME TAX EXPENSE. The Company did not record federal tax benefit
associated with the operating loss in 2001 due to the uncertainty of the
future realization of any of the Company's tax loss carryforwards. The
Company, however, did record and pay state taxes.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has met its liquidity requirements with cash provided
by operating activities supplemented by external borrowing. Like other
companies in the restaurant industry, the Company operates with a working
capital deficit.

Due to its default under several debt agreements, the Company has reclassified
the majority of its debt as current liabilities thereby substantially
increasing its working capital deficit. During the first two quarters of
fiscal 2001, the Company had a net increase in cash of $33,000 reflecting net
cash used by operating activities of $3.9 million that was offset by net cash
provided by investing activities of $1.5 million and by net cash provided by
financing activities of $2.5 million. Net cash used by operating activities
reflected that restaurant operating expenses absorbed all but approximately
$947,000 of cash generated by sales in the first two quarters of 2001. Net
cash provided by investing activities included $2.9 million generated from the
sale of 23 Denny's restaurants to MRR offset by the purchase of additional
property and equipment of $1.5 million. Net cash provided by financing
activities primarily reflects the proceeds from borrowings of $1.5 million and
proceeds of $1.0 million from the sale of a note receivable to CNL during the
first quarter of 2001.

The Company's total liabilities decreased from $140.5 million at December 27,
2000 to $139.7 million at June 27, 2001. This change is primarily a result of
applying the proceeds from the sale of 23 Denny's restaurants to the capital
lease obligations of $1.5 million associated with those properties, the
retirement of debt of $7.7 million to the Company's senior lender, retirement
of a note payable of $1.7 million to Advantica and the repayment of $3.1
million of accrued interest. The offset of these reductions in liabilities is
$7.5 million in deposits for the future sale of restaurants, the non-payment of
principal and interest on certain promissory notes and lease obligations, and
operational indebtedness incurred during the normal course of business. The
Company's debt balance is comprised of promissory notes, obligations under
capital leases and subordinated indebtedness. The Company has classified the
majority of its debt as current debt obligations since the Company is currently
in default to CNL and its related parties for the non-payment of principal and
interest on certain promissory notes, capital lease obligations and operating
leases. On March 29, 2001 and June 30, 2001, an affiliate of CNL paid $3.7
million and $2.1 million, respectively of payments due CNL from the Company.
No additional indebtedness was incurred by the Company nor did the Company
agree to repay these amounts to the CNL affiliate. The CNL affiliate is
subrogated to the rights of CNL to receive these payments.

On June 30, 1999, CNL acquired the remaining outstanding indebtedness under the
Company's existing senior credit facility for $14.7 million, restructured $2.2
million of existing debt and advanced an additional $5.4 million to the
Company. The original due date of the senior debt was January 31, 2000, for
which the Company received an extension of the maturity date to September 2000.
At December 27, 2000, the Company was in default on the covenants of the senior
debt. Concurrent with the January 26, 2001 sale of 23 Denny's restaurants, CNL
agreed to waive existing defaults under the senior credit agreement and extend
the maturity of the senior debt to March 31, 2001. On March 31, 2001 the
maturity date of this note was extended until December 31, 2001. The Company
currently is in default on the indebtedness under its senior credit facility,
its subordinated indebtedness and other credit agreements. While certain
indebtedness is classified as a current liability, the Company has been engaged
in negotiations with CNL and anticipates the indebtedness will be restructured.
No assurances can be given, however, that this restructuring will occur.

In September 1999 the Company committed to a plan to sell all of its Denny's
Restaurants. The assets of these restaurants were reclassified as being held
for sale.

In January 2001, the Company sold 23 Denny's restaurants to MRR for $20.3
million, consisting of cash of $17.3 million and a note for $3.0 million. MRR
is owned by Messrs. William G. Cox and Robert J. Gentz. Mr. Gentz was formerly
an Executive Vice President of PRG and continues to serve as a director. Mr.
Cox was formerly the Chief Operating Officer of PRG and also continues to serve
as a director.

13
During the quarter ended June 27, 2001, the Company executed agreements to
sell 6 of its Denny's restaurants for an aggregate of $7.45 million and
received deposits in the amount of the purchase prices. These agreements
give the Company the right to terminate the agreements upon a refund of the
deposits. Subsequent to the end of the second quarter, the Company entered
into an agreement with an entity owned by William J. Howard, a director of
PRG, to sell 13 of its Denny's restaurants, including 6 of the restaurants
previously discussed, in which case the Company will terminate the previous
agreements with respect to these restaurants. The Company presently
anticipates that the sales of these restaurants will close on or before
September 30, 2001.

On August 6, 2001 the Company changed its intent with regard to selling its
remaining Denny's restaurants. The Company will continue its efforts to
sell approximately 29 Denny's restaurants located primarily in Florida and
Colorado. The Company now intends to continue operating in the family dining
segment with Denny's restaurants primarily in its core market areas of
Texas, Oklahoma and Florida. Therefore, as of August 6, 2001 the carrying
amount of the Denny's restaurants not being sold will be reclassified from
net assets held for sale to property, plant, and equipment. The amount of
the reclassification will be approximately $10.3 million which will become
the new historical cost basis of the assets. Depreciation and amortization
for these assets will commence as of this date.

To the extent the sales of any Denny's restaurants occur, the Company
anticipates using the sale proceeds to reduce outstanding indebtedness,
provide additional working capital and pay costs associated with these
transactions.

The Company continues to review net assets held for sale to determine whether
events or changes in circumstances indicate that the carrying value of the
net assets may not be recoverable. The Company will continue to evaluate the
operating results of all its restaurants and intends to sell or close any
restaurants that do not meet its criteria for operating results.

During the second quarter of fiscal 2000, the Company ceased making payments
of principal and interest on several capital leases held by CNL and payments
on several operating leases to a secondary lender. On March 29, 2001 and
June 30, 2001, an affiliate of CNL paid $3.7 million and $2.1 million,
respectively, of payments due CNL from the Company. No additional
indebtedness was incurred by the Company nor did the Company agree to repay
these amounts to the CNL affiliate. The CNL affiliate is subrogated to the
rights of CNL to receive these payments. The Company received a waiver of a
substantial portion of the payments, for a period of one year expiring on
March 31, 2001, from the secondary lender but has not, as of yet, received a
waiver from CNL or its related party and has not received an extension of the
expired waiver from the secondary lender. During the first quarter of fiscal
2001, the Company borrowed an additional $1.5 million from CNL. The proceeds
were used for general operating purposes and the new notes, a demand note and
a term note with a maturity date in March 2013, are secured by real and
personal property owned by the Company.

At June 27, 2001, the Company was not in compliance with certain financial
covenants and payment terms set forth in the Series B Notes. Also, the
Company will continue to be in default under the senior credit agreement
until other acceptable refinancing or restructuring alternatives become
available. Additional financing, however, may not be available or may not be
available on satisfactory terms.

The sale of restaurants has significantly affected liquidity because the
Company:

* repaid the negative working capital attributable to the
restaurants that it sold from cash flows generated by the
remaining restaurants,

* continued to pay costs associated with subleasing properties
for which purchasers defaulted on primary leases and for
which the Company remains contingently liable, and

* did not realize the beneficial effects of reduced
administrative costs commensurate with the reduction in the
number of restaurants operated by the Company.

The Company currently requires capital principally for general operating
purposes as well as maintenance expenditures on existing restaurants.
Expenditures for property and equipment totaled approximately $1.5 million
for the first two quarters of fiscal 2001. The Company intends to pursue
opportunities to develop additional Black-eyed Pea restaurants as favorable
locations and acceptable sources of financing for new restaurants are
identified.

RISK FACTORS

The Company's business is highly competitive with respect to food quality,
concept, location, service and price. In addition, there are a number of
well-established food service competitors with substantially greater
financial and other resources as compared to the Company. The Company's
Black-eyed Pea restaurants have experienced declining customer traffic
during the past three years as a result of intense competition and a decline
in operational execution. The Company has initiated a number of programs to
address the decline in customer traffic; however, performance improvement
efforts for the Black-eyed Pea restaurants during the past three years have
not resulted in improvements in customer traffic and margins for the concept
as a whole. There can be no assurance that the current programs will be
successful. The Company has experienced increased costs for labor and
operating expenses at its restaurant concepts which, coupled with a decrease
in average restaurant sales volumes in its Black-eyed Pea restaurants,
have reduced its operating margins. The Company does not expect to be able to
significantly improve Black-eyed Pea restaurants' operating margins until it
can consistently increase its comparable restaurant sales. An increase in
comparable restaurant sales cannot be assured.

SPECIAL CONSIDERATIONS

THE COMPANY IS NOT EXPECTED TO BE PROFITABLE IN THE NEAR TERM AND ITS
AUDITORS' REPORT EXPRESSES A GOING CONCERN OPINION.

The Company has not been profitable in the last four fiscal years and its
operations are not expected to be profitable in the near future. Its ability
to generate operating profits will depend upon:

* its ability to restructure, refinance, or repay its
outstanding debt;

* successfully obtaining additional capital resources;

* the nature and extent of any future developments and
acquisitions; and

* general economic and demographic conditions.

The Company cannot provide assurance that it will be able to sell any of its
Denny's restaurants, restructure or refinance its debt, or improve the
performance of its Black-eyed Pea restaurants so as to achieve profitability
in the future. In addition, the report by its independent auditors on its
financial statements for the year ended December 27, 2000, states that the
uncertainty relating to its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to comply with the terms and covenants of
its financing agreements, to obtain additional financing or refinancing as
may be required, and ultimately to attain successful operations raise
substantial doubt about its ability to continue as a going concern.

THE COMPANY IS IN DEFAULT ON THE PAYMENT OF SUBSTANTIALLY ALL OF ITS
OUTSTANDING INDEBTEDNESS.

As of the filing date of this Report, the Company is in default on the
payment of its $22.3 million promissory note to its senior lender, $16.8
million principal amount of subordinated indebtedness, as well as interest
and rent payments to CNL and interest on its subordinated indebtedness (see
the Company's Form 10-K for the period ended December 27, 2000, Item 7.
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Liquidity and Capital Resources").

THE COMPANY HAS SIGNIFICANT INDEBTEDNESS.

As of June 27, 2001, the Company had a working capital deficit of $100.1
million and total debt obligations of $70.9 million, including subordinated
indebtedness in the outstanding principal amount of approximately $16.8
million and obligations under capital leases aggregating $19.6 million. The
Company has incurred substantial debt to develop and acquire restaurants and
to operate its business. The Company will continue its efforts to sell
approximately 29 of its remaining Denny's restaurants and plans to use the
proceeds from those sales to refine and reposition the Black-eyed Pea
restaurant brand and reduce outstanding indebtedness. In addition, the
Company has been engaged in negotiations with CNL and anticipates that its
senior indebtedness will be restructured. No assurances can be given,
however, that this restructuring will occur.

The Company may seek additional equity or debt financing in the future to
provide funds to support its operations or to develop or acquire additional
restaurants. The Company, however, cannot provide assurance that:

* such financing will be available or will be available on
satisfactory terms;

* the Company will be able to develop or acquire new
restaurants or to otherwise expand its restaurant
operations; or

* the Company will be able to restructure, refinance, or
satisfy its obligations as they become due.

Any additional debt financings obtained by the Company will increase expenses
and must be repaid regardless of the Company's operating results. Also, any
new equity financings would result in dilution to existing shareholders.

THE COMPANY HAS SIGNIFICANT CONTINGENT LIABILITIES ASSOCIATED WITH
RESTAURANTS IT HAS SOLD.

Since 1996, the Company has sold a total of 167 restaurants. The Company has
assigned or subleased the real property leases and other obligations to the
buyers of these restaurants, but it generally remains liable under those
obligations if the buyers default. During 1999, three buyers of 87
restaurants that the Company sold during 1997 and 1998 filed for bankruptcy
or failed to perform on their obligations to third parties. As a result, the
Company recorded charges of $4.8 million for equipment leases, rents,
property taxes, and other obligations for which it remains contingently
liable. As of June 27, 2001, the Company had a reserve of approximately $5.8
million for closed restaurant properties where the Company subsidizes the
existing rent payments and remains liable until the end of the lease term.
As the Company sells additional restaurants, it may remain contingently liable
for obligations on those restaurants. Any further defaults by buyers of
restaurants that the Company has sold in the past or that it sells in the
future could have a material adverse effect on its operating results and
financial condition.

RELIANCE ON DENNY'S.

As of June 27, 2001, the Company operated 70 franchised Denny's restaurants.
As a result of the nature of operating franchised restaurants and the
franchise agreements with Denny's, Inc. (together wtih its affiliates,
"Denny's"), as long as the Company operates Denny's restaurants, its success
depends, to a significant extent, on:

* the continued vitality of the Denny's restaurant concept and
the overall success of the Denny's system;

* the ability of Denny's to identify and react to new trends
in the restaurant industry, including the development of
popular menu items;

* the ability of Denny's to develop and pursue appropriate
marketing strategies in order to maintain and enhance the
name recognition, reputation, and market perception of
Denny's restaurants;

* the goodwill associated with the Denny's trademark;

* the quality, consistency, and management of the overall
Denny's system; and

* the successful operation of Denny's restaurants owned by
Denny's and other Denny's franchisees.

The Company has no control over the management or operation of Denny's or
other Denny's franchisees. A variety of factors affecting Denny's could have
a material adverse effect on the Company, including the following:

* any business or financial reversals or illiquidity on the
part of Denny's or its parent corporation, Advantica;

* a failure by Denny's to promote the Denny's name or
restaurant concept;

* the inability or failure of Denny's to support its
franchisees, including the Company;

* the failure to operate successfully the Denny's restaurants
that Denny's itself owns; or

* negative publicity with respect to Denny's or the Denny's
restaurant concept.

RESTRICTIONS IMPOSED BY THE DENNY'S FRANCHISE AGREEMENTS.

So long as the Company operates Denny's restaurants, the cancellation of the
Denny's franchise agreements, which include the right to what the Company
believes are favorable franchise arrangements and the right to use the
"Denny's" trademarks and trade styles, would have a material adverse effect
on the Company's business. The Denny's franchise agreements impose a number
of restrictions and obligations on the Company. The Company must pay
royalties and an advertising contribution to Denny's regardless of the
profitability of its Denny's restaurants. The Denny's franchise agreements
also require the Company to operate its Denny's restaurants in accordance
with the requirements and specifications established by Denny's. In
addition, Denny's has the right to require the Company to modify its
restaurants to conform to the then-existing Denny's restaurant format.
Denny's has retained the right to open on its own behalf or to grant to other
franchisees the right to open other Denny's restaurants in the immediate
vicinity of the Company's Denny's restaurants.

An agreement between the Company and Denny's gives Denny's the right to
terminate substantially all of the Denny's franchise agreements in the event
that CNL, as the successor to PRG's previous senior lender, takes certain
actions while PRG is in default under the terms of its credit facility with
CNL. If PRG fails to satisfy the requirements described above

17
or otherwise defaults under the Denny's franchise agreements, it could be
subject to potential damages for breach of contract and could lose its rights
under those agreements.

The Denny's franchise agreements also provide that, in the event the Company
assigns its rights under any of those agreements, Denny's will have the
option to purchase the interest being transferred. An assignment under the
Denny's franchise agreements will be deemed to have occurred if a person,
entity, or group of persons (other than a group including William J. Howard
and William G. Cox, each of whom is a director of the Company, Jack M. Lloyd
or BancBoston Ventures, Inc., significant shareholders of the Company)
acquires voting control of the Company's Board of Directors.

Without the consent of Denny's, the Company may not directly or indirectly
own, operate, control, or have any financial interest in any coffee shop or
family-style restaurant business or any other business that would compete
with the business of any Denny's restaurant, Denny's, or any affiliate,
franchisee, or subsidiary of Denny's, other than restaurants the Company
currently operates. For two years after the expiration or termination of a
Denny's franchise agreement, the Company will not be permitted, without the
consent of Denny's, directly or indirectly to own, operate, control, or have
any financial interest in any coffee shop or family-style restaurant
substantially similar to a Denny's located within a 15-mile radius of a
Denny's restaurant subject to the expired or terminated agreement. These
restrictions will not apply to the operation of another Denny's restaurant or
the ownership of less than 5% of the publicly traded stock of any other
company.

CERTAIN SHAREHOLDERS MAY CONTROL THE COMPANY AND CERTAIN OF THE COMPANY'S
DIRECTORS MAY HAVE CONFLICTS OF INTEREST.

William J. Howard, a director of the Company, currently owns (together with
his spouse) approximately 12.2% of the Company's outstanding common stock.
On March 23, 2001, Mr. Howard exercised a stock purchase warrant and
purchased 146,611 shares of PRG's common stock (at an exercise price of $0.01
per share) by submitting funds to PRG in the amount of $1,466. Jack M.
Lloyd, former Chairman of the Board and Chief Executive Officer of PRG,
currently owns (together with Ms. Cathy Lloyd) approximately 24.9% of PRG's
outstanding common stock. Mr. Lloyd and Ms. Lloyd also exercised a stock
purchase warrant and acquired an additional 293,223 shares of common stock at
an exercise price of $0.01 per share on March 20, 2001 by submitting funds to
PRG in the amount of $2,932. BancBoston Ventures, Inc. currently owns
approximately 15.3% of PRG's outstanding common stock. Accordingly, this
group of shareholders collectively has the power to elect all of the members
of the Company's Board of Directors and thereby control the business and
policies of the Company.

Messrs. Howard and Lloyd (and Mrs. Howard and Ms. Lloyd) currently hold an
aggregate of $16,794,000 in principal amount of PRG's Series B Notes in
addition to their common stock. The Series B Notes contain restrictive
covenants relating to the operation of the Company and the maintenance of
certain financial ratios and tests. A default not waived by a majority of the
holders of the Series B Notes could have a material adverse effect on the
holders of PRG's common stock. Certain holders of the Series B Notes have not
received interest payments since March 31, 1997. As of June 27, 2001, accrued
and unpaid interest due to these holders totaled $12.5 million. The Company
has not received waivers from these holders for noncompliance of certain of
the debt covenants under the Series B Notes since June 1999.

On March 26, 2001, PRG received a notice from Mr. Lloyd in which he stated
that he is the holder of more than 25% of the Series B Notes and purported to
accelerate the payment of all principal and interest under the Series B Notes
and to declare all amounts under the Series B Notes to be immediately due and
payable. On March 30, 2001, PRG also received a copy of a letter to State
Street Bank and Trust Company, the trustee (the "Trustee") under the
Indenture pursuant to which PRG issued the Series B Notes, from Mr. Lloyd,
who represented that he is a holder of Series B Note No. B-1. In his letter,
Mr. Lloyd advised the Trustee of the existence of defaults under the
Indenture. He also stated his belief that the Company has defaulted in
complying with debt priorities under the Indenture with respect to the
application of

proceeds from the sale of assets. Mr. Lloyd further requested
that the Trustee commence immediate litigation against PRG to recover all
amounts due on the Series B Notes, including unpaid principal, accrued unpaid
interest and interest on overdue installments at the default rate. In the
event that the Trustee elects not to comply with his request, Mr. Lloyd
indicated that he is ready, willing and able to pursue PRG on his own behalf.
To date, the Company has received no further correspondence from Mr. Lloyd or
the Trustee with respect to Mr. Lloyd's request.

The Company believes that it has complied with its obligations under the
Indenture and its other credit agreements with respect to sales of assets and
the application of the proceeds from those sales. As of June 30, 1999, Mr.
Lloyd and certain other holders of the Series B Notes waived defaults
existing under the Series B Notes at that time. Furthermore, the enforcement
of remedies under the Indenture and the Series B Notes is limited by the
terms of the Senior Subordinated Intercreditor Agreement, dated March 29,
1996 (the "Intercreditor Agreement"), among Banque Paribas, as Agent under
the Credit Agreement (as defined therein), certain holders of the Series B
Notes (including Mr. Lloyd) and the Trustee. CNL APF Partners, LP, has
succeeded to the interest of Banque Paribas. Under the terms of the
Intercreditor Agreement, the Company believes that both the Trustee and
holders of the Series B Notes (including Mr. Lloyd) presently are unable to
pursue any remedies for any alleged defaults under the Indenture or the
Series B Notes (including the initiation of litigation to collect the
indebtedness owing under the Series B Notes), which are subordinated,
unsecured obligations of the Company.

SEASONALITY

OurThe Company's operating results fluctuate from quarter to quarter as a result
of the seasonal nature of the restaurant industry and other factors.
Our restaurantRestaurant sales generally are generally greater in the second and third fiscal quarters (April
through September) than in the first and second fiscal
quarters (January through June) than in the third and fourth fiscal quarters
(October(July through March)December). In 2000, restaurant sales declined $948,000 from the first quarter to
the second quarter due to a shift in the marketing program for Black-eyed Pea
and a reduction in the number of restaurants. Occupancy and other operating costs, which remain
relatively constant, have a disproportionately negative effect on operating
results during quarters with lower restaurant sales. OurThe Company's working
capital requirements also fluctuate seasonally.

INFLATION

We doThe Company does not believe that inflation has had a material effect on
operating results in past years. Although increases in labor, food or other
operating costs could adversely affect ourthe Company's operations, wethe Company
generally havehas been able to modify ourits operating procedures or to increase
menu prices to offset increases in operating costs.

NEW ACCOUNTING STANDARDS

In June 1998,2001, the FASBFinancial Accounting Standards Board ("FASB") issued two
new pronouncements: Statement of Financial Accounting Standards ("SFAS") No.
141, Business Combinations, and SFAS No 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. This standard,No. 142, Goodwill and Other Intangible
Assets. SFAS 141 is effective as amended,follows: a) use of the pooling-of-interest
method is prohibited for business combinations initated after June 30, 2001;
and b) the provisions of SFAS 141 also apply to all business combinations
accounted for by the purchase method that are completed after June 30, 2001
(that is, the date of the acquisition is July 2001 or later). There are also
transition provisions that apply to business combinations completed before
July 1, 2001, that were accounted for by the purchase method. SFAS 142 is
effective for fiscal years beginning after JuneDecember 15, 2000. SFAS No. 133 establishes accounting2001 to all goodwill
and reporting
standards for derivative instruments, including those imbeddedother intangible assets recognized in other
contracts, and for hedging activities. It requires all derivatives to be
recognized as either assets or liabilities in thean entity's statement of financial
position and measured at fair value. We have not completed the processthat date, regardless of when those assets were initially
recognized. The Company is currently evaluating the impact that will result from adoptingprovisions of SFAS No. 133. We are
therefore unable to disclose the impact that adopting141
and SFAS No. 133 will have on
our142 and has not adopted such provisions in its June 27, 2001
condensed consolidated financial position and results of operations when such statement is adopted.

FORWARD LOOKINGstatements.

FORWARD-LOOKING STATEMENTS

This Report onThe forward-looking statements included in this Form 10-Q contains forward-looking statements, including
statements regarding our business strategies, our business, and the industry in
which we operate. These forward-looking statements are based primarily on the
our expectations and are subjectrelating to a number ofcertain
matters involve risks and uncertainties, someincluding the ability of which are beyond our control.management
to successfully implement its strategy for improving the performance of the
Black-

eyed Pea restaurants, the ability of management to effect asset sales
consistent with projected proceeds and timing expectations, the results of
pending and threatened litigation, adequacy of management personnel
resources, shortages of restaurant labor, commodity price increases, product
shortages, adverse general economic conditions, adverse weather conditions
that may affect the Company's markets, turnover and a variety of other
similar matters. Forward-looking statements generally can be identified by
the use of forward-looking terminology such as "may", "will", "expect",
"intend", "estimate", "anticipate", "believe", "continue" (or the negative
thereof) or similar terminology. Actual results and experience could differ
materially from the anticipated results or other expectations expressed in
the Company's forward-looking statements as a result of numerousa number of factors,
including but not limited to those set
forthdiscussed in Item 1 -Management's Discussion and
Analysis of Financial Condition and Results of Operations and under the
caption "Special Considerations" included in ourPart I, Item 2 herein and in
Part II, Item 7 of PRG's Annual Report on Form 10-K. Forward-looking
information provided by the Company pursuant to the safe harbor established
under the Private Securities Litigation Reform Act of 1995 should be
evaluated in the context of these factors. In addition, the Company
disclaims any intent or obligation to update these forward-looking
statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Item 7A of PRG's Annual Report on Form 10-K for the fiscal year ended
December 29, 1999.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

At June 28,27, 2000, we did not participateand filed with the Commission on April 11, 2001, is
incorporated herein in any derivative financial instruments
or other financial and commodity instruments for which fair value disclosure
would be required under Statementthis item of Financial Accounting Standards No. 107. We
do not hold investment securities that would require disclosure of market risk
and we do not engage in currency speculation or use derivative instruments to
hedge against known or forecasted market exposures.

14
this report by this reference.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 2. CHANGES IN SECURITIES

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Effective July 31, 2000, Brian McAlpine resigned as the Company's Acting
Chief Financial Officer. James C. Todd, who has served as the Company's
Controller since August 1990, was named as Acting Chief Financial Officer.

Effective August 11, 2000, Jack M. Lloyd resigned as the Company's ChairmanNote 3 of the Board, Chief Executive Officer and Director. William J. Howard, the
Company's Executive Vice President, was named as Interim Chief Executive
Officer.Notes to Condensed Consolidated Financial Statements is
incorporated herein by this reference.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS.

27.1 Financial Data Schedule.*Exhibits

See Exhibit Index immediately following the signature page hereto.

(b) REPORTS ON FROM 8-K.

Not applicable.

* PreviouslyReports on Form 8-K

On April 13, 2001, PRG filed 15
an Amendment to Current Report on Form
8-K/A which amended PRG's Current Report on Form 8-K, dated January
26, 2001. This Amendment was filed to set forth pro forma financial
information in connection with the Company's sale of 23 Denny's
restaurants to Mountain Range Restaurants, LLC.

SIGNATURES

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

PHOENIX RESTAURANT GROUP, INC.

Dated: August 17, 2000AUGUST 20, 2001 By: /s/ James C. Todd
-------------------------------------
James C. Todd, ActingJeffrey M. Pate
-----------------------------------------
Jeffrey M. Pate, Chief Financial Officer,
(Duly authorized officerSecretary and Senior Vice President

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION
- ----------- -----------

10.1 $ 4,000,000 Asset Purchase Agreement, made and
entered into as of the registrant, principal financialMay 24, 2001, by and accounting officer)

16among CNL
Restaurants IV, Inc. and Phoenix Restaurant Group,
Inc.

10.2 $2,250,000 Asset Purchase Agreement, made and
entered into as of March 30, 2001, by and among CNL
Restaurants IV, Inc. and Phoenix Restaurant Group,
Inc., pertaining to Unit 6788 located at 2335 West
Highway 76, Branson, Missouri (1)

10.3 $1,100,000 Asset Purchase Agreement, made and
entered into as of May 1, 200, by and among CNL
Restaurants IV, Inc. and Phoenix Restaurant Group,
Inc., pertaining to Unit 6394 located at 4999 34th
Street North, St. Petersburg, Florida (1)

10.4 $100,000 Asset Purchase Agreement, made and entered
into as of May 1, 2001, by and among CNL
Restaurants IV, Inc. and Phoenix Restaurant Group,
Inc., pertaining to Unit 7027 located at 5003
Highway 301 North (1)

10.5 Modification of Consolidated Interim Promissory
Note Revising Maturity Date, made and entered into
as of March 31, 2001, by and between CNL APF
Partners, LP and Phoenix Restaurant Group, Inc.

10.6 Employment Agreement between Phoenix Restaurant
Group, Inc. and Robert M. Langford

10.7 Employment Agreement between Phoenix Restaurant
Group, Inc. and W. Craig Barber

- ---------------------

(1) Document not filed because substantially similar in all material
respects to Exhibit 10.1.