Edgar Filing: CHECKERS DRIVE IN RESTAURANTS INC /DE

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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

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FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2001

[_] 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 0-19649

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Checkers Drive-In Restaurants, Inc.
(Exact name of registrant as specified in its charter)

Delaware 58-1654960
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4300 West Cypress Street, Suite 600 33607
Tampa, Florida (Zip Code)
(Address of principal executive
offices)

Registrant's telephone number, including area code: (813) 283-7000

Securities registered pursuant to 12(b) of the Act:

None

Securities registered pursuant to 12(g) of the Act:

Common Stock
(Title of Class)

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

Indicate by check mark whether the registrant (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 shares outstanding of the Registrant's Common Stock as of
February 25, 2002 was 10,933,069 shares. The aggregate market value of the
shares of Registrant held by non-affiliates of the Registrant, based on the
closing price of such stock on the National Market System of the NASDAQ Stock
Market, as of February 25, 2002, was approximately $60.7 million. For purposes
of the foregoing calculation only, all directors, executive officers and
affiliated corporations through directors of the Registrant have been deemed
affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this 10-K incorporates information by reference from the
Registrant's definitive proxy statement, which will be filed on or before April
30, 2002.

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CHECKERS DRIVE-IN RESTAURANTS, INC.

2001 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS.................................................... 3

ITEM 2. PROPERTIES.................................................. 11

ITEM 3. LEGAL PROCEEDINGS........................................... 12

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 14

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 14

ITEM 6. SELECTED FINANCIAL DATA..................................... 15

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 16

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS....................................................... 25

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 25

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 54

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 54

ITEM 11. EXECUTIVE COMPENSATION...................................... 56

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 57

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 58

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K......................................................... 59

PART I

ITEM 1. BUSINESS

General

Checkers Drive-In Restaurants, Inc. ("Checkers"), a Delaware corporation,
and its wholly-owned subsidiaries (collectively, the "Company") is in the
business of operating and franchising Checkers Restaurants and Rally's
restaurants. We are the single largest chain of double drive-thru restaurants
in the United States. Our Company is a combination of two similar quick-service
restaurant chains, Checkers and Rally's Hamburgers (Rally's), which were merged
in August 1999. Both companies were founded on a simple premise--serve the
highest quality food, made fresh-to-order, served quickly and at a fair price.

The Company has developed and owns a comprehensive system for developing and
operating double drive-thru restaurants, which includes trademarks, building
designs and layouts, equipment, ingredients, recipes and specifications for
authorized food products, methods of inventory control and certain operational
and business standards.

At December 31, 2001, there were 821 restaurant locations, consisting of 235
Company-owned restaurants and 586 franchisee-owned restaurants. Of the 821
locations, 404 are Rally's restaurants operating in 17 different states and 417
are Checkers restaurants operating in 22 different states, the District of
Columbia, Puerto Rico and the West Bank in the Middle East. Three of the owned
restaurants are owned by joint venture partnerships in which we have a 50%, 51%
and 75% ownership interest. Checkers was founded in 1986 and Rally's was
founded in 1985.

Recent Developments

On January 22, 2001, 34 Rally's restaurants in Detroit and 5 Checkers
restaurants in Kansas City, that were owned by Great Lakes Restaurants Company,
LLC, were placed under receivership. During 2001, two of the Detroit locations
were transferred back to us, and seven restaurants were sold to a non-Checkers
entity. We are currently negotiating with the receiver operating the remaining
restaurants to transfer them back to Company-owned and operated restaurants. At
this time we can not determine the exact number of additional locations that
will be returned to the Company.

In February 2001, 17 Checkers restaurants in Philadelphia were sold to
Quality Food Group of Washington, D.C., Inc., an affiliate of an existing
franchisee. On January 26, 2002, we reacquired these restaurants with one
having been closed during 2001.

On July 3, 2001, we repossessed and began operating eighteen Rally's
restaurants in California and three Rally's restaurants in Arizona. These
restaurants were previously operated by CKE Restaurants, Inc. under a
management agreement.

Concept and Strategy

The Company operates under two brands "Checkers(R)" and "Rally's
Hamburgers(R)". The Company's operating concept for both brands are very
similar which includes: (i) offering a limited menu to permit the maximum
attention to quality and speed of preparation; (ii) utilizing distinctive
restaurant design that features a "double drive-thru" concept and creates
significant curb appeal; (iii) providing fast service using a "double drive-
thru" design for its restaurants and a computerized point-of-sale system that
expedites the ordering and preparation process; and (iv) unique and great
tasting quality food and drinks made fresh to order at a fair price. The
Company's primary strategy is to serve the drive-thru and take-out segment of
the quick-service restaurant industry.

Restaurant Locations

As of December 31, 2001, there were 235 Company-owned and operated
restaurants in eleven states (including three restaurants owned by joint
venture partnerships in which we have interests of 50%, 51% and 75%) and 586
restaurants operated by our franchisees in 28 states, the District of Columbia,
Puerto Rico and the West Bank in the Middle East. The following table sets
forth the locations of each restaurant:

Region State Name Company Franchise Grand Total
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Southeast Florida 84 107 191
Georgia 47 39 86
Alabama -- 39 39
Kentucky 1 35 36
Tennessee 14 5 19
Virginia -- 18 18
North Carolina -- 11 11
South Carolina -- 10 10
Mississippi 1 9 10
West Virginia -- 6 6
Washington, D.C. -- 2 2
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Southeast Total 147 281 428
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North Central Ohio 21 69 90
Indiana 21 34 55
Michigan 2 38 40
Missouri -- 23 23
Illinois -- 22 22
Wisconsin -- 4 4
Kansas -- 2 2
Iowa -- 2 2
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North Central Total 44 194 238
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Northeast Maryland -- 20 20
New York -- 15 15
New Jersey -- 13 13
Pennsylvania -- 12 12
Delaware -- 1 1
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Northeast Total -- 61 61
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Southwest California 18 24 42
Arizona 3 1 4
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Southwest Total 21 25 46
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South Central Louisiana 23 12 35
Arkansas -- 9 9
Texas -- 1 1
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South Central Total 23 22 45
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Other Puerto Rico -- 2 2
West Bank, Middle East -- 1 1
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Other Total -- 3 3
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Grand Total 235 586 821

During fiscal 2001, we opened or reopened 13 restaurants, consisting of 12
franchisee operated restaurants and one Company-owned restaurant. During the
same period, we closed 46 restaurants, consisting of 44 franchisee operated
restaurants and two Company-owned restaurants. Also during fiscal 2001, we
reacquired or repossessed 58 restaurants from franchisees and sold 17 company-
owned restaurants to franchisees. Our growth strategy for the next two years is
to focus on the controlled development of additional franchised and company
operated restaurants primarily in our existing core markets and to further
penetrate markets currently under development by franchisees. We also intend to
develop select international markets.

Site Selection

The selection of a site for a restaurant is critical to its success.
Management inspects and approves each potential restaurant site prior to final
selection of the site. In evaluating particular sites, we consider various
factors including traffic count, speed of traffic, convenience of access, size
and configuration, demographics and density of population, visibility and cost.
We also review competition and the sales and traffic counts of national and
regional chain restaurants operating in the area. The majority of Company-owned
and operated restaurants are located on leased land and we intend to continue
to use leased sites where possible.

Restaurant Design and Service

Our double drive-thru restaurants have a highly visible, distinctive and
uniform look that is intended to appeal to customers of all ages. Restaurants
are generally 760 to 980 sq. ft., which is less than one-fourth the size of the
typical restaurants of the four largest quick-service hamburger chains. New and
many existing restaurants are moveable modular buildings. Our experience is
that the building component of a modular restaurant generally costs less than
comparably built outlets using conventional, on-site construction methods. Our
restaurants, due to their small size, require only 18,000 to 25,000 square feet
of land area, which is approximately one-third to one-half the land area used
by the four largest quick service hamburger chains. As a result of the small
size of the restaurant building, our restaurants generally require a smaller
capital investment and have lower occupancy and operating costs per restaurant
than traditional quick-service competitors. The size of the facility also
permits somewhat greater flexibility with respect to the selection of
prospective sites for restaurants.

The Checkers standard restaurant is designed around a 1950's diner and art
deco theme with the use of white and black tile in a checkerboard motif, glass
block corners, a protective drive-thru cover on each side of the restaurant
supported by red aluminum columns piped with white neon lights and a wide
stainless steel band piped with red neon lights that wraps around the
restaurant as part of the exterior decor. Most restaurants utilize a "double
drive-thru" concept that permits simultaneous service of two automobiles from
opposite sides of the restaurant. Although a substantial portion of the
Company's sales are made through its drive-thru windows, service is also
available through walk-up windows. While the restaurants normally do not have
an interior dining area, most have parking and a patio for outdoor eating. The
patios contain canopy tables and benches, are well landscaped and have outside
music in order to create an attractive and "fun" eating experience. Although
each sandwich is made-to-order, the Company's objective is to serve customers
within 30 seconds of their arrival at the drive-thru window. Each restaurant
has a computerized point-of-sale system which displays each individual item
ordered in front of the food and drink preparers. This enables the preparers to
begin filling a second order before the prior order is completed and totaled
and thereby increasing the speed of service to the customer and the opportunity
to increasing sales per hour, providing better inventory and labor costs
control and permits the monitoring of sales volumes and product utilization.

The Rally's standard restaurant presents a distinctive design which conveys
a message of "clean and fast" to the passing motorist. The restaurants' typical
"double drive-thru" design features drive-thru windows on both sides of the
restaurant for quicker service. While the restaurants generally do not have an
interior dining area, most have a patio for outdoor eating. These areas contain
canopy tables and seats and are landscaped to create an attractive eating
environment.

The Company's restaurants are generally open from 12 to 15 hours per day,
seven days a week, for lunch, dinner and late-night snacks and meals.

Extensive research and focus group testing indicates customers recognize the
uniqueness and superior quality of our food over other competing quick-serve
restaurant food products. The signature flavors and distinctive products that
our menus offer, keep people coming back, again and again.

The menu at Checkers is a hamburger product line including the original 1/4
pound all Champ Burger(R), a fully dressed and seasoned "made-to-order" burger,
all white-meat chicken sandwiches, all beef hotdogs--including chili-cheese
dogs, Checkers Famous Fries(TM), Coca-Cola soft drinks and super thick shakes.
The menu at Rally's is a hamburger product line including the signature Big
Buford(R), a fully dressed double cheeseburger, all white-meat chicken
sandwiches, all beef hot dogs--including chili-cheese dogs, Rally's seasoned
fries, Coca-Cola soft drinks and super thick shakes. The limited menus are
designed to deliver quality, a high taste profile and unmatched speed of
delivery. We are engaged in product development research and seek to enhance
variety through many, limited time only product promotions throughout the
calendar year.

Marketing Program

Our award winning marketing campaign, launched in January 2001, focuses on
our demanding life styles: carting several kids to-and-from sporting events,
longer workdays, shorter lunch hours, pursuing numerous personal hobbies and
interests, etc. With all these demands, a lot of meals are eaten while on the
run. However, one fact remains constant--you gotta eat. That's the premise we
used as the blueprint to build our new marketing campaign. We took those three
words and made them our new tagline, "You Gotta Eat". The campaign developed
was music driven and centered around an energetic, singable, can't-get-it-out-
of-your-head song, with a message that resonated with our expanded target
audience while capturing the flavor and personality that Checkers and Rally's
has long been known for with its loyal customer base. But not just a television
advertising campaign, we put "You Gotta Eat" on everything--cups, bags,
wrappers, crew uniforms, and anything that had to deal with our brands. The
campaign proved to be very successful. When the campaign is launched in a given
market, same restaurant sales have quickly and significantly moved up
positively in an industry segment that remains relatively flat. We have more of
our markets on television than ever before. We will continue to build on the
tagline "You Gotta Eat" into 2002 and beyond. Our updated 2002 advertising
campaign creatively utilizes our extensive consumer research into how and why
our customers seek Checkers to satisfy their appetite. Television is the
primary medium for our advertising campaign, but is also promoted through
print, radio, point-of-purchase and outdoor signage.

Purchasing

All restaurants purchase food, beverages and supplies from Company-approved
suppliers. All products must meet our standards and specifications, and
management constantly monitors the quality of the food, beverages and supplies
provided to the restaurants.

We believe that our continued efforts over time have achieved cost savings,
improved food quality and consistency and helped decrease volatility of food
and supply costs for the restaurants. All essential food and beverage products
are available or, upon short notice, could be made available from alternate
qualified suppliers. Among other factors, our profitability is dependent upon
our ability to anticipate and react to changes in food costs. Various factors
beyond our control, such as climate changes and adverse weather conditions, may
affect food costs.

Management and Employees

A typical restaurant employs approximately 20 hourly employees, many of whom
work part-time on various shifts. The management staff of a typical restaurant
operated by the Company consists of a General Manager, one Assistant Manager
and two Shift Managers. A General Manager is generally required to have prior
restaurant management experience, preferably within the quick-service industry,
and reports directly to an Area

Manager. The Area Manager typically has responsibility for eight to ten
restaurants and for assuring that each Company-owned restaurant consistently
delivers high-quality food and service. Area Managers, in most cases, report to
District Directors. The Company has an incentive compensation program for Area
Managers and restaurant level managers that provides for a monthly bonus based
upon the achievement of certain sales and profit goals.

As of December 31, 2001, we employed approximately 4,500 employees,
substantially all of which were restaurant personnel. Most employees other than
restaurant management and certain corporate personnel are paid on an hourly
basis. We believe the Company provides working conditions and wages that are
comparable with those of other companies within the service restaurant
industry. We also believe we have good employee relations. None of the
Company's employees are covered by a collective bargaining agreement.

Supervision and Training

Each new franchisee and restaurant manager attends a comprehensive training
program. The program was developed by the Company to enhance consistency of
restaurant operations and is considered by management as an important step in
operating a successful restaurant. During this program, the attendees are
taught certain basic elements that we believe are vital to the Company's
operations and are provided with a complete operations manual, together with
training aids designed as references to guide and assist in the day-to-day
operations. In addition, hands-on experience is incorporated into the program
by requiring each attendee, prior to completion of the training course, to work
in an existing Company-operated restaurant. In addition, continuing training
classes for both Company-operated and franchise restaurant personnel have been
developed. After a restaurant is opened, we continue to monitor the operations
of both franchised and Company-operated restaurants to assist in the
consistency and uniformity of operation.

We also employ Franchise Business Consultants, who have been fully trained
by us, to assist franchisees in implementing our operating procedures and
policies once a restaurant is open. As part of these services, the Franchise
Business Consultants rate the restaurant's hospitality, food quality, speed of
service, cleanliness and maintenance of facilities. The franchisees receive a
written report of the Franchise Business Consultant's findings with
deficiencies, if any noted, and recommended procedures to correct such
deficiencies.

Restaurant Reporting

Each Company-owned restaurant has a computerized point-of-sale system
coupled with a back office computer. With this system, management is able to
monitor sales, labor and food costs, customer counts and other pertinent
information. The information gathered allows management to better control labor
utilization, inventories and operating costs. Each system at Company-owned
restaurants, and many at our franchise restaurants, are polled daily by our
corporate office.

Joint Venture Restaurants

As of December 31, 2001, there were three restaurants owned by separate
general partnerships in which we own interests of 50%, 51% and 75%. All of
these restaurants are consolidated in our financial statements. We are the
managing partner of two of the three joint venture restaurants. In the two
joint venture restaurants managed by us, we receive a fee for management
services of 1% to 2.5% of gross sales. In addition, all of the joint venture
restaurants pay the standard royalty fee which is 4% of gross sales.

Inflation

Food and labor costs are significant inflationary factors in the Company's
operations. Many of our employees are paid hourly rates related to the
statutory minimum wage; therefore, increases in the minimum wage increase the
Company's costs. In addition, many of our leases require us to pay base rents
with escalation provisions based on the consumer price index, percentage rents
based on revenues, and to pay taxes,

maintenance, insurance, repairs and utility costs, all of which are expenses
subject to inflation. We have generally been able to offset the effects of
inflation to date through small menu price increases. There can be no assurance
that we will be able to continue to offset the effects of inflation through
menu price increases.

Working Capital

The restaurant industry in general, operates with a working capital deficit
because most of our investments are in long-term restaurant operating assets.
We do not normally require large amounts of working capital to maintain
operations since sales are for cash, purchases are on open accounts and meat
and produce inventories are limited to a three-to-five day supply to assure
freshness. We do not have significant levels of accounts receivable or
inventory, and receive credit from our trade suppliers. Funds available from
cash sales not needed immediately to pay our trade suppliers are used for non-
current capital expenditures.

We ended fiscal 2001 with a working capital deficit of $2.5 million as
compared to $9.0 million at January 1, 2001. The decrease in the deficit is
primarily due to the repayment of $2 million of the Textron note payable (Loan
B), operating profits for the year of $4.3 million, and additional capital
contributions of $4.3 million from the exercise of options and warrants into
1,261,104 shares of common stock.

Seasonality

The seasonality of restaurant sales due to consumer spending habits can be
significantly affected by the timing of advertising, competitive market
conditions and weather related events. While restaurant sales for certain
quarters can be stronger, or weaker, there is no predominant pattern.

Franchise Operations

Strategy. We encourage controlled development of franchised restaurants in
our existing markets, as well as, in certain additional states. The primary
criteria considered by us in the selection, review and approval of prospective
franchisees are the availability of adequate capital to open and operate the
number of restaurants franchised and prior experience in operating quick-
service restaurants. Franchisees operated 586, or 71%, of the total restaurants
open at December 31, 2001. In the future, our success will continue to be
dependent upon our franchisees and the manner in which they operate and develop
their restaurants to promote and develop the Checkers and Rally's concepts and
our reputation for quality and speed of service.

Although we have established criteria to evaluate prospective franchisees,
there can be no assurance that franchisees will have the business abilities or
access to financial resources necessary to open the number of restaurants the
franchisees currently anticipate to open in 2002, or that the franchisees will
successfully develop or operate restaurants in their franchise areas in a
manner consistent with our concepts and standards. As a result of inquiries
concerning international development, we have granted three franchise
agreements for the West Bank in the Middle East. We have registered our
trademarks in various foreign countries in the event we develop additional
international markets. The most likely format for international development is
through the issuance of master franchise agreements and/or joint venture
agreements. The terms and conditions of these agreements may vary from the
standard area development agreement and franchise agreement in order to comply
with laws and customs different from those of the United States.

Franchisee Support Services. We maintain a staff of well-trained and
experienced restaurant operations personnel whose primary responsibilities are
to help train and assist franchisees in opening new restaurants and to monitor
the operations of existing restaurants. These services are provided as part of
the Company's franchise program. Upon the opening of a new franchised
restaurant by a franchisee, we typically send a team to the restaurant to
assist the franchisee during the first four days that the restaurant is open.
This team monitors compliance with the Company's standards as to quality of
product and speed of service. In addition, the team provides on-site training
to all restaurant personnel. This training is in addition to the training
provided to the franchisee and the franchisee's management team described under
"Restaurant Operations--

Supervision and Training" above. We also employ Franchise Business Consultants
("FBC's"), who have been fully trained by the Company to assist franchisees in
implementing the operating procedures and policies of the Company once a
restaurant is open. As part of these services, the FBC rates the restaurant's
hospitality, food quality, speed of service, cleanliness and maintenance of
facilities. The franchisees receive a written report of the FBC's findings,
with deficiencies, if any, and noted, recommended procedures to correct such
deficiencies.

Franchise Agreements. The franchise agreement grants to the franchisee an
exclusive license at a specified location to operate a restaurant in accordance
with the Checkers and Rally's systems and to utilize the Company's trademarks,
service marks and other rights of the Company relating to the sale of its menu
items. The term of the current franchise agreement is generally 20 years. Upon
expiration of the franchise term, the franchisee will generally be entitled to
acquire a successor franchise for the restaurants on the terms and conditions
of the Company's then current form of franchise agreement if the franchisee
remains in compliance with the franchise agreement throughout its term and if
certain other conditions are met, including the payment of a fee equal to 25%
of the then current franchise fee.

In some instances, we grant to the franchisee the right to develop and open
a specified number of restaurants within a limited period of time and in a
defined geographic area (the "Franchised Area") and thereafter to operate each
restaurant in accordance with the terms and conditions of a franchise
agreement. In that event, the franchisee ordinarily signs two agreements, an
area development agreement and a franchise agreement. Each area development
agreement establishes the number of restaurants the franchisee is to construct
and open in the Franchised Area during the term of the area development
agreement (normally a maximum of five years) after considering many factors,
including the residential, commercial and industrial characteristics of the
area, geographic factors, population of the area and the previous experience of
the franchisee. The franchisee's development schedule for the restaurants is
set forth in the area development agreement. The Company may terminate the area
development agreement of any franchisee that fails to meet its development
schedule.

The franchise agreement and area development agreement require that the
franchisee select proposed sites for restaurants within the franchised area and
submit information regarding such sites to us for our review, although final
site selection is at the discretion of the franchisee. We do not arrange or
make any provisions for financing the development of restaurants by our
franchisees. Each franchisee is required to purchase all fixtures, equipment,
inventory, products, ingredients, materials and other supplies used in the
operation of its restaurants from approved suppliers, all in accordance with
the Company's specifications. We provide a training program for management
personnel of our franchisees at our corporate office. Under the terms of the
franchise agreement, the Company has mandated standards of quality, service and
food preparation for franchised restaurants. Each franchisee is required to
comply with all of the standards for restaurant operations as published from
time to time in the Company's operations manual.

We may terminate a franchise agreement for several reasons including the
franchisee's bankruptcy or insolvency, default in the payment of indebtedness
to the Company or suppliers, failure to maintain standards set forth in the
franchise agreement or operations manual, continued violation of any safety,
health or sanitation law, ordinance or governmental rule or regulation or
cessation of business. In such event, we may also elect to terminate the
franchisee's area development agreement.

Franchise Fees and Royalties. Under the current franchise agreement, a
franchisee is generally required to pay application fees, site approval fees
and an initial franchise fee together totaling $30,000 for each restaurant
opened by the franchisee. If a franchisee is awarded the right to develop an
area pursuant to an area development agreement, the franchisee typically pays
the Company a $5,000 development fee per restaurant, which will be applied to
the franchise fee as each restaurant is developed. Each franchisee is also
generally required to pay the Company a semi-monthly royalty of 4% of the
restaurant's gross sales (as defined) and to expend certain amounts for
advertising and promotion.

Competition

Our restaurant operations compete in the quick-service industry, which is
highly competitive with respect to price, concept, quality and speed of
service, location, attractiveness of facilities, customer recognition,
convenience and food quality and variety. The industry includes many quick-
service chains, including national chains which have significantly greater
resources than the Company that can be devoted to advertising, product
development and new restaurants, and which makes them less vulnerable to
fluctuations in food, paper, labor and other costs. In certain markets, we will
also compete with other quick-service double drive-thru hamburger chains with
operating concepts similar to the Company. The quick-service industry is often
significantly affected by many factors, including changes in local, regional or
national economic conditions affecting consumer spending habits, demographic
trends and traffic patterns, changes in consumer taste, consumer concerns about
the nutritional quality of quick-service food and increases in the number, type
and location of competing quick-service restaurants. We compete primarily on
the basis of speed of service, price, value, food quality and taste. All of the
major chains have increasingly offered selected food items and combination
meals, including hamburgers, at temporarily or permanently discounted prices.
Increased competition, additional discounting and changes in marketing
strategies by one or more of these competitors could have an adverse effect on
the Company's sales and earnings in the affected markets. In addition, with
respect to selling franchises, we compete with many franchisors of restaurants
and other business concepts.

Trademarks and Service Marks

We believe that our rights in our trademarks and service marks are important
to our marketing efforts and a valuable part of our business. We own a number
of trademarks and service marks that have been registered, or for which
applications are pending, with the United States Patent and Trademark Office
including but not limited to: "Rally"s Hamburgers(R)", "One of a Kind Fries",
"Big Buford(R)", "Checkers(R)", "Checkers Burger.Fries.Colas" and "Champ
Burger(R)". It is the Company's policy to pursue registration of its marks
whenever possible and to vigorously oppose any infringement of its marks.

Foreign Operations

The Company receives royalties from franchisees in two foreign markets.
Royalty revenues recorded for fiscal 2001 were approximately $63,000 and
$15,000 for Puerto Rico and Israel, respectively.

Government Regulation

The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and building and zoning requirements. In addition, the Company is subject
to laws governing its relationship with employees, including minimum wage
requirements, overtime, working and safety conditions and citizenship
requirements. Many of our employees are paid hourly rates based upon the
federal and state minimum wage laws. Recent legislation increasing the minimum
wage has resulted in higher labor costs to the Company. An increase in the
minimum wage rate, employee benefit costs or other costs associated with
employees could have a material adverse effect on the Company's business,
financial condition and results of operation.

The Company is also subject to extensive federal and state regulations
governing franchise operations and sale which impose registration and
disclosure requirements on franchisors in the offer and sale of franchises and
in certain cases, dictating substantive standards that govern the relationship
between franchisors and franchisees, including limitations on the ability of
franchisors to terminate franchisees and alter franchise arrangements.

Environmental Matters

The Company is subject to various federal, state and local environmental
laws. These laws govern discharges to air and water from the Company's
restaurants, as well as, handling and disposal practices for solid and
hazardous waste. These laws may impose liability for damages for the costs of
cleaning up sites of

spills, disposals or other releases of hazardous materials. The Company may be
responsible for environmental conditions relating to its restaurants and the
land on which the restaurants are located or were located, regardless of
whether the restaurants or land in question are leased or owned and regardless
of whether such environmental conditions were created by the Company or by a
prior owner, tenant, or other third party.

We are not aware of any environmental conditions that would have a material
adverse effect on our businesses, assets or results of operations taken as a
whole. We cannot be certain that environmental conditions relating to prior,
existing or future restaurants will not have a material adverse effect on the
Company. Moreover, there is no assurance that: (1) future laws, ordinances or
regulations will not impose any material environmental liability; or (2) the
current environmental condition of the properties will not be adversely
affected by tenants or other third parties or by the condition of land or
operations in the vicinity of the properties.

Special Note Regarding Forward-Looking Statements

Certain statements in this Form 10-K under "Item 1. Business," "Item 3.
Legal Proceedings", "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Form 10-K constitute
"forward-looking statements" which we believe are within the meaning of the
Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as
amended. Also, when we use words such as "believes", "expects", "anticipates"
or similar expressions, we are making forward looking statements. Such forward-
looking statements involve known and unknown risks, uncertainties, and other
factors which may cause the actual results, performance, or achievements of the
Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Some of
the risks that should be considered include:

(i) The fact that we compete with numerous well established competitors
who have substantially greater financial resources and longer operating
histories than us, which enables them to engage in heavy and sustained
discounting as well as substantial advertising and promotion. While this
competition is already intense, if it increases, it could have an even
greater adverse impact on revenues and profitability of company and
franchise restaurants.

(ii) The fact that we anticipate the need to continue the improvement in
same restaurant sales if we are to achieve improved profitability. Sales
increases will depend, among other things, on the success of our
advertising and promotion efforts and the success of other operating and
training initiatives, all of which are speculative.

We may also be negatively impacted by other factors common to the restaurant
industry such as changes in consumer tastes away from red meat and fried foods;
consumer acceptance of new products; consumer frequency; increases in the costs
of food; paper, labor, health care, workers' compensation or energy; an
inadequate number of available hourly paid employees; and/or decreases in the
availability of affordable capital resources; development and operating costs.
Other factors which may negatively impact the Company include, among others,
adverse publicity; general economic and business conditions; availability,
locations, and terms of sites for restaurant development; changes in business
strategy or development plans; quality of management; availability, terms and
deployment of capital; the results of financing efforts; business abilities and
judgement of personnel; availability of qualified personnel; changes in, or
failure to comply with, government regulations; continued NASDAQ listing;
weather conditions; construction schedules, results of existing and future
litigation and other factors referenced in this Form 10-K.

ITEM 2. PROPERTIES

We owned 235 restaurants as of December 31, 2001, inclusive of the three
restaurants owned by joint venture partnerships. We held ground leases on 197
of these restaurants and owned the land on the remaining 38. Our leases are
generally written for a term of 20 years with one or more five year renewal
options. Some leases require the payment of additional rent equal to a
percentage of annual revenues in excess of specified amounts. When practicable,
we prefer to lease the land for our restaurants.

As of December 31, 2001, we leased 410 parcels of land. Of these, we
operated 197 Company-owned restaurants on the land and subleased 181 of the
parcels. In addition, we owned seven vacant parcels of land which were leased
at December 31, 2001.

Thirty-three restaurants owned or subleased are subject to a mortgage in
favor of FFCA Acquisition Corporation. In addition, 54 restaurants secure our
primary debt with Textron Financial Corporation.

Our executive offices are located in approximately 19,300 square feet of
leased office space at 4300 West Cypress Street, Suite 600, Tampa, Florida
33607.

ITEM 3. LEGAL PROCEEDINGS

Jonathan Mittman et al. v. Rally's Hamburgers, Inc., et al. In January and
February 1994, two putative class action lawsuits were filed, purportedly on
behalf of the stockholders of Rally's, in the United States District Court for
the Western District of Kentucky, Louisville division, against Rally's, Burt
Sugarman and Giant Group, Ltd. and certain of Rally's former officers and
directors and its auditors. The cases were subsequently consolidated under the
case name Jonathan Mittman et. al. vs. Rally's Hamburgers, Inc., et. al. The
complaints allege that the defendants violated the Securities Exchange Act of
1934, among other claims, by issuing inaccurate public statements about Rally's
in order to arbitrarily inflate the price of its common stock. The plaintiffs
seek unspecified damages. On April 15, 1994, Rally's filed a motion to dismiss
and a motion to strike. On April 5, 1995, the Court struck certain provisions
of the complaint but otherwise denied Rally's motion to dismiss. In addition,
the Court denied plaintiffs' motion for class certification; the plaintiffs
renewed this motion, and despite opposition by the defendants, the Court
granted such motion for class certification on April 16, 1996, certifying a
class from July 20, 1992 to September 29, 1993. Motions for Summary Judgment
were filed by the parties in September 2000, and rulings by the Court are
pending. The defendants deny all wrongdoing and intend to defend themselves
vigorously in this matter. Management is unable to predict the outcome of this
matter at the present time or whether or not certain available insurance
coverages will apply.

Greenfelder et al. v. White, Jr., et al. On August 10, 1995, a state court
complaint was filed in the Circuit Court of the Sixth Judicial Circuit in and
for Pinellas County, Florida, Civil Division, entitled Gail P. Greenfelder and
Powers Burgers, Inc. v. James F. White, Jr., Checkers Drive-In Restaurants,
Inc., Herbert G. Brown, James E. Mattei, Jared D. Brown, Robert G. Brown and
George W. Cook. A companion complaint was also filed in the same Court on May
21, 1997, entitled Gail P. Greenfelder, Powers Burgers of Avon Park, Inc., and
Power Burgers of Sebring, Inc. v. James F. White, Jr., Checkers Drive-In
Restaurants, Inc., Herbert G. Brown, James E. Mattei, Jared D. Brown, Robert G.
Brown and George W. Cook. The original complaint alleged, generally, that
certain officers of Checkers intentionally inflicted severe emotional distress
upon Ms. Greenfelder, who is the sole stockholder, president and director of
Powers Burgers, Inc., a Checkers franchisee. The present versions of the
amended complaints in the two actions assert a number of claims for relief,
including claims for breach of contract, fraudulent inducement to contract,
post-contract fraud and breaches of implied duties of "good faith and fair
dealings" in connection with various franchise agreements and an area
development agreement, battery, defamation, negligent retention of employees,
and violation of Florida's Franchise Act. The parties reached a tentative
settlement on January 11, 2001. The settlement has not yet been consummated,
and we intend to defend vigorously unless formal settlement is completed with
terms similar to those reached in the tentative settlement on January 11, 2001.

Checkers Drive-In Restaurants, Inc. v. Tampa Checkmate Food Services, Inc.,
et al. On August 10, 1995, a state court counterclaim and third party complaint
was filed in the Circuit Court of the Thirteenth Judicial Circuit in and for
Hillsborough County, Florida, Civil Division, entitled Tampa Checkmate Food
Services, Inc., Checkmate Food Services, Inc. and Robert H. Gagne v. Checkers
Drive-In Restaurants, Inc., Herbert G. Brown, James E. Mattei, James F. White,
Jr., Jared D. Brown, Robert G. Brown and George W. Cook.

A Complaint was originally filed by the Company in July of 1995 against Mr.
Gagne ("Gagne") and Tampa Checkmate Food Services, Inc. ("Tampa Checkmate"), a
company controlled by Mr. Gagne, to collect

on a promissory note in the original principal amount of $1,007,295 (the
"promissory note") and foreclose on a mortgage securing the promissory note
issued by Tampa Checkmate, enforce the terms of a personal guaranty executed by
Mr. Gagne, and obtain declaratory relief regarding the rights of the respective
parties under Tampa Checkmate's franchise agreement with the Company. The
counterclaim and third party complaint, as amended, generally alleged that Mr.
Gagne, Tampa Checkmate and Checkmate Food Services, Inc. ("Checkmate") were
induced into entering into various franchise agreements with personal
guarantees to the Company based upon misrepresentations by the Company and the
named individuals and alleged violations of Florida's Franchise Act, Florida's
Deceptive and Unfair Trade Practices Act, and breaches of implied duties of
"good faith and fair dealings" in connection with a settlement agreement and
franchise agreement between various of the parties.

The action was tried before a jury in August of 1999. The Company's action
against Tampa Checkmate to collect the promissory note was stayed by virtue of
Tampa Checkmate's bankruptcy filing (see discussion below). The Court entered a
directed verdict and an involuntary dismissal as to all claims alleged against
Jared D. Brown, Robert G. Brown, and George W. Cook and also entered a directed
verdict and an involuntary dismissal as to certain other claims asserted
against the Company and the remaining individual Counterclaim Defendants,
Herbert G. Brown ("H. Brown"), James E. Mattei ("Mattei"), James F. White, Jr.
("White"). The jury rendered a verdict in favor of the Company, H. Brown,
Mattei, and White as to all claims asserted by Checkmate and in favor of Mattei
as to all claims asserted by Tampa Checkmate and Gagne. In response to certain
jury interrogatories, however, the jury made the following determinations: (i)
That Gagne was fraudulently induced to execute a certain Unconditional Guaranty
and that the Company was therefore not entitled to enforce its terms; (ii) That
Tampa Checkmate was fraudulently induced to execute a certain franchise
agreement by the actions of the Company, H. Brown, and White, jointly and
severally, and that Tampa Checkmate was damaged as a result thereof in the
amount of $151, 331; (iii) That the Company, H. Brown, and J. White, jointly
and severally, violated (S) 817.416(2)(a)(1) of the Florida Franchise Act
relating to the franchise agreement and that Tampa Checkmate was damaged as a
result thereof in the amount of $151, 331 and that Gagne was damaged as a
result thereof in the amount of $151,331; and (iv) That the Company, H. Brown,
and J. White did not violate Florida's Deceptive and Unfair Trade Practices Act
relating to the Ehrlich Road franchise agreement.

The foregoing jury determinations were adopted by the trial court and
judgments were entered accordingly. The judgments were appealed to the Second
District Court of Appeal and on November 14, 2001, the Appeals Court (i)
affirmed the $151,331 judgment, plus statutory interest from August of 1999,
entered in favor of Tampa Checkmate and against the Company and White for
fraudulent inducement, but reversed as to Brown and that portion of the
judgment awarding Tampa Checkmate statutory interest prior to the jury's
verdict in August of 1999; (ii) affirmed the $151,331 judgment, plus statutory
interest from August of 1999, entered in favor of Tampa Checkmate and against
the Company and White for violation of (S) 817.416(2)(a)(1) of the Florida
Franchise Act, but reversed as to Brown; and (iii) reversed, in toto, the
judgment entered in favor of Gagne. Reciprocal motions for attorney fees remain
pending in the state court.

On February 4, 2002, the state trial court granted a motion filed by Tampa
Checkmate entered summary judgment as to the Company's affirmative defenses of
setoff and recoupment, the legal significance of which is unclear, and
reciprocal motions for attorney fees remain pending in the state court. The
Company has appealed the before-described summary judgment to the Second
District Court of Appeal and that appeal remains pending. The two judgments, as
modified by the Second District Court of Appeal remain unsatisfied, but the
Company believes the liability to Tampa Checkmate under the two judgments, and
any liability for the payment of attorney fees, is subject to the Company's
right of setoff arising from Tampa Checkmate's liability to the Company under
the promissory note described above.

entered orders recognizing the Company's right to setoff the amount owed by
Tampa Checkmate under the promissory note against the judgments and lifting the
automatic stay to allow the Company to proceed "to effect the setoff and/or
recoupment permitted by this Court to include proceeding in state court or
other appropriate forum to determine the amounts owed, if any, by the Debtor
(Tampa Checkmate) to Checkers."

The Company has filed a motion in the Bankruptcy Court to determine the
amounts owed under the promissory note. Tampa Checkmate has opposed the motion
by asserting that the February 4, 2002 order entered in the state court
proceedings referenced above was dispositive of the Company's claim of setoff.
The Company disputes Tampa Checkmate's argument. The foregoing motion remains
pending in the Bankruptcy Court.

Dorothy Hawkins v. Checkers Drive-In Restaurants, Inc. and KPMG Peat
Marwick. On March 4, 1999, a state court complaint was filed in the Circuit
Court in and for Pinellas County, Florida, Civil Division. The complaint
alleges that Mrs. Hawkins was induced into purchasing a restaurant site and
entering into a franchise agreement with Checkers based on misrepresentations
and omissions made by Checkers. The complaint asserts claims for breach of
contract, breach of the implied covenant of good faith and fair dealing,
violation of Florida's Deceptive Trade Practices Act, fraudulent concealment,
fraudulent inducement, and negligent representation. The Company denies the
material allegations of the complaint and intends to defend this lawsuit
vigorously.

We are also involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on our
consolidated financial position, results of operations or liquidity.

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

None.

PART II

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

Our common stock is quoted on the National Market System of the NASDAQ Stock
Market under the symbol "CHKR". As of February 25, 2002, there were
approximately 29,000 stockholders of record of our common stock. The following
table below sets forth the high and low closing sales price quotations of the
Company's common stock, as reported on the NASDAQ National Market, for the
periods indicated.

2001
Quarter Ended
-------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------

High....................................... $5.94 $6.40 $7.00 $7.11
Low........................................ 3.73 4.34 4.92 4.60

2000
Quarter Ended
-------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------

High....................................... $2.56 $4.12 $5.50 $4.50
Low........................................ 1.81 1.47 3.12 2.94

Dividends

We have not declared or paid any dividends on our common stock since
incorporation and do not intend to do so in the foreseeable future. Dividends
are restricted under the terms of our notes payable.

Future Registrations

We intend to register 1,500,000 shares of our common stock to Company
employees based upon the terms and conditions of the Company's 2001 Employee
Incentive Stock Option Plan (the "2001 Plan"). Said options to be granted at
the exercise price equal to the closing price of our common stock on the date
of grant in accordance with this and all other terms of the 2001 Plan.

ITEM 6. SELECTED FINANCIAL DATA

The following table shows our selected financial data. On August 9, 1999,
Checkers merged with Rally's. The merger was accounted for as a reverse
acquisition whereby Rally's was treated as the acquirer and Checkers as the
acquiree, as the former shareholders of Rally's owned a majority of the
outstanding common stock of Checkers subsequent to the merger. The fiscal 1998
and 1997 financial information presented herein represents the financial
results of Rally's only. The fiscal 1999 financial information includes the
results of Rally's for the entire year and the results of Checkers for the
period from August 9, 1999 to January 3, 2000. The fiscal 2001 and 2000
financial information includes the results of the merged companies. The
selected historical statement of operations and historical balance sheet data
presented have been derived from our audited consolidated financial statements.
Please note that our fiscal year ended January 3, 2000 contained 53 weeks. You
should read the following selected financial data in conjunction with Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and accompanying notes.

Consolidated Statements of Operations
For the years ended (1)
(In thousands, except per share amounts and statistical data)

December 31, January 1, January 3, December 28, December 28,
2001 2001 2000 1998 1997
------------ ---------- ---------- ------------ ------------

Company restaurant
sales.................. $145,442 $162,804 $192,340 $139,602 $139,348
Other revenues.......... 16,170 18,386 9,495 5,350 5,582
-------- -------- -------- -------- --------
Total revenues......... 161,612 181,190 201,835 144,952 144,930
-------- -------- -------- -------- --------
Income (loss) from
operations(2).......... 7,431 8,051 (17,520) 1,401 3,343
Other expenses.......... (3,034) (5,955) (9,217) (8,684) (7,404)
-------- -------- -------- -------- --------
Income (loss) before
taxes and extraordinary
item................... 4,397 2,096 (26,737) (7,283) (4,061)
Income tax exense
(benefit).............. 62 (475) -- 252 455
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item..... 4,335 2,571 (26,737) (7,535) (4,516)
Extraordinary item(3)... -- (229) 849 -- --
-------- -------- -------- -------- --------
Net income (loss)...... $ 4,335 $ 2,342 $(25,888) $ (7,535) $ (4,516)
======== ======== ======== ======== ========
Basic earnings (loss)
per share:
Income (loss) before
extraordinary item.... $ 0.43 $ 0.27 $ (4.02) $ (1.67) $ (1.32)
Extraordinary item..... -- (0.02) 0.13 -- --
-------- -------- -------- -------- --------
Net income (loss)...... $ 0.43 $ 0.25 $ (3.89) $ (1.67) $ (1.32)
======== ======== ======== ======== ========
Diluted earnings (loss)
per share:
Income (loss) before
extraordinary item.... $ 0.36 $ 0.25 $ (4.02) $ (1.67) $ (1.32)
Extraordinary item..... -- (0.02) 0.13 -- --
-------- -------- -------- -------- --------
Net income (loss)...... $ 0.36 $ 0.23 $ (3.89) $ (1.67) $ (1.32)
======== ======== ======== ======== ========
Weighted average shares
outstanding
Basic.................. 10,139 9,419 6,657 4,506 3,434
======== ======== ======== ======== ========
Diluted................ 11,908 10,194 6,657 4,506 3,434
======== ======== ======== ======== ========

Selected Operating Data
As of and for the years ended
(In thousands)

December 31, January 1, January 3, December 28, December 28,
2001 2001 2000 1998 1997
------------ ---------- ---------- ------------ ------------

Systemwide sales (4).... $546,149 $536,511 $401,964 $286,876 $290,133
======== ======== ======== ======== ========
Restaurants open at end
of period:
Company................ 235 195 367 226 229
Franchised............. 586 659 540 249 248
-------- -------- -------- -------- --------
Total................. 821 854 907 475 477
======== ======== ======== ======== ========

Consolidated Balance Sheet Data (5)
(In thousands)

December 31, January 1, January 3, December 28, December 28,
2001 2001 2000 1998 1997
------------ ---------- ---------- ------------ ------------

Working capital......... $ (2,474) $ (8,990) $(27,451) $ (4,129) $ (9,825)
Total assets............ $127,260 $125,998 $165,653 $123,306 $134,297
Long-term debt and
obligations under
capital leases,
including current
portion................ $ 36,916 $ 40,538 $ 80,767 $ 70,307 $ 68,444
Total stockholders'
equity................. $ 59,624 $ 50,934 $ 46,663 $ 34,519 $ 41,513
Cash dividends declared
per common share....... $ -- $ -- $ -- $ -- $ --

--------
(1) The information presented for the period ending January 3, 2000 reflects
the results for Rally's for the full year and only the post merger period
from August 10, 1999 to January 3, 2000 for Checkers. Fiscal 1998 and 1997
includes Rally's only. Fiscal 2001 and 2000 include the results of the
merged companies.
(2) Includes asset impairment charges of approximately $1.2 million, $0.6
million, $22.3 million and $3.4 million for fiscal 2001, 2000, 1999 and
1998, respectively.
(3) The extraordinary item for fiscal 2000 represents a loss on early
retirement of debt, net of tax expense of $0. The extraordinary items for
fiscal 1999 represents a gain on the early retirement of debt, net of tax
expense of $0.
(4) Systemwide sales consist of aggregate revenues of Company-owned and
franchised.
(5) The consolidated balance sheets presented as of December 31, 2001, January
1, 2001 and January 3, 2000 represent the combined balance sheet of the
merged entity. All prior periods reflect Rally's only.

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

On August 9, 1999, Checkers Drive-In Restaurants, Inc. ("Checkers") and
Rally's Hamburgers, Inc., ("Rally's") completed their merger ("Merger"). The
merger of Checkers with Rally's was accounted for as a reverse acquisition as
former shareholders of Rally's owned a majority of the outstanding stock of
Checkers subsequent to the merger. Therefore, for accounting purposes, Rally's
is deemed to have acquired Checkers. All pre-Merger financial information
represents the financial results for Rally's only. The post-merger financial
results include both Rally's and Checkers.

The Merger has had a significant impact on the Company's results of
operations and is the principal reason for the differences when comparing
results of operations for the periods ending December 31, 2001 and January 1,
2001 with the results of operations for the period ended January 3, 2000. As a
result of the Merger in fiscal 1999, the Company acquired 470 Checkers
restaurants.

At December 31, 2001, the Company's system included 821 restaurants,
comprised of 235 Company-owned and operated restaurants and 586 franchised
restaurants. At December 31, 2001, there were 404 Rally's restaurants operating
in 17 different states and there were 417 Checkers restaurants operating in 22
different states, the District of Columbia, Puerto Rico and the West Bank in
the Middle East. As of December 31, 2001, our ownership interest in Company-
operated restaurants is in one of two forms: (i) 100% ownership of 232
restaurants and (ii) a 50%, 51% and 75% ownership interest in three
partnerships which own the restaurants (a "Joint Venture Restaurant"). The
Joint Venture Restaurants' operations are consolidated in the financial
statements of the Company. In fiscal 2001, we opened one and closed two
restaurants. Franchisees opened 12 and closed 44 restaurants, in fiscal 2001.

Restaurants Operating in the System
For the Quarters Ended

March 27, June 19, Sept. 11, Jan. 1, March 26, June 18, Sept. 10, Dec. 31,
2000 2000 2000 2001 2001 2001 2001 2001
--------- -------- --------- ------- --------- -------- --------- --------

Company-operated:
Beginning of quarter... 367 367 287 224 195 207 207 236
Openings/transfers in.. -- -- 1 -- 29 -- 29 1
Closings/transfers
out................... -- (80) (64) (29) (17) -- -- (2)
--- --- --- --- --- --- --- ---
End of quarter......... 367 287 224 195 207 207 236 235
--- --- --- --- --- --- --- ---
Franchise:
Beginning of quarter... 540 537 601 649 659 638 640 606
Openings/transfers in.. 3 81 65 42 17 5 1 5
Closings/transfers
out................... (6) (17) (17) (32) (38) (3) (35) (25)
--- --- --- --- --- --- --- ---
End of quarter......... 537 601 649 659 638 640 606 586
--- --- --- --- --- --- --- ---
904 888 873 854 845 847 842 821
=== === === === === === === ===

We receive revenues from restaurant sales, franchise fees and royalties. Our
revenues also included payments resulting from an operating agreement with CKE
through July 3, 2001, at which time the agreement terminated. These revenues
are included in franchise fees and other income in the accompanying
consolidated financial statements. Restaurant food and paper cost, labor costs,
occupancy expense, other operating expenses, depreciation and amortization, and
advertising and promotion expenses relate directly to Company-owned
restaurants. Other expenses, such as depreciation and amortization, and general
and administrative expenses, relate both to Company-owned restaurant operations
and franchise sales and support functions. Our revenues and expenses are
affected by the number and timing of additional restaurant openings and the
sales volumes of both existing and new restaurants.

Effective November 30, 1997, Checkers and Rally's entered into a Management
Services Agreement ("Agreement") whereby Checkers provided accounting,
technology, and other functional and management services to predominantly all
of the operations of Rally's. Checkers received fees from Rally's relative to
the shared departmental costs times the respective restaurant ratio. Upon
completion of the Merger, this Agreement was terminated. During the period from
December 29, 1998 through August 9, 1999, Checkers charged Rally's $4.7 million
in accordance with the Agreement.

RESULTS OF OPERATIONS

The table below sets forth the percentage relationship to total revenues,
unless otherwise indicated, of certain items included in our consolidated
statements of income and operating data for the periods indicated:

December 31, January 1, January 3,
2001 2001 2000(3)
------------ ---------- ----------

Revenues:
Restaurant sales........................... 90.0% 89.9% 95.3%
Franchise royalty revenue.................. 9.6% 7.9% 3.5%
Franchise fees and other income............ 0.4% 2.2% 1.2%
----- ----- ------
100.0% 100.0% 100.0%
===== ===== ======
Cost and expenses:
Restaurant food and paper costs(1)......... 32.6% 31.6% 31.3%
Restaurant labor costs(1).................. 32.2% 33.1% 32.4%
Restaurant occupancy expense(1)............ 8.1% 6.4% 4.9%
Restaurant depreciation and
amortization(1)........................... 3.1% 2.6% 4.0%
Other restaurant operating expenses(1)..... 12.9% 12.1% 10.8%
General and administrative expenses........ 7.3% 8.0% 8.1%
Advertising(1)............................. 5.6% 6.4% 6.1%
Bad debt expense........................... 0.5% 0.4% 0.9%
Non-cash compensation...................... 0.0% 1.0% 0.0%
Other depreciation and amortization........ 2.1% 2.9% 2.7%
Impairment of long-lived assets............ 0.7% 0.0% 11.0%
Loss from restaurant closures.............. 0.4% 0.3% 1.9%
Gain on sales of assets.................... (0.6)% (0.0)% (1.3)%
----- ----- ------
Operating income (loss).................... 4.6% 4.4% (8.6)%
===== ===== ======
Other income (expense):
Interest income............................ 1.1% 0.4% 0.4%
Loss on investment in affiliate............ 0.0% 0.0% (0.7)%
Interest expense (including interest-loan
cost and bond discount amortization)...... (3.0)% (3.6)% (4.3)%
----- ----- ------
Income (loss) before minority interest,
income taxes and extraordinary item...... 2.7% 1.2% (13.2)%
Minority interest in operations of joint
ventures.................................. 0.0% 0.0% 0.0%
----- ----- ------
Income (loss) before income taxes and
extraordinary item....................... 2.7% 1.2% (13.2)%
Income tax expense (benefit)............... 0.0% (0.2)% 0.0%
----- ----- ------
Net income (loss) from continuing
operations before extraordinary item..... 2.7% 1.4% (13.2)%
===== ===== ======
Extraordinary gains (losses)--net of income
taxes..................................... 0.0% (0.1)% 0.4%
----- ----- ------
Net income (loss)......................... 2.7% 1.3% (12.8)%
===== ===== ======
Number of restaurants-Company owned and
franchised(2):
Restaurants open at the beginning of
period................................... 854 907 475
----- ----- ------
Restaurants acquired through merger....... -- -- 470
Company-owned restaurants opened, closed
or transferred, net during period........ 40 (172) (95)
Franchised restaurants opened, closed or
transferred, net during period........... (73) 119 57
----- ----- ------
Total restaurants acquired,opened, closed
or transferred, net during period........ (33) (53) 432
----- ----- ------
Total restaurants open at end of period... 821 854 907
===== ===== ======

-------
(1) As a percentage of restaurant sales.
(2) Number of restaurants open at end of period.
(3) Includes the results of operations for Rally's only, through August 9,
1999.

Results of Operations

Comparison of Historical Results--Fiscal Years 2001 and 2000

Revenues. Total revenues were $161.6 million for the year ended December 31,
2001, compared to $181.2 million for the year ended January 1, 2001. Company-
owned restaurant sales decreased by $17.4 million for the year, from $162.8
million in fiscal 2000, to $145.4 million in fiscal 2001. The primary reason
for the decrease was the result from the sale of 89 restaurants to franchisees
during the third and fourth quarters of fiscal 2000.

Sales at comparable restaurants, which include only the units that were in
operation for the full years being compared, increased 11.2% in 2001 as
compared with 2000.

Franchise royalties increased by $1.1 million primarily as a result of the
Company-owned restaurants sold to franchisees during the third and fourth
quarters of fiscal 2000. Royalties on these restaurants were recognized for a
full year during 2001. The increase can also be attributed to increased average
restaurant sales during fiscal 2001 as compared to 2000.

Franchise fees and other income decreased from $4.0 million, in fiscal 2000,
to $0.7 million for fiscal 2001. The decrease is due primarily to the sale of
167 Company-owned restaurants to franchisees during fiscal year 2000.

Costs and expenses. Restaurant food and paper costs totaled $47.4 million or
32.6% of restaurant sales in fiscal 2001 compared with 31.6% in fiscal 2000.
The increase in these costs as a percentage of restaurant sales was due to
increased beef and cheese prices during the current fiscal year as compared to
the prior fiscal year.

Restaurant labor costs, which include restaurant employees' salaries, wages,
benefits, bonuses and related taxes totaled $46.9 million or 32.2% of
restaurant sales for fiscal 2001 compared with $53.8 million or 33.1% for
fiscal 2000. The primary reason for the decrease as a percentage of sales is
the result of volume efficiencies gained from increased average restaurant
sales.

Restaurant occupancy expense, which includes rent, property taxes, licenses
and insurance totaled $11.8 million or 8.1% of restaurant sales in 2001
compared with $10.5 million or 6.4% in 2000. The increase in restaurant
occupancy expense as a percentage of restaurant sales is due to higher rental
rates in the California market, as a result of taking back 21 locations from
CKE in July of 2001, and increasing insurance costs.

Restaurant depreciation and amortization of $4.5 million in 2001 remained
consistent with $4.3 million in 2000. The slight increase of 0.5% of restaurant
sales is due to the sale of 167 restaurants in 2000 that were considered held
for sale assets, and are therefore, not being depreciated. The sale of these
restaurants decreased Company-owned restaurant sales without an offsetting
decrease in depreciation expense.

Other restaurant operating expenses include all other restaurant level
operating expenses and specifically includes utilities, maintenance and other
costs. These expenses totaled $18.7 million or 12.9% of restaurant sales in
fiscal 2001 compared with $19.7 million or 12.1% in fiscal 2000. The increase
as a percentage of sales was primarily related to increased repairs and
maintenance during the first half of the current year as compared to the
previous year, as we continued the refurbishment of our restaurants that began
in late fiscal 2000. In addition, utilities costs also increased during fiscal
2001.

General and administrative expenses were $11.7 million, or 7.3% of total
revenues for fiscal 2001 compared to $14.6 million, or 8.0% of total revenues
for fiscal 2000. The decrease in costs is due primarily to a decrease in
corporate payroll by approximately $1.7 million.

Advertising expense decreased approximately $2.3 million to $8.1 million, or
5.6% of restaurant sales for 2001 compared with 6.4% for 2000. The decrease in
dollars spent was due to a decrease in the average number

of Company-owned restaurants operated during fiscal 2001 as compared to fiscal
2000. The decrease as a percentage of sales was due primarily to the increase
in average restaurant sales for the fiscal year 2001.

Bad debt expense remained relatively consistent at 0.5% of total revenues
for fiscal 2001 as compared to 0.4% for fiscal 2000.

Non-cash compensation resulted from certain options granted and modified in
fiscal 2000. Non-cash compensation recognized in fiscal 2001 was $0.1 million
for those options granted with a vesting period through 2003. Non-cash
compensation recognized in fiscal 2000 was $1.7 million for both those option
which immediately vested and those with vesting periods through 2003.

Other depreciation and amortization decreased to $3.4 million or 2.1% of
total revenues for fiscal 2001 as compared to $5.2 million or 2.9% for fiscal
2000. The decrease was due primarily to decreased depreciation expense for the
property and equipment for the 21 locations taken back from CKE in July 2001.
While they were operated by CKE, Checkers continued to own and depreciate the
property. Depreciation expense was recorded as other depreciation because it
was associated with other income. Once we began operating the restaurants in
2001, restaurant sales were recognized and depreciation was recorded as
restaurant depreciation.

During 2001, the Company realized $1.2 million in total impairment charges
relating to the closing of two Company-owned restaurants, the closing of twelve
franchised restaurants with associated intangibles, and eleven under-performing
Company-owned restaurants. During fiscal 2000, the Company recorded impairment
charges of $0.6 million.

During 2001, the Company recognized losses of $.6 million from restaurant
closures related to the estimated future cost of surplus properties. The
Company maintains a consist practice of reviewing the reserve for future
expenses and recognizes additional loss to ensure the reserve is sufficient to
meet estimated future requirements.

Interest Income. Interest income increased to $1.9 million during fiscal
2001 as compared to $0.7 million during fiscal 2000 primarily as the result of
a large cash balance maintained during the current year for anticipated new
restaurant openings.

Interest Expense. Interest expense decreased to $4.8 million, or 3.0% of
total revenues for fiscal 2001 from $6.6 million, or 3.6% of total revenues for
fiscal 2000. This decrease was due to the net reduction of debt by $3.6 million
and the restructuring of our capital during the current year and fiscal 2000.

Income Tax. The Company's 2001 tax expense represents federal alternative
minimum tax based upon estimated federal alternative minimum taxable income
after utilizing the allowable portion of our net operating loss carryforwards.
The Company's 2000 tax benefit was approximately $475,000 resulting primarily
from a $623,000 favorable tax ruling in fiscal 2000.

Comparison of Historical Results--Fiscal Years 2000 and 1999

Revenues. Total revenues were $181.2 million for the year ended December 31,
2001, compared to $201.8 million for the year ended January 3, 2000. Company-
owned restaurant sales decreased by $29.5 million for the year, from $192.3
million in fiscal 1999, to $162.8 million in fiscal 2000. The primary reason
for the decrease was the result from the sale of 167 restaurants to
franchisees. This was partially offset by a full year of merged company
revenues.

Sales at comparable restaurants, which include only the units that were in
operation for the full years being compared, decreased 1.1% in 2000 as compared
with 1999.

Franchise royalties increased by $7.3 million, primarily as a result of the
Company-owned restaurant sales to franchisees during fiscal 2000.

Franchise fees and other income increased to $4.0 million from $2.4 million
in fiscal 2000 as compared to fiscal 1999. The increase is due primarily to the
sale of 167 Company-owned restaurants to franchisees during fiscal year 2000 as
compared to the sale of 73 in 1999.

Costs and expenses. Restaurant food and paper costs remained consistent at
31.6% of restaurant sales in 2000 compared with 31.3% in 1999. The Company
continued to benefit from its participation in the purchasing co-op with CKE
Restaurants, Inc. and Santa Barbara Restaurant Group, Inc. This purchasing co-
op expired during 2001.

Restaurant labor costs, which include restaurant employees' salaries, wages,
benefits, bonuses and related taxes totaled $53.8 million or 33.1% of
restaurant sales for 2000 compared with $62.4 million or 32.4% for 1999. The
increase as a percentage of sales is due to increases in management salaries
and other incentives to various employees designed to enhance retention rates
on a going forward basis, as well as other increased labor rates.

Restaurant occupancy expense, which includes rent, property taxes, licenses
and insurance totaled $10.5 million or 6.4% of restaurant sales in 2000
compared with $9.5 million or 4.9% in 1999. Restaurant occupancy expense
increased primarily due to a full year of Checkers' operations being recognized
in fiscal 2000, as Checkers' occupancy costs are higher than Rally's.

Restaurant depreciation and amortization of $4.3 million in 2000 decreased
by $3.4 million from $7.7 million in 1999 primarily due to the sale of 167
Company-owned restaurants.

Other restaurant operating expenses include all other restaurant level
operating expenses and specifically includes utilities, maintenance and other
costs. These expenses totaled $19.7 million or 12.1% of restaurant sales in
2000 compared with $20.8 million or 10.8% in 1999. The increase as a percent of
sales was due primarily to a full year of Checkers' operations recognized in
2000, as Checkers' restaurants have higher restaurant operating expenses.

Advertising expense decreased approximately $1.4 million to $10.4 million,
or 6.4% of restaurant sales for 2000 compared with 6.1% for 1999. The increase
as a percentage relates primarily to the decrease in revenues due to the sale
of 167 Company-owned restaurants.

Bad debt expense decreased to 0.4% of total revenues from 0.9% in the prior
year. This was the result of collectibility issues with certain franchisees in
1999.

Other depreciation and amortization remained consistent at $5.2 million in
2000 compared to $5.4 million in 1999.

General and administrative expenses decreased $1.7 million in 2000 to $14.6
million, or 8.0% of revenues as compared to $16.3 million, or 8.1% of revenues
in 1999. The decrease is due primarily to the reduction of our administrative
staff.

The loss on investment in affiliate in 1999 of $1.4 million represents
Rally's share of the losses incurred by Checkers ($1.0 million) and the
amortization of related goodwill ($0.4 million) prior to the Merger.

During 2000 and 1999 the Company recorded impairment charges and loss
provisions in accordance with SFAS 121 of $0.6 and $22.3 million, respectively.

During 2000, the Company recognized losses of $.6 million from restaurant
closures related to the estimated future cost of surplus properties. The
Company maintains a consist practice of reviewing the reserve for future
expenses and recognizes additional loss to ensure the reserve is sufficient to
meet estimated future requirements.

Interest Income. Interest income was lower for 2000 as compared to 1999
primarily as the result of a lower cash balance due to debt repayments.

Interest Expense. Interest expense decreased to approximately $6.6 million
for 2000 as compared to $8.6 million for 1999. This decrease is primarily due
to the repayment of approximately $40.3 million in debt during 2000.

Income Tax. The Company's 2000 tax benefit was approximately $475,000
resulting primarily from a $623,000 favorable tax ruling in fiscal 2000.

Liquidity and Capital Resources

We have a working capital deficit of $2.5 million at December 31, 2001 as
compared to a $9.0 million deficit at January 1, 2001. The decrease in the
deficit is primarily due to the repayment of $2 million of the Textron note
payable (Loan B), operating profits for the year of $4.3 million, and
additional capital contributions of $4.3 million from the exercise of options
and warrants into 1,261,104 shares of common stock.

The Company is subject to certain restrictive financial and non-financial
covenants under certain of its debt agreements, including EBITDA and a Fixed
Charge Coverage ratio. We were not in compliance with one of the financial
covenants for the fiscal year ending December 31, 2001. However, we have
received a waiver for the financial covenant for the year ended December 31,
2001, and through December 31, 2002. If the thirty-three restaurants included
in the FFCA Mortgage transactions are not in compliance with certain financial
performance covenants, the Company is allowed to substitute another property as
security for the debt.

Cash and cash equivalents increased approximately $6.3 million to $7.2
million during the year ended December 31, 2001. Cash from operating activities
was $16.0 million, compared to $1.3 million during the same period last year.
The increase of $14.7 million is largely attributed to current profits and an
increase in accrued liabilities.

Cash flow used for investing activities was $5.6 million related primarily
to capital expenditures at existing restaurants and the acquisition of 8
restaurants from a former franchisee. The capital expenditures related
primarily to point-of-purchase menu boards and building refurbishments.

Cash used by financing activities was $4.2 million. We paid down $2 million
of the Textron note payable (Loan B) prior to refinancing the remaining $3.9
million, in addition to monthly principal payments of approximately $5.2
million. We received $594,000 from the issuance of long-term debt and $4.3
million from the issuance of common stock from the exercise of stock options
and warrants during fiscal 2001.

We have capital lease receivables for certain restaurants previously sold
which are subject to capital lease and mortgage obligations for which we
continue to be the primary obligor, and have equivalent liabilities recorded.
The amount of capital lease receivables as of December 31, 2001 was
approximately $7.2 million.

The Company, as original lessee, has also subleased certain land associated
with the sale of Company-owned restaurants under operating leases. The revenue
from these subleases is offset against rent expense, as we continue to be
responsible for the rent payments to the original lessors.

Although there can be no assurance, we believe that our existing cash at
December 31, 2001, the expected cash provided from operations, and the
available $2.8 million line of credit will be sufficient to meet our working
capital and capital expenditure requirements for the next 12 months.

Critical Accounting Policies:

Our critical accounting policies are as follows:

Revenue Recognition--Franchise fees and area development franchise fees are
generated from the sale of rights to develop, own and operate restaurants. Such
fees are based on the number of potential restaurants in a specific area which
the franchisee agrees to develop pursuant to the terms of the franchise
agreement between the Company and the franchisee and are recognized as income
on a pro rata basis when substantially all of the Company's obligations per
location are satisfied, (generally at the opening of the restaurant). Franchise
fees are nonrefundable. Franchise fees and area development franchise fees
received prior to substantial completion of the Company's obligations are
deferred. The Company receives royalty fees from franchisees based on a
percentage of each restaurant's gross revenues. Royalty fees are recognized as
earned.

Gains associated with the sale of certain Company-owned restaurants to
franchisees with associated mortgages and capital leases are recognized over
the life of the related capital leases. During fiscal years 1999 and 2000,
several Company-owned restaurants were sold to franchisees with associated
mortgages and capital leases. As a result of the sales, we have recorded lease
receivables for those restaurants sold which are subject to capital lease and
mortgage obligations. The amount of capital lease receivables as of December
31, 2001 was approximately $7.2 million. We have recorded deferred gains of
$5.3 million from these sales since we continue to be responsible for the
payment of the obligations to the original lessors and mortgagors. The deferred
gains are included in the balance sheet under the captions accrued liabilities-
current and deferred revenues for $0.5 million and $4.8 million, respectively.

Valuation of Long-Lived and Intangible Assets and Goodwill--We assess the
impairment of long-lived, identifiable intangible assets and related goodwill
and enterprise level goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider
important which could trigger an impairment review include the following:

. significant underperformance relative to expected historical or projected
future operating results;

. significant negative industry or economic trends;

. significant decline in our stock price for a sustained period; and

. our market capitalization relative to net book value.

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
No. 121) requires the write-down of certain intangibles and tangible property
associated with under performing sites. In applying SFAS No. 121, we reviewed
all restaurants that recorded losses in the applicable fiscal years and
performed a discounted cash flow analysis where indicated for each restaurant
based upon such results projected over a five to fifteen year period. This
period of time was selected based upon the lease term and the age of the
building, which we believe is appropriate. Impairments or recoveries are
recorded to adjust the asset values to the amount recoverable under the
discounted cash flow analysis, in accordance with SFAS No. 121. The effect of
applying SFAS No. 121 resulted in a reduction of property, equipment and
intangible assets of approximately $1.2 million in 2001, $0.6 million in 2000,
$22.3 million in 1999.

amortization during 2002. In lieu of amortization, we are required to perform
an initial impairment review of our goodwill in 2002, and an annual impairment
review thereafter. We expect to complete our initial review during the first
quarter of 2002. In addition, we will assess the value of the tradename in
accordance with SFAS No. 121.

We currently do not expect to record an impairment charge upon completion of
the initial impairment review. However, there can be no assurance that at the
time the review is completed a material impairment charge will not be recorded.

Allowance for doubtful accounts and accrued liabilities--The preparation of
financial statements requires management make estimates and assumptions that
affect the reported amount of assets and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Specifically, our management
must make estimates of the collectability of our accounts receivables.
Management specifically analyzes accounts receivable and analyzes historical
bad debts, franchise concentrations, franchise credit-worthiness, and current
economic trends when evaluating the adequacy of the allowance for doubtful
accounts. Our accounts receivable balance was $2.6 million, net of allowance
for doubtful accounts of $3.6 million as of December 31, 2001.

Management's current estimated range of liability related to some of the
pending litigation is based on claims for which we can estimate the amount and
range of loss. We have recorded the minimum estimated liability related to
those claims, where there is a range of loss. Because of the uncertainties
related to both the amount and range of loss on the remaining pending
litigation, management is unable to make a reasonable estimate of the liability
that could result from an unfavorable outcome. As additional information
becomes available, we will assess the potential liability related to our
pending litigation and revise our estimates accordingly. Such revisions in our
estimates of the potential liability could materially impact our results of
operation and financial position.

Reserves for restaurant relocations and abandoned sites consists of our
estimates for the ongoing costs of each location which has been closed or was
never developed. Those costs include rent, property taxes, maintenance,
utilities, and in some cases, the cost to relocate the modular restaurant to a
storage facility. The cash outlays for these costs have been estimated for
various terms ranging from 2 to 8 years.

New Accounting Standards

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142,
Goodwill and Other Intangible Assets. SFAS 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting. It also specifies the types of acquired intangible assets that are
required to be recognized and reported separately from goodwill. SFAS 142 will
require that goodwill and certain intangibles no longer be amortized, but
instead tested for impairment at least annually. SFAS 142 is required to be
applied starting with fiscal years beginning after December 15, 2001, with
early application permitted in certain circumstances.

The Company adopted SFAS 142 on January 1, 2002, and does not expect any
impairment of goodwill upon adoption. Goodwill amortization was approximately
$1.4 million in fiscal 2001 and 2000.

Identifiable intangible assets are amortized using the straight-line method
over their estimated period of benefit. We periodically evaluate the
recoverability of intangible assets and take into account events or
circumstances that warrant revised estimates of useful lives or that indicate
that an impairment exists. Effective January 1, 2002, we will cease to amortize
the value recorded for our tradename, as we have assessed its life to be
indefinite. Amortization expense recorded for the tradename was approximately
$1.0 million in fiscal 2001 and 2000.

In August of 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) 144, Accounting for Impairment or
Disposal of Long-lived Assets. SFAS 144 establishes

methods of accounting and reporting for the impairment of long-lived assets
other than goodwill and intangible assets not being amortized. The Company is
currently reviewing this statement and the impact of its adoption on its
financial position, results of operations and cash flows. The Company will
implement SFAS 144 beginning in the first quarter of its fiscal year ending
December 30, 2002.

Future Commitments

The Company is obligated under future commitments as part of its normal
business operations, which are not included as liabilities on the consolidated
balance sheet. The future commitments are for operating lease payments and
product purchases, summarized as follows:

Year(s)
------------------------
2002 2003-Thereafter
-------- ---------------
(000's)

Lease payments.................................... $ 16,634 $ 83,720
Product purchases................................. 104,569 116,792
-------- --------
$121,203 $200,512
======== ========

ITEM 7A. QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISKS

Interest rate and foreign exchange rate fluctuations

Our exposure to financial market risks is the impact that interest rate
changes and availability could have on our debt. Borrowings under our primary
debt facilities bear interest ranging from 5.8% to 16.3%. An increase in short-
term and long-term interest rates would result in a reduction of pre-tax
earnings. Substantially all of our business is transacted in U.S. dollars.
Accordingly, foreign exchange rate fluctuations have never had a significant
impact on the Company and are not expected to in the foreseeable future.

Commodity Price Risk

We purchase certain products which are affected by commodity prices and are,
therefore, subject to price volatility caused by weather, market conditions and
other factors which are not considered predictable or within the Company's
control. Although many of the products purchased are subject to changes in
commodity prices, certain purchasing contracts or pricing arrangements have
been negotiated in advance to minimize price volatility. Typically, the Company
uses these types of purchasing techniques to control costs as an alternative to
directly managing financial instruments to hedge commodity prices. In many
cases, the Company believes it will be able to address commodity cost
increases, which are significant and appear to be long-term in nature by
adjusting its menu pricing or changing our product delivery strategy. However,
increases in commodity prices could result in lower restaurant-level operating
margins.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(1) Index to Consolidated Financial Statements:

Page
----

Independent Auditors' Report........................................ 26

Consolidated Balance Sheets--December 31, 2001 and January 1, 2001.. 27

Consolidated Statements of Operations and Comprehensive Income--
Years ended December 31, 2001, January 1, 2001 and January 3,
2000............................................................... 28

Consolidated Statements of Stockholders' Equity--Years ended
December 31, 2001, January 1, 2001 and January 3, 2000............. 29

Consolidated Statements of Cash Flows--Years ended December 31,
2001, January 1, 2001 and January 3, 2000.......................... 30

Notes to Consolidated Financial Statements.......................... 31

Independent Auditors' Report
The Board of Directors and Stockholders
Checkers Drive-In Restaurants, Inc.:

We have audited the accompanying consolidated balance sheets of Checkers
Drive-In Restaurants, Inc. and subsidiaries as of December 31, 2001 and January
1, 2001, and the related consolidated statements of operations and
comprehensive income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Checkers
Drive-In Restaurants, Inc. and subsidiaries as of December 31, 2001 and January
1, 2001, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.

/s/ KPMG LLP
Tampa, Florida
March 5, 2002

CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

December 31, January
2001 1, 2001
------------ --------

Current Assets:
Cash and cash equivalents............................... $ 7,159 $ 923
Restricted cash......................................... 3,482 1,847
Accounts, notes and leases receivable, net.............. 3,420 4,666
Inventory............................................... 1,122 996
Prepaid expenses and other current assets............... 2,337 2,189
Property and equipment held for sale.................... 3,230 8,774
-------- --------
Total current assets.................................. 20,750 19,395
Property and equipment, net............................. 49,136 42,522
Notes receivable, net--less current portion............. 3,527 4,610
Lease receivable, net--less current portion............. 6,669 8,957
Intangible assets, net.................................. 45,189 48,341
Other assets, net....................................... 1,989 2,173
-------- --------
$127,260 $125,998
======== ========
Current Liabilities:
Current maturities of long-term debt and obligations
under capital leases................................... $ 4,743 $ 9,362
Accounts payable........................................ 6,645 7,374
Reserves for restaurant relocations and abandoned
sites.................................................. 1,879 1,722
Accrued wages and benefits.............................. 2,271 1,523
Accrued liabilities..................................... 7,686 8,404
-------- --------
Total current liabilities............................. 23,224 28,385
Long-term debt, less current maturities................. 25,192 24,909
Obligations under capital leases, less current
maturities............................................. 6,981 6,267
Long-term reserves for restaurant relocations and
abandoned sites........................................ 2,549 3,596
Minority interests in joint ventures.................... 312 532
Deferred revenue........................................ 5,440 7,174
Other long-term liabilities............................. 3,938 4,201
-------- --------
Total liabilities..................................... 67,636 75,064

Stockholders' Equity:
Preferred stock, $.001 par value, authorized 2,000,000
shares, none issued at December 31, 2001 and January 1,
2001................................................... -- --
Common stock, $.001 par value, authorized 175,000,000
shares, issued 10,914,727 at December 31, 2001 and
9,653,623 at January 1, 2001........................... 11 10
Additional paid-in capital.............................. 143,004 138,650
Accumulated deficit..................................... (82,891) (87,226)
-------- --------
60,124 51,434
Less: Treasury stock, 48,242 at December 31, 2001 and at
January 1, 2001, at cost............................... (400) (400)
Note receivable--officer.............................. (100) (100)
-------- --------
Total stockholders' equity............................ 59,624 50,934
-------- --------
$127,260 $125,998
======== ========

See accompanying notes to the consolidated financial statements

CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)

Fiscal Year Ended
-------------------------------
December 31, January January
2001 1, 2001 3, 2000
------------ -------- --------

REVENUES:
Restaurant sales............................. $145,442 $162,804 $192,340
Franchise royalty revenue.................... 15,457 14,377 7,071
Franchise fees and other income.............. 713 4,009 2,424
-------- -------- --------
Total revenues............................. $161,612 $181,190 $201,835
COSTS AND EXPENSES:
Restaurant food and paper costs.............. 47,422 51,360 60,112
Restaurant labor costs....................... 46,873 53,819 62,403
Restaurant occupancy expense................. 11,771 10,452 9,491
Restaurant depreciation and amortization..... 4,472 4,307 7,745
Other restaurant operating expenses.......... 18,740 19,709 20,832
General and administrative expenses.......... 11,730 14,576 16,345
Advertising.................................. 8,098 10,351 11,755
Bad debt expense............................. 819 642 1,879
Non-cash compensation........................ 100 1,733 --
Other depreciation and amortization.......... 3,398 5,235 5,358
Impairment of long-lived assets.............. 1,170 629 22,271
Loss from restaurant closures................ 573 633 3,780
Gain on sales of assets...................... (985) (307) (2,616)
-------- -------- --------
Total costs and expenses................... $154,181 $173,139 $219,355
-------- -------- --------
Operating income (loss).................... 7,431 8,051 (17,520)
OTHER INCOME (EXPENSE):
Interest income.............................. 1,851 679 779
Interest expense (including interest-loan
cost and bond discount amortization)........ (4,821) (6,609) (8,648)
Loss on investment in affiliate.............. -- -- (1,379)
-------- -------- --------
Income (loss) before minority interest,
income taxes, and extraordinary item....... 4,461 2,121 (26,768)
Minority interest in operations of joint
ventures.................................... (64) (25) 31
-------- -------- --------
Income (loss) before income taxes and
extraordinary item......................... 4,397 2,096 (26,737)
Income tax expense (benefit)................. 62 (475) --
-------- -------- --------
Net income (loss) from continuing operations
before extraordinary item.................. 4,335 2,571 (26,737)
Extraordinary gains (losses)--net of income
taxes....................................... -- (229) 849
-------- -------- --------
NET INCOME (LOSS)........................... $ 4,335 $ 2,342 $(25,888)
======== ======== ========
COMPREHENSIVE INCOME (LOSS)................. $ 4,335 $ 2,342 $(25,888)
======== ======== ========
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item... $ 0.43 $ 0.27 $ (4.02)
Extraordinary item.......................... -- (0.02) 0.13
======== ======== ========
Net earnings (loss)......................... $ 0.43 $ 0.25 $ (3.89)
======== ======== ========
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary item... $ 0.36 $ 0.25 $ (4.02)
Extraordinary item.......................... -- (0.02) 0.13
======== ======== ========
Net earnings (loss)......................... $ 0.36 $ 0.23 $ (3.89)
======== ======== ========
Weighted average number of common shares
outstanding:
Basic....................................... 10,139 9,419 6,657
======== ======== ========
Diluted..................................... 11,908 10,194 6,657
======== ======== ========

See accompanying notes to the consolidated financial statements

CHECKERS DRIVE-IN RESTAURANTS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)

Note Additional
Common Preferred Treasury receivable-- paid-in Accumulated Total
stock stock stock officer capital deficit equity
------ --------- -------- ------------ ---------- ----------- --------

Balances at December 28,
1998................... $ 5 $-- $(2,108) $ -- $100,302 $(63,680) $ 34,519
Merger of Checkers &
Rally's................ 4 -- 1,708 -- 36,320 -- 38,032
Net loss................ -- -- -- -- -- (25,888) (25,888)
--- ---- ------- ----- -------- -------- --------
Balances at January 3,
2000................... $ 9 $-- $ (400) $ -- $136,622 $(89,568) $ 46,663
Non-cash compensation... -- -- -- -- 1,733 -- 1,733
Exercise of 191,991
stock options.......... 1 -- -- (100) 294 -- 195
Exercise of 1,140,640
stock warrants......... -- -- -- -- 1 -- 1
Net income.............. -- -- -- -- -- 2,342 2,342
--- ---- ------- ----- -------- -------- --------
Balances at January 1,
2001................... $10 $-- $ (400) $(100) $138,650 $(87,226) $ 50,934
Non-cash compensation... -- -- -- -- 100 -- 100
Exercise of 583,480
stock options.......... -- -- -- -- 1,309 -- 1,309
Exercise of 2,367,029
stock warrants......... 1 -- -- -- 2,945 -- 2,946
Net income.............. -- -- -- -- -- 4,335 4,335
--- ---- ------- ----- -------- -------- --------
Balances at December 31,
2001................... $11 $-- $ (400) $(100) $143,004 $(82,891) $ 59,624
=== ==== ======= ===== ======== ======== ========

See accompanying notes to the consolidated financial statements

CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Fiscal Year Ended
----------------------------------
December 31, January 1, January 3,
2001 2001 2000
------------ ---------- ----------

Cash flows from operating activities:
Net income (loss).......................... $ 4,335 $ 2,342 $(25,888)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............. 7,870 9,542 13,103
Amortization of bond discounts and
deferred loan and bond costs............. 369 304 466
Impairment of long-lived assets........... 1,170 1,562 22,271
Extraordinary loss (gain)................. -- 229 (849)
Provisions for bad debt................... 819 642 1,879
Non-cash compensation..................... 100 1,733 --
Loss, net of amortization, on investment
in affiliate............................. -- -- 1,379
Gain on sale of assets.................... (985) (307) (2,616)
Minority interests in operations of joint
ventures................................. 64 25 (31)
Changes in assets and liabilities:
Decrease (increase) in receivables........ 463 (2,115) (31)
Decrease (increase) in notes and leases
receivable............................... 47 (3,791) --
(Increase) decrease in inventory.......... (209) 740 1,447
Decrease (increase) in prepaid expenses
and other current assets................. (148) 417 (2,114)
(Increase) Decrease in other assets....... (149) 429 1,360
Decrease in accounts payable.............. (947) (1,300) (281)
Increase (decrease) in accrued
liabilities.............................. 3,219 (9,143) 2,686
------- -------- --------
Net cash provided by operating
activities............................... $16,018 $ 1,309 $ 12,781
------- -------- --------
Cash flows from investing activities:
Capital expenditures....................... (4,915) (1,919) (7,173)
Acquisitions of restaurants................ (1,357) -- (142)
Merger, net of cash acquired of $1,461..... -- -- (434)
Decrease (increase) in investments......... -- 2,193 (2,146)
Proceeds from sales leaseback.............. -- -- 3,530
Proceeds from sale of property and
equipment................................. 642 33,200 16,728
------- -------- --------
Net cash (used in) provided by investing
activities............................... $(5,630) $ 33,474 $ 10,363
------- -------- --------
Cash flows from financing activities:
Decrease (increase) in restricted cash..... (1,635) 3,511 (612)
Repayments of senior notes................. -- (45,601) (9,120)
Proceeds from exercise of stock options and
warrants.................................. 4,255 196 --
Proceeds from issuance of long-term debt... 580 35,020 --
Deferred loan costs incurred............... (36) (1,929) --
Principal payments on long-term debt....... (7,246) (29,400) (13,627)
Distributions to minority interests........ (70) (28) (15)
------- -------- --------
Net cash used in financing activities..... $(4,152) $(38,231) $(23,374)
------- -------- --------
Net increase (decrease) in cash........... 6,236 (3,448) (230)
Cash at beginning of period................ 923 4,371 4,601
------- -------- --------
Cash at end of period...................... $ 7,159 $ 923 $ 4,371
======= ======== ========

See accompanying notes to the consolidated financial statements

CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)

Note 1: Summary of Significant Accounting Policies

a) Basis of Presentation--The accompanying consolidated financial statements
include the accounts of Checkers Drive-In Restaurants, Inc. and its wholly-
owned subsidiaries, collectively referred to as "the Company."

On August 9, 1999, Checkers Drive-In Restaurants, Inc. ("Checkers") merged
with Rally's Hamburgers, Inc. ("Rally's"). The merger was accounted for as a
reverse acquisition whereby Rally's was treated as the acquirer and Checkers as
the acquiree, as the former shareholders of Rally's owned a majority of the
outstanding common stock of Checkers subsequent to the merger ("Merger"). The
fair value of Checkers was based on the average per share value of Checkers'
common stock which was $0.531 per share near January 29, 1999, the date the
Merger agreement was signed. Additionally, since the Company assumed the stock
options and warrants outstanding of Checkers, the fair value of these options
and warrants was included in determining the valuation of Checkers (see Note 3:
Merger). The 1999 financial information includes the financial results of
Rally's for the entire year and the financial results of Checkers for the
period from August 9, 1999 to January 3, 2000. The 2001 and 2000 financial
information includes both Rally's and Checkers for the full year.

The accounts of the joint ventures have been included with those of the
Company in the accompanying consolidated financial statements. All significant
intercompany accounts and transactions have been eliminated and minority
interests have been established for the outside partners' interests.

The Company reports on a fiscal year, which ends on the Monday closest to
December 31st. Each quarter consists of three 4-week periods, with the
exception of the fourth quarter, which consists of four 4-week periods. Our
1999 fiscal year included a 53rd week, thereby increasing the fourth quarter to
seventeen weeks.

b) Purpose and Organization--Our principal business is the operation and
franchising of Checkers and Rally's restaurants. At December 31, 2001, there
were 404 Rally's restaurants operating in 17 different states and there were
417 Checkers restaurants operating in 22 different states, the District of
Columbia, Puerto Rico and the West Bank in the Middle East. Of those
restaurants, 235 were Company operated (including 3 joint venture restaurants)
and 586 were operated by franchisees.

c) New Accounting Pronouncements--In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) 141,
Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets. SFAS
141 requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting. It also specifies the
types of acquired intangible assets that are required to be recognized and
reported separately from goodwill. SFAS 142 will require that goodwill and
certain intangibles no longer be amortized, but instead tested for impairment
at least annually. SFAS 142 is required to be applied starting with fiscal
years beginning after December 15, 2001, with early application permitted in
certain circumstances.

The Company adopted SFAS 142 on January 1, 2002, and does not expect any
impairment of goodwill upon adoption. Goodwill amortization was $1,376,765 in
fiscal 2001 and 2000.

In August of 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) 144--Accounting for Impairment or
Disposal of Long-lived Assets. SFAS 144 establishes methods of accounting and
reporting for the impairment of long-lived assets other than goodwill and
intangible assets not being amortized. The Company is currently reviewing this
statement and the impact of its adoption on its financial position, results of
operations and cash flows. The Company will implement SFAS 144 beginning in the
first quarter of its fiscal year ending December 30, 2002.

d) Cash and Cash Equivalents--We consider all highly liquid instruments
purchased with a maturity of less than three months to be cash equivalents.
Restricted cash consists of cash on deposit with various financial institutions
as collateral to support the Company's obligations to certain states for
potential workers' compensation claims. This cash is not available for the
Company's use until such time that the respective states permit its release.

e) Receivables--Receivables consist primarily of royalties, franchise fees,
notes due from franchisees, and advances to one of the Company's advertising
funds which provides broadcast creative production for use by Rally's corporate
and franchise restaurants. A rollforward of the allowance for doubtful
receivables is as follows:

Additions
--------------------- Deductions
Balance at Charged to Charged to Charged to
Beginning Costs and Other Other Balance at
Description of year Expenses Accounts Accounts End of Year
----------- ---------- ---------- ---------- ---------- -----------

Year Ended January 3,
2000
Accounts Receivable.... $ 643 $1,702 $1,722 $ 169 $3,898
Notes Receivable....... 325 177 789 -- 1,291
------ ------ ------ ------ ------
$ 968 $1,879 $2,511 $ 169 $5,189
====== ====== ====== ====== ======
Year Ended January 1,
2001
Accounts Receivable.... $3,898 $ (517) $ -- $ 167 $3,214
Notes Receivable....... 1,291 1,159 -- -- 2,450
------ ------ ------ ------ ------
$5,189 $ 642 $ -- $ 167 $5,664
====== ====== ====== ====== ======
Year Ended December 31,
2001
Accounts Receivable.... $3,214 $ 618 $ 12 $ 274 $3,570
Notes Receivable....... 2,450 201 273 1,838 1,086
------ ------ ------ ------ ------
$5,664 $ 819 $ 285 $2,112 $4,656
====== ====== ====== ====== ======

f) Inventory--Inventory, which consists principally of food and supplies are
stated at the lower of cost (first-in, first-out (FIFO) method) or market.

g) Property and Equipment--Property and equipment are stated at cost. Assets
under capital leases are stated at their fair value at the inception of the
lease. Depreciation and amortization are computed on straight-line method over
the estimated useful lives of the assets. Property and equipment held for sale
includes excess restaurant facilities and land and is recorded at its estimated
fair market value. The aggregate carrying value of property and equipment held
for sale is periodically reviewed and adjusted downward to market value, when
appropriate. Property and equipment are depreciated using the straight-line
method for financial reporting purposes and accelerated methods for income tax
purposes. Expenditures for major renewals and betterments are capitalized.
Maintenance and repairs are expensed as incurred.

h) Valuation of Long-Lived and Intangible Assets and Goodwill--We assess the
impairment of long-lived, identifiable intangible assets and related goodwill
and enterprise level goodwill whenever events or changes in

circumstances indicate that the carrying value may not be recoverable. Factors
we consider important which could trigger an impairment review include the
following:

. significant underperformance relative to expected historical or
projected future operating results;
. significant negative industry or economic trends;
. significant decline in our stock price for a sustained period; and
. our market capitalization relative to net book value.

We account for long-lived assets under Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" (SFAS 121) which requires the write-down
of certain intangibles and tangible property associated with under performing
sites. In applying SFAS No. 121, we reviewed all restaurants that recorded
losses in the applicable fiscal years and performed a discounted cash flow
analysis where indicated for each restaurant based upon such results projected
over a five to fifteen year period. This period of time was selected based upon
the lease term and the age of the building, which we believe is appropriate.
Impairments or recoveries are recorded to adjust the asset values to the amount
recoverable under the discounted cash flow analysis, in accordance with SFAS
No. 121. The effect of applying SFAS No. 121 resulted in a reduction of
property, equipment and intangible assets of approximately $1.2 million in
2001, $0.6 million in 2000, $22.3 million in 1999.

In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" became effective and as a result, we
will cease to amortize approximately $24 million of goodwill and $17.5 million
for the intangible value of our tradename. We recorded approximately $2.4
million of amortization on these amounts during 2001 and would have recorded
approximately $2.4 million of amortization during 2002. In lieu of
amortization, we are required to perform an initial impairment review of our
goodwill in 2002, and an annual impairment review thereafter. We expect to
complete our initial review during the first quarter of 2002. In addition, we
will assess the value of the tradename in accordance with SFAS No. 121.

Intangible assets consists of the following and are being amortized using
the straight-line method over the following periods:

December 31, 2001 January 1, 2001
------------------------ ------------------------
Gross Accum Gross Accum Estimated
Amount Amort Net Amount Amort Net Lives
------- ------- ------- ------- ------- ------- -----------

Goodwill................ $27,535 $(3,283) $24,252 $27,535 $(1,906) $25,629 20 years
Tradename............... 19,923 (2,375) $17,548 19,923 (1,379) $18,544 20 years
Reacquired franchise
rights................. 1,359 (358) $ 1,001 2,772 (1,437) $ 1,335 1-11 years
Other intangibles....... 4,191 (1,803) $ 2,388 4,679 (1,846) $ 2,833 10-25 years
------- ------- ------- ------- ------- -------
Total intangible
assets............... $53,008 $(7,819) $45,189 $54,909 $(6,568) $48,341
======= ======= ======= ======= ======= =======

i) Deferred Loan Costs--Deferred loan costs incurred in connection with the
Company's primary debt facility with Textron Financial Corporation (Textron)
and mortgages payable to FFCA Acquisition Corporation are amortized on the
effective interest method over the life of the related debt. During fiscal
2000, $14.9 million of Textron debt (Loan C) was repaid. A loss on early
extinguishment of debt of $490,000 was recorded related to the writeoff of
unamortized deferred loan costs associated with this loan.

j) Revenue Recognition--Franchise fees and area development franchise fees
are generated from the sale of rights to develop, own and operate restaurants.
Such fees are based on the number of potential restaurants in a specific area
which the franchisee agrees to develop pursuant to the terms of the franchise
agreement between

the Company and the franchisee and are recognized as income on a pro rata basis
when substantially all of the Company's obligations per location are satisfied,
(generally at the opening of the restaurant). Franchise fees are nonrefundable.
Franchise fees and area development franchise fees received prior to
substantial completion of the Company's obligations are deferred. The Company
receives royalty fees from franchisees based on a percentage of each
restaurant's gross revenues. Royalty fees are recognized as earned.

k) Stock-Based Compensation--We have chosen to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees, and
related interpretations (APB No. 25). We account for stock-based compensation
to non-employees using the fair value method prescribed by Statement of
Financial Accounting Standards (SFAS) No. 123. Accordingly, compensation costs
for stock options granted to employees are measured as the excess, if any, of
the value of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. Compensation cost for stock options
granted to non-employees is measured as the fair value of the option at the
date of grant. Such compensation costs, if any, are amortized on a straight
line basis over the underlying option vesting terms.

l) Income Taxes--We account for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
the asset or liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

m) Earnings (Loss) Per Common Share--We calculate basic and diluted earnings
(loss) per share in accordance with Statement of Financial Accounting Standards
No. 128, "Earnings per Share". Although Checkers is the surviving legal entity
after the Merger, for accounting purposes the Merger was treated as a reverse
acquisition of Checkers by Rally's. Therefore, only the historical net income
(loss) of Rally's is included in the historical financial results of the
Company for all periods prior to the Merger. The weighted average number of
common shares outstanding has been adjusted for all periods to reflect for the
exchange ratio of 1.99 to 1 and the one-for-twelve reverse split that occurred
on August 9, 1999.

n) Supplemental Disclosures of Cash Flow Information

Fiscal Year Ended
----------------------------------
December 31, January 1, January 3,
2001 2001 2000
------------ ---------- ----------

Interest paid......................... $4,803 $7,039 $ 7,862
Income taxes paid..................... $ 286 $ 104 $ 165
Capital lease obligations incurred.... $3,030 $ -- $ 2,750
Fair value of net assets acquired in
the Merger........................... $ -- $ -- $24,247

During fiscal 2001, we acquired 37 restaurants from former franchisees.
During fiscal 1999, we acquired three restaurants from a former franchisee. No
acquisitions were made in 2000. These acquisitions were recorded as follows:

Fiscal Year Ended
----------------------------------
December 31, January 1, January 3,
2001 2001 2000
------------ ---------- ----------

Fair value of assets acquired........... $1,415 $-- $ 907
Receivables forgiven.................... (34) -- --
Liabilities assumed..................... (24) -- --
Issuance of note payable................ -- -- (765)
------ ---- -----
Cash paid............................... $1,357 $-- $ 142
====== ==== =====

In conjunction with the sale of markets in fiscal 2001, 2000 and 1999, the
Company accepted notes of approximately $2.2 million, $3.4 million and $1.0
million, respectively, with maturities through December 2010. The $2.2 million
note accepted in 2001 was exchanged in January of 2002 for the related
restaurants originally sold. In addition, capital lease obligations receivable
were assumed by the purchasers for approximately $9.4 million. These capital
lease obligations have maturities through January 2019.

o) Disclosures about Fair Values of Financial Instruments--The balance
sheets as of December 31, 2001 and January 1, 2001 reflect the fair value
amounts which have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment is required
in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. The carrying amounts of
cash and cash equivalents, investments, receivables, accounts payable, and
long-term debt are a reasonable estimate of their fair value, based upon their
short maturity or quoted market prices. Interest rates that are currently
available to the Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value for debt issues that are not quoted
on an exchange. The fair value of Senior Notes was $45.8 million at January 3,
2000, based on quoted market prices.

p) Segment Reporting--As of December 31, 2001, the Company operated 235
Checkers Drive-In and Rally's Hamburgers restaurants in the United States as
part of a single operating segment. The restaurants operate within the quick-
service restaurant industry, providing similar products to similar customers.
The restaurants also possess similar long-term expected financial performance
characteristics. Revenues from Company-owned restaurants are derived
principally from food and beverage sales.

q) Use of Estimates--The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Certain of the more significant estimates include reserves for restaurant
relocations and abandoned sites and allowances for doubtful accounts.

r) Reclassifications--Certain items in the 2000 and 1999 consolidated
financial statements have been reclassified to conform with the 2001
presentation.

Note 2: Liquidity and Capital Resources

are limited to a three-to-five day supply to assure freshness. We do not have
significant levels of accounts receivable or inventory, and receive credit from
our trade suppliers. Funds available from cash sales not needed immediately to
pay our trade suppliers are used for non-current capital expenditures.

We have working capital deficit of $2.5 million at December 31, 2001 as
compared to $9.0 million at January 1, 2001. The decrease in the deficit is
primarily due to the repayment of $2.0 million of the Textron note payable
(Loan B), operating profits for the year of $4.3 million, and additional
capital contributions of $4.3 million from the exercise of options and warrants
into 1,261,104 shares of common stock.

Although there can be no assurance, we believe that our existing cash at
December 31, 2001, the cash provided from operations, and the available $2.8
million line of credit through June 15, 2002 will be sufficient to meet our
working capital and capital expenditure requirements for the next 12 months.

Note 3: Merger

On August 9, 1999, Checkers completed its acquisition of Rally's (the
"Merger"). The Merger transaction was accounted for under the purchase method
of accounting and was treated as a reverse step acquisition as the stockholders
of Rally's received the larger portion (51.8%) of the voting interests in the
combined Company and Rally's previously owned 26.06% of Checkers. Accordingly,
Rally's was considered the acquirer for accounting purposes and recorded
Checkers' assets and liabilities based upon their fair market values. The
operating results of Checkers' have been included in the accompanying
consolidated financial statements from the date of acquisition. The excess of
the purchase price over the estimated fair value of net assets acquired was
approximately $27 million, including $11.5 million relating to Rally's original
investment in Checkers, and is being amortized over 20 years using the
straight-line method. Beginning January 1, 2002, we will adopt SFAS 142 and
discontinue amortizing the goodwill associated with the Merger.

The estimated fair value of assets acquired, liabilities assumed and
resulting goodwill relating to the Merger, is summarized below:

(In thousands)

Purchase price (including direct costs).......... $40,068
Property and equipment held for sale............. $13,175
Current assets................................... 6,872
Property and equipment........................... 43,955
Trade name....................................... 19,923
Other assets..................................... 711
-------
Total assets................................... $ 84,636
Total liabilities assumed........................ (51,870)
--------
Net assets acquired.............................. 32,766
Adjustment for Rally's original investment in
Checkers........................................ (8,519)
--------
Net assets acquired as adjusted for initial
investment...................................... $24,247
-------
Goodwill resulting from Merger................... $15,821
Goodwill resulting from Rally's original
investment in Checkers.......................... 11,476
-------
Total goodwill................................... $27,297
=======

Note 4: Other Acquisitions

On January 17, 2001, the Company reacquired 10 Rally's Hamburgers and 17
Checkers Drive-In Restaurants previously sold to a franchisee by assuming the
liabilities related to the restaurants. The 17 Checkers Drive-In Restaurants
were then resold to another franchisee, and later reacquired subsequent to
December 31, 2001.

On July 30, 2001, the Company acquired eight Checkers Drive-In Restaurants
in Macon, Georgia from a franchisee for a purchase price of $1,055,000 cash.

On April 26, 1999, the Company acquired substantially all the operating
assets (excluding real property) of Memphis Development, Inc. ("MDI"), a former
franchisee of three Rally's restaurants in Memphis, Tennessee, for
approximately $900,000. Of the total purchase price, the Company paid
approximately $135,000 in cash, and for the remaining $765,000, issued a five
year promissory note bearing an initial interest rate of 7.75%. The interest
rate is variable and is predetermined on an annual basis at prime plus 1%. The
Company entered into ten-year leases with MDI for the underlying real property
on which each of the three restaurants is situated. The acquisition of the
assets from MDI was accounted for as a purchase. The Company believes that the
$900,000 purchase price represents the fair value of the assets acquired.

Note 5: Accounting Charges & Loss Provisions

Certain charges in fiscal years 2001, 2000 and 1999 have been referred to as
impairment of long-lived assets. These items represent estimates of the impact
of management decisions, which have been made at various points in time in
response to the Company's sales and profit performance, and the then-current
revenue and profit strategies.

During 2001, impairment charges of approximately $1.2 million were
recognized relating to the closing of two Company-owned restaurants, the
closing of twelve franchised restaurants with associated intangibles, and
eleven under-performing Company-owned restaurants.

During 2000, impairment charges of approximately $0.6 million were
recognized relating to the closing of six Company-owned restaurants, the
closing of two franchised restaurants with associated intangibles, and one
under-performing Company-owned restaurant.

During the last quarter of 1999, the Company placed certain markets for sale
in accordance with its plan to meet its short-term debt requirements. At the
end of 1999, 5 major Rally's markets were written down to their estimated fair
market values, based on purchase prices that were expected to be received
during the first half of fiscal year 2000. The Company recorded an approximate
$13 million impairment charge relating to property and equipment and
intangibles assets associated with these expected market sales. Accordingly,
$22.8 million of property and equipment was reclassified to "Property and
equipment held for sale" in the accompanying consolidated balance sheet. In
addition, in connection with the Merger with Checkers, the Company planned to
sell 3 existing Checkers' markets. As these assets were recorded at their
estimated fair market value in accordance with purchase accounting, the impact
of these adjustments were reflected in purchase accounting.

During 1999, impairment charges of approximately $7.7 million were
recognized relating to thirty-one under-performing restaurants. Additionally,
the Company closed twenty-eight restaurants and recorded net provisions for
future occupancy costs of approximately $385,000. In addition, as a result of
the Merger, the Company recognized $1.2 million relating to a decline in the
fair market value of Rally's initial investment in Checkers.

The following table summarizes the components of the provision for
restaurant closures and other provisions, as well as the year end balances of
certain related reserves.

Balance at Additions Balance
Beginning Charged Cash Other at End
Description of Year to Expense Outlays Changes of Year
----------- ---------- ---------- ------- -------- -------

Year ended December 31, 2001
Impairment of long-lived
assets...................... $ -- $ 1,170 $ -- $ (1,170) $ --
Accrual for closed restaurant
expenses presented as loss
from restaurant closures.... 5,318 573 (1,464) -- 4,427
------ ------- ------- -------- ------
$5,318 $ 1,743 $(1,464) $ (1,170) $4,427
====== ======= ======= ======== ======
Year ended January 1, 2001
Impairment of long-lived
assets...................... $ -- $ 629 $ -- $ (629) $ --
Accrual for closed restaurant
expenses presented as loss
from restaurant closures.... 7,093 633 (2,408) -- 5,318
------ ------- ------- -------- ------
$7,093 $ 1,262 $(2,408) $ (629) $5,318
====== ======= ======= ======== ======
Year ended January 3, 2000
Impairment of long-lived
assets...................... $ -- $22,271 $ -- $(22,271) $ --
Accrual for closed restaurant
expenses presented as loss
from restaurant closures.... 5,423 3,780 (3,766) 1,656 7,093
------ ------- ------- -------- ------
$5,423 $26,051 $(3,766) $(20,615) $7,093
====== ======= ======= ======== ======

As a result of the Merger, the Company assumed approximately $1.3 million
relating to reserves for future lease obligations, which is reflected in 1999
"Other Changes" shown in the above table. The ending balance each year in the
reserves for restaurant relocations and abandoned sites consists of our
estimates for the ongoing costs of each location which has been closed or was
never developed. Those costs include rent, property taxes, maintenance,
utilities and in some cases the cost to relocate the modular restaurant to a
storage facility. The cash outlays for these costs have been estimated for
various terms ranging from three months to 9 years.

Note 6: Related Party Transactions

a) Management Services Agreement--Effective November 30, 1997, Checkers and
Rally's entered into a Management Services Agreement ("Agreement") whereby
Checkers provided accounting, technology, and other functional and management
services to predominantly all of the operations of Rally's. Checkers received
fees from Rally's relative to the shared departmental costs times the
respective restaurant ratio. Upon completion of the Merger, this Agreement was
terminated. During the period from December 29, 1998 through August 9, 1999,
Checkers charged Rally's $4.7 million.

b) Issuance of Warrants--On November 22, 1996, the Company issued warrants
("Restructuring Warrants") for the purchase of 20 million shares of the
Company's Common Stock. The Restructuring Warrants were issued to the members
of a lending group in connection with a restructuring of the Company's primary
credit facility. The lending group included CKE Restaurants, Inc., KCC
Delaware, a wholly owned subsidiary of GIANT Group, LTD., Fidelity National
Financial, Inc., William P. Foley, II and Burt Sugarman. The Restructuring
Warrants were valued at $6.5 million, which was the value of the concessions
given as consideration by the lending group. After giving effect to the one-
for-twelve reverse stock split, the Restructuring Warrants permit the
acquisition of 1,666,667 shares of the Company's Common Stock. The
Restructuring Warrants were exercisable upon issuance and remain exercisable
until November 22, 2002. The exercise price of each Restructuring Warrant was
originally $0.75, which was the approximate market price of the common stock of
Checkers prior to the announcement of the transfer and restructuring of the
debt. After giving effect to a September 20, 1999 re-pricing by the Company,
the current exercise price of each

Restructuring Warrant is $0.25. Due to the one-for-twelve reverse stock split,
twelve warrants must be exercised to acquire one share of the Company's common
stock for an aggregated purchase price of $3.00 per share. During fiscal 2001
and 2000, 1,139,602 and 1,139,592 of these warrants were exercised,
respectively.

c) West Coast Operating Agreement--On July 1, 1996, the Company entered into
a ten-year operating agreement with Carl Karcher Enterprises, Inc., the
subsidiary of CKE that operates the Carl's Jr. restaurant chain. Pursuant to
the agreement, CKE began operating 29 Rally's owned restaurants located in
California and Arizona, two of which were converted to a Carl's Jr. format.
Including closures from prior periods, there were 23 remaining restaurants as
of July 2, 2001 operating under the agreement when we repossessed all but the
two operating as Carl's Jr. in accordance with the terms of the original
operating agreement. The original agreement was cancelable after an initial
five-year period, or July 1, 2001, at the discretion of CKE. The agreement was
approved by a majority of the independent Directors of the Company. Prior to
the agreement, the Company's independent Directors had received an opinion as
to the fairness of the agreement, from a financial point of view, from an
investment banking firm of national standing. Under the terms of the operating
agreement, CKE was responsible for any conversion costs associated with
transforming restaurants to the Carl's Jr. format, as well as the operating
expenses of all the restaurants. The Company had retained ownership of all the
restaurants, two of which were Carl's Jrs. and was entitled to receive a
percentage of gross revenues generated by each restaurant.

d) Other Transactions--The Company also has had transactions with certain
companies or individuals, which are, related parties by virtue of having
stockholders in common, by being officers/directors or because they are
controlled by significant stockholders or officers/directors of the Company.

The Company and its franchisees each pay a percentage of sales to the
Rally's National Advertising Fund and the Checkers National Production Fund
(the "Funds"), established for the purpose of creating and producing
advertising for the chain. The Funds are not included in the consolidated
financial statements, although the Company's contributions to the Funds are
included in the advertising expenses in the consolidated statements of
operations. Additionally, certain Company operated restaurants and franchises
participate in co-ops, which are accounted for similarly to the Funds.

During 2000, additional options were granted to members of the Board of
Directors and shared executives at an exercise price below the market price of
the common stock. Accordingly, non-cash compensation expense of $1.2 million
and $0.5 million was recorded for members of the Board of Directors and shared
executives, respectively.

Pursuant to our current employment agreement with Mr. Dorsch, the Company
accepted a $100,000 note on December 14, 2000 in connection with the exercise
of 100,000 stock options. The Company will receive 3 equal annual payments on
January 1, beginning in 2002. Interest on the unpaid principal portion
accumulates at a rate of 5% per annum.

During fiscal 1999, we entered into four lease agreements, which have been
recorded as capital lease obligations, with Granite Financial Inc., a wholly-
owned subsidiary of Fidelity National Financial, Inc., whereby we purchased
security equipment for our restaurants valued at $651,346. The lease agreements
are payable monthly ranging from $3,065 to $10,785, including effective
interest ranging from 13.381% to 14.04%. All of the leases have terms of 3
years.

During 2001, 2000, and 1999, we incurred $45,000, $457,000, and $803,000,
respectively in legal fees from a law firm for which a Director of the Company
is a partner.

Beginning in September 1999 the Company engaged Peter O'Hara, one of its
current Directors, to provide consulting services at a monthly fee of $10,000.
Fees for fiscal 2000 and 1999 totaled $60,000 and $40,000, respectively. Mr.
O'Hara discontinued these services in June 2000.

We also shared certain officers and directors with Santa Barbara Restaurant
Group, Inc. (Santa Barbara) from 1999 through September 2000. In accordance
with that agreement, we paid $274,338 and $104,408 for 2000 and 1999,
respectively, to Santa Barbara for salary payments made on our behalf. During
2001, Mr. Maggard was a member of the Board of Directors of both Santa Barbara
and Checkers Drive-In Restaurants, Inc. During 2000, Mr. Foley was the Chairman
of the Board of Directors for both Santa Barbara and Checkers Drive-In
Restaurants, Inc.

During fiscal 2001 and 2000, former shared executives exercised 109,916 and
90,000 stock options, respectively.

Summary of Related Party Transactions (in thousands):

Fiscal Year Ended
-----------------------
December 31, January 1,
2001 2001
------------ ----------

Balance Sheet Amounts
Accounts receivable................................ $ 29 $ 435
Notes receivable................................... $781 $ 659
Accounts payable................................... $512 $ 343
Capital leases..................................... $143 $1,068

Fiscal Year Ended
----------------------------------
December 31, January 1, January 3,
2001 2001 2000
------------ ---------- ----------

Revenue and Transaction Amounts
Owner fee income........................ $333 $685 $689
Interest income......................... -- -- 141
---- ------ ------
$333 $685 $830
==== ====== ======

Fiscal Year Ended
----------------------------------
December 31, January 1, January 3,
2001 2001 2000
------------ ---------- ----------

Expense Amounts
Legal fees.............................. $ 45 $ 457 $ 803
Consulting fees......................... -- 60 40
Rent expense............................ -- -- 185
Interest expense........................ 86 399 878
Non-cash compensation................... -- 1,679 --
Shared officer expenses................. -- 274 104
Loss on investment in affiliate......... -- -- 1,379
Management Services Agreement........... -- -- 4,696
---- ------ ------
$131 $2,869 $8,085
==== ====== ======

Note 7: Lease Receivable

As a result of the sale of Company-owned restaurants in 1999 and 2000, we
have recorded capital lease receivables for those restaurants sold which are
subject to capital lease and mortgage obligations. The amount of capital lease
receivables as of December 31, 2001 was approximately $7.2 million. As of
December 31, 2001, we have deferred gains of $5.3 million from these sales
since we continue to be responsible for the payment of these obligations to the
original lessors and mortgagors. The gains are being recognized over the life
of the related capital leases. The deferred gains are included in the
consolidated balance sheet under the captions accrued liabilities-current and
deferred revenue for $0.5 million and $4.8 million, respectively.

We have subleased the property associated with the sale of Company-owned
restaurants under operating leases. The revenue from these subleases is offset
against rent expense, as we continue to be responsible for the rent payments to
the original lessors.

Following is a schedule, by year, of future minimum lease payments
receivable for operating leases at December 31, 2001:

Fiscal Year Ended
-----------------

2002............................................................. $ 7,087
2003............................................................. 6,107
2004............................................................. 5,129
2005............................................................. 4,480
2006............................................................. 4,224
Thereafter....................................................... 19,636
-------
Total.......................................................... $46,663
=======

Note 8: Property and Equipment, Net

Property and equipment consists of the following:

Estimated
December 31, January 1, Useful
2001 2001 Lives
------------ ---------- ----------

Land and improvements.................... $ 26,466 $ 27,702 0-15 years
Leasehold interest....................... 1,855 1,855 15 years
Building and leasehold improvements...... 24,644 25,334 5-39 years
Equipment, furniture and fixtures........ 38,063 31,179 3-15 years
-------- --------
91,028 86,070
Less accumulated depreciation............ (46,189) (45,517)
-------- --------
44,839 40,553
-------- --------
Property held under capital leases....... 5,879 2,863 3-20 years
Less accumulated amortization............ (1,582) (894)
-------- --------
4,297 1,969
-------- --------
Net property and equipment............... $ 49,136 $ 42,522
======== ========

Depreciation expense of property and equipment was approximately $5.1
million, $6.6 million and $10 million for the fiscal years 2001, 2000 and 1999,
respectively.

Note 9: Revolving Line of Credit

The Company has a revolving loan facility, under Loan B, with Textron
Financial Corporation that permits the Company to borrow up to 50% of
collateral pledged. The credit facility is available through June 15, 2002 with
an interest rate equal to LIBOR plus 4.5% (6.62% at December 31, 2001). Total
collateral pledged as of December 31, 2001 was approximately $5.7 million,
consisting primarily of property and equipment. There were no borrowings under
the loan facility as of December 31, 2001.

Note 10: Long-Term Debt and Obligations Under Capital Leases

Long-term debt and obligations under capital leases consist of the
following:

December 31, January 1,
2001 2001
------------ ----------

Note payable (Loan A) to Textron Financial Corporation
payable in 120 monthly installments, maturing July 1,
2010, including interest at LIBOR plus 3.7% (5.82% at
December 31, 2001) secured by property and
equipment............................................ $10,817 $11,662
Mortgages payable to FFCA Acquisition Corporation
secured by thirty-two Company-owned restaurants,
payable in 240 aggregate monthly installments of
$133,295, maturing January 1, 2019, including
interest at 9.5%..................................... 13,494 13,795
Note payable to Heller Financial secured by the
equipment at Company-owned restaurants, payable in 30
monthly installments of $153,712, maturing December
1, 2003, including interest at 14%................... 3,085 --
Obligations under capital leases, maturing at various
dates through December 1, 2019, secured by property
and equipment, bearing interest ranging from 7.3% to
10%. The leases are payable in monthly principal and
interest installments averaging $86,000.............. 3,445 7,694
Obligations under capital leases, maturing at various
dates through January 1, 2016, secured by property
and equipment, bearing interest ranging from 10.3% to
16.3%. The leases are payable in monthly principal
and interest installments averaging $182,000......... 5,013 --
Notes payable to former Rally's franchise owners for
acquisition of markets, secured by the related assets
acquired, with maturities through May 1, 2004,
bearing interest at 7.5% and 7.75%. The notes are
payable in monthly principal and interest
installments of $8,416 and $15,420................... 534 769
Other notes payable, maturing at various dates through
September 17, 2004, secured by property and
equipment, bearing interest ranging from 0% to 7.70%.
The notes are payable in monthly principal and
interest installments ranging from $452 to $18,095... 528 745
Revolving credit note payable (Loan B) to Textron
Financial Corporation payable on June 15, 2001.
Installment payments of interest only were due
monthly at 30%, secured by real estate, property and
equipment, and subordinate to Loan A. The balance has
been fully satisfied (See Note 9).................... -- 5,873
------- -------
Total long-term debt and obligations under capital
leases............................................... 36,916 40,538
Less current installments............................. (4,743) (9,362)
------- -------
Long-term debt, less current maturities............... $32,173 $31,176
======= =======

Although we continue to be obligated, approximately $7.2 million of the
mortgage and capital lease obligations noted above pass directly through to
franchisees as a result of Company-owned restaurant sales (See Note 7).

Aggregate maturities of long-term debt for each of the five succeeding years
are as follows:

Fiscal Year Ended
-----------------

2002............................................................. $ 3,265
2003............................................................. 2,368
2004............................................................. 537
2005............................................................. 441
2006............................................................. 485
Thereafter....................................................... 21,361
-------
$28,457
=======

The following are minimum lease payments that will have to be made in each
of the years indicated based upon capital leases in effect as of December 31,
2001:

Fiscal Year Ended
-----------------

2002............................................................ $ 2,371
2003............................................................ 1,890
2004............................................................ 1,537
2005............................................................ 1,136
2006............................................................ 829
Thereafter...................................................... 6,115
-------
Total minimum lease payments.................................... 13,878
Less amount representing interest............................... (5,420)
-------
Present value of minimum lease payments......................... $ 8,458
=======

As a result of the Merger, the Company assumed debt due to the CKE Group
under the Amended and Restated Credit Agreement (the "Restated Credit
Agreement"). The Restated Credit Agreement previously consolidated all of the
debt under the Checkers' loan agreement and the credit line into a single
obligation. This obligation was paid in full during 2000.

Also, as a result of the Merger, the Company assumed a mortgage financing
agreement with FFCA Acquisition Corporation ("FFCA"), which is collateralized
by 25 restaurants. This mortgage financing is payable monthly at $93,213,
including interest at 9.5% and has a term of 20 years. On December 18, 1998,
the Company entered into a $4.3 million mortgage transaction with FFCA
Acquisition Corporation ("FFCA") pursuant to which eight fee-owned properties
were mortgaged. The terms of the transaction include a stated interest rate of
9.5% on the unpaid balance over a 20-year term with monthly payments totaling
approximately $40,000.

On December 23, 1999, we completed a sales leaseback agreement with FFCA
involving nine properties for $3.5 million. As a result of this transaction, we
recorded a $2 million capital lease obligation, payable in monthly amounts
ranging from $1,134 to $5,409 with an interest rate of 10%. The leases have a
term of 20 years.

The Company leases various restaurant facilities, security equipment and a
corporate telephone system which are recorded as capital leases with effective
interest rates ranging from 7.0% to 16.03%.

Note 11: Income Taxes

Under the provisions of SFAS No. 109, the components of the net deferred
income tax assets and liabilities recognized in the Company's Consolidated
Balance Sheet at December 31, 2001 and January 3, 2000 were as follows (in
thousands):

December 31, January 1,
2001 2001
------------ ----------

Deferred tax assets:
Net operating loss carryforwards.................. $ 12,331 $ 13,376
Difference between book and tax basis of property,
equipment and intangibles........................ (105) 343
Accruals, reserves and other...................... 12,748 13,513
Alternative minimum tax and tax credit
carryforward..................................... 1,822 1,760
-------- --------
26,796 28,992
-------- --------
Less valuation allowance........................... (26,796) (28,992)
Net deferred tax assets............................ $ -- $ --
======== ========
Deferred tax liabilities........................... $ -- $ --
======== ========

As a result of the Merger in 1999, both companies experienced an ownership
change as defined by Internal Revenue Code Section 382. Pursuant to IRC Section
382, the surviving entity or post-merger Checkers is significantly limited in
utilizing the net operating loss carryforwards that were generated before the
Merger to offset taxable income arising after the ownership change. As of
August 9, 1999 Rally's and Checkers had net operating loss carryforwards of
approximately $49.8 million and $60.9 million, respectively for a combined
total of $110.7 million. We believe that the limitations imposed by IRC Section
382 could restrict the prospective utilization of the total pre-merger net
operating loss carryforward to approximately $31.3 million over the
carryforwards life of the net operating losses. The remaining pre-merger net
operating loss carryforward of $79.4 million could expire before becoming
available under these limitations. The $31.3 million net operating loss
carryforwards are subject to limitation in any given year and will expire in
2018. The Company has approximately $5 million of post-merger net operating
loss carryforward available through 2020, and approximately $1.8 million of
alternative minimum tax credit carryforwards available indefinitely.

A valuation allowance has been provided for 100 percent of the deferred tax
assets since management can not determine that it is more likely than not that
the deferred tax assets will be realized. When realization of the deferred tax
assets are more likely than not to occur, the benefit related to the deductible
temporary differences will be recognized as a reduction of income tax expense.

Income tax expense (benefit) consists of the following:

Fiscal Year Ended
----------------------------------
December 31, January 1, January 3,
2001 2001 2000
------------ ---------- ----------

Current--State............................ $-- $(475) $--
Current--Federal.......................... 62 -- --
Deferred.................................. -- -- --
---- ----- ----
Total income tax expense.................. $ 62 $(475) $--
==== ===== ====

The benefit for 2000 was the result of a favorable state tax ruling during
2000.

The following is a reconciliation of the income tax expense (benefit)
computed by applying the federal statutory income tax rate to net income (loss)
before income taxes to the income tax provision shown on the Consolidated
Statement of Operations:

Fiscal Year Ended
----------------------------------
December 31, January 1, January 3,
2001 2001 2000
------------ ---------- ----------

Expense (benefit) computed at statutory
rate................................... $1,474 $ 796 $(8,970)
Tax effect of equity in loss of
affiliate.............................. -- 8 469
State and local income taxes, net of
federal income tax expense (benefit)... -- (475) --
Permanent differences................... 784 800 --
Change in deferred tax asset valuation
allowance.............................. (2,196) (1,550) 8,250
Other................................... -- (54) 251
------ ------ -------
$ 62 $ (475) $ --
====== ====== =======

Note 12: Stockholders' Equity

As a result of the Merger, Checkers was the surviving entity. As such, the
stock based compensation plans that survived were those of Checkers. However,
due to the fact that the Merger was accounted for as a reverse acquisition by
Rally's, the historical financial information regarding the stock based
compensation plans presented below are those of Rally's. All figures presented
below have been adjusted to give effect to the Merger adjusted for the exchange
ratio of 1.99 to 1 and the one-for-twelve reverse stock split, where
applicable.

a) Stock-Based Compensation Plans--On September 26, 2001 the Company adopted
the 2001 stock option plan ("2001 Plan"), approved by the shareholders at the
2001 shareholders meeting. The 2001 Plan provides for the granting of incentive
stock options, nonqualified stock options, stock appreciation rights and
restrictive shares to eligible salaried individuals. The Company plans to
register 1,500,000 common stock shares for this plan during 2002.

In August 1991, the Company adopted the 1991 stock option plan ("1991
Plan"), as amended for employees whereby incentive stock options, nonqualified
stock options, stock appreciation rights and restrictive shares could be
granted to eligible salaried individuals. The plan was first amended on June
11, 1998 to increase the number of shares subject to the Plan to 791,667. A
second amendment to the plan was made on September 15, 2000 to increase the
number of shares to 1,500,000. The 1991 Plan expired in September 2001.

In 1994, the Company adopted a Stock Option Plan for Non-Employee Directors,
as amended (the "Directors Plan"). The Directors Plan was amended on August 6,
1997 by the approval of the Company's stockholders to increase the number of
shares subject to the Directors Plan from 16,667 to 416,667. It provides for
the automatic grant to each non-employee director upon election to the Board of
Directors a non-qualified, ten-year option to acquire shares of the Company's
common stock, with the subsequent automatic grant on the first day of each
fiscal year thereafter during the time such person is serving as a non-employee
director of a non-qualified ten-year option to acquire additional shares of
common stock. Prior to the August 6, 1997 amendment, one-fifth of the shares of
common stock subject to each initial option grant became exercisable on a
cumulative basis on each of the first five anniversaries of the grant of such
option. One-third of the shares of common stock subject to each subsequent
option grant became exercisable on a cumulative basis on each of the first
three anniversaries of the date of the grant of such option. Each Non-Employee
Director serving on the Board as of July 26, 1994 received options to purchase
1,000 shares. Each new Non-Employee Director elected or appointed subsequent to
that date also received options to purchase 1,000 shares. Each Non-Employee
Director has also received additional options to purchase 250 shares of Common
Stock on the first day of each fiscal year. On August 6, 1997 the Directors
Plan was first amended to provide: (i) an increase in the option grant to new
Non-Employee Directors to 8,333 shares, (ii) an increase in the annual options
grant to 1,667

shares and (iii) the grant of an option to purchase 25,000 shares to each Non-
Employee Director who was a Director both immediately prior to and following
the effective date of the amendment, and includes up to 5,000,000. Options
granted to Non-Employee Directors on or after August 6, 1997 are exercisable
immediately upon grant. On September 15, 2000, the Directors Plan was amended a
second time to provide for a special one-time grant of 550,000 options to the
members of the Board of Directors. It was also amended to allow the Board of
Directors to make additional discretionary grants under the directors' plan, at
their sole discretion.

The 2001 Plan, 1991 Plan and the Directors Plan provide that the shares
granted come from the Company's authorized but unissued or reacquired common
stock. The exercise price of the options granted pursuant to these Plans will
not be less than 100 percent of the fair market value of the shares on the date
of grant. An option may vest and be exercisable immediately as of the date of
the grant and all options will expire after ten years from the date granted.

As a result of the Merger, the Company assumed:

. 301,087 options previously issued to Checkers' employees under the 1991
Plan at prices ranging from $4.50 to $61.56

. 232,169 options previously issued to Checkers' non-employee directors
under the Directors Plan at prices ranging from $3.76 to $68.25

. 116,669 options previously issued to officers and directors of Checkers
which were not issued under any plan.

A summary of the status of all options granted to employees, directors, and
to non-employees at December 31, 2001, January 1, 2001 and January 3, 2000, and
changes during the years then ended is presented in the table below. All
references to number of shares and per share amounts have been adjusted for the
exchange ratio of 1.99 to 1 and the subsequent one-for-twelve reverse split
that was effected in August 1999.

December 31, 2001 January 1, 2001 January 3, 2000
---------------------- ---------------------- ----------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
(Shares represented in thousands)

Outstanding shares at
beginning of year...... 2,768 $4.03 1,605 $4.72 935 $ 8.20
Assumed in Merger....... -- -- -- -- 650 9.56
Granted at price below
market................. -- -- 945 2.00 -- --
Granted at price above
market................. -- -- 400 5.50 -- --
Granted at price equal
to market.............. 244 5.44 142 2.03 562 1.85
Exercised............... (583) 2.27 (192) 2 -- --
Forfeited............... (197) 3.67 (110) 2.54 (487) 13.38
Expired................. (159) 4.07 (22) 8.60 (55) 9.87
----- ----- ----- ----- ----- ------
Outstanding at end of
year................... 2,073 $4.30 2,768 $4.03 1,605 $ 4.72
===== ===== ===== ===== ===== ======
Exercisable at end of
year................... 1,364 $4.06 2,014 $4.05 1,092 $ 5.89
===== ===== ===== ===== ===== ======
Weighted average of fair
value of options
granted................ $2.97 $2.96 $ 1.48

The following table summarizes information about stock options outstanding
at December 31, 2001:

Wtd. Avg.
Remaining
Range of Outstanding as of Contractual Wtd. Avg. Number Exercisable Wtd. Avg.
Exercise Prices December 31, 2001 Life (Yrs) Exercise Price December 31, 2001 Exercise Price
--------------- ----------------- ----------- -------------- ------------------ --------------

$ 1.28-$ 2.00........... 475,000 8.1 $ 1.783 475,000 $ 1.783
$ 2.01-$ 4.00........... 749,636 6.7 2.762 590,331 2.933
$ 4.01-$ 8.00........... 702,676 8.4 5.281 152,676 4.441
$ 8.01-$16.00........... 108,150 5.6 13.210 108,150 13.213
$16.01-$61.56........... 36,825 3.9 21.364 36,825 21.364
$61.56-$136.80.......... 1,000 2.5 68.250 1,000 68.250
--------- --- ------- --------- -------
2,073,287 7.5 $ 4.298 1,363,982 $ 4.062
========= === ======= ========= =======

If the compensation cost for all option grants to employees and directors
had been determined consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the following pro
forma amounts:

Fiscal Year Ended
----------------------------------
December 31, January 1, January 3,
2001 2001 2000
------------ ---------- ----------

Net income (loss)........... As reported $4,335 $2,342 $(25,888)
Pro forma $3,987 $1,727 (26,293)
Basic earnings (loss) per
common share............... As reported 0.43 0.25 (3.89)
Pro forma 0.39 0.18 (3.95)
Diluted earnings (loss) per
common share............... As reported 0.36 0.23 (3.89)
Pro forma 0.34 0.17 (3.95)

For purposes of the pro forma disclosures assuming the use of the fair value
method of accounting, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:

Assumptions 2001 2000 1999
----------- ----------- ----------- -----------

Risk-free interest rates............... 1.74%-5.86% 5.22%-6.19% 4.95%-5.68%
Volatility............................. 45% 83% 100%
Expected lives (months)................ 48 48 48

An expected dividend yield of zero percent was used for all periods based on
the Company's history of no dividend payments.

Because the Statement 123 method of accounting has not been applied to
options granted prior to January 2, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

On August 5, 1999, the Company's shareholders approved a new employee stock
purchase plan ("Stock Purchase Plan"). The Stock Purchase Plan offers eligible
employees the opportunity to purchase common shares of the Company through
voluntary regular payroll deductions. The Company will make matching
contributions to the Stock Purchase Plan relating to the employees
contributions made the previous year, and which have remained in the Stock
Purchase Plan for the full year. The Company will make a matching contribution
equal to one-half of the contributions by officers and employee-directors of
the Company and one-third of contributions by those employees who are not
officers or employee-directors subject to certain limitations. Any employee
contributions, and any of the Company's matching contributions for that
employee, are delivered to the broker administering the Stock Purchase Plan and
the broker opens individual accounts for

the participants. The broker utilizes the employee's voluntary contributions,
and any matching contributions by the Company, to purchase the Company's stock
at prevailing market rates. The Company made $11,596 and $19,038 in matching
contributions during 2001 and 2000, respectively, for employee contributions
made in 2000 and 1999.

b) Stock Based Compensation--On September 15, 2000, the vesting period and
period to exercise for 209,916 of the shared executives options were modified.
Concurrent to this modification, services from these shared executives ceased.
Due to the modification, a new measurement date was set, resulting in the
recognition of approximately $493,000 in compensation expense.

On April 10, 2000, the Board of Directors approved the grant of 550,000
stock options to the non-employee directors and 25,000 stock options to one
employee director. The grant price was set on April 10, 2000, however,
shareholder approval took place on September 15, 2000. In accordance with APB
No. 25, the measurement date for determining the market value of these options
is on September 15, 2000, resulting in the recognition of approximately
$1,186,000 in compensation expense.

On June 1, 2000, the Board of Directors approved the grant of 160,229 stock
options to officers and key employees. At the date of grant, additional shares
of the stock had to be approved for allocation to the 1991 employee stock
option plan by the shareholders' of the Company. The shareholders approved the
additional allocation on September 15, 2000. The resulting compensation expense
recognized in 2001 and 2000 was approximately $100,000 and $54,000,
respectively. Deferred compensation related to these options is $147,000, and
will be recognized over the remaining two year vesting period.

c) Shareholder Rights Offering--A Shareholder Rights Offering (the
"Offering") was completed by Rally's on September 26, 1996. Rally's distributed
to holders of record of its common stock, as of the close of business on July
31, 1996 (the "Record Date"), transferable subscription rights to purchase
units consisting of one share of Rally's common stock and one warrant (the
"Rights Offering Warrant") to purchase an additional Share of Rally's common
stock. Due to the fact that upon completion of the Merger, Rally's corporate
existence ceased, the Rally's Rights Offering Warrants were exchanged for newly
issued Checkers warrants (the "Checkers Rights Offering Warrants"). The Company
issued Checkers Rights Offering Warrants to purchase 798,281 of the Company's
common stock. The Checkers Rights Offering Warrants were exercisable from the
date of issuance through September 26, 2001. The exercise price of each
Checkers Rights Offering Warrant was $4.52, representing an exercise price
reduction of two-thirds from the original Rights Offering Warrants approved by
the Company's Board of Directors on September 20, 1999. The Company had the
right to redeem the Checkers Rights Offering Warrants at $.01 per warrant, upon
30 days' prior written notice in the event the closing price of the Company's
Common Stock equaling or exceeding $36.18 per share for 20 out of 30
consecutive trading days ending not more than 30 days preceding the date of the
notice of redemption. The Checkers Rights Offering Warrants were publicly held
and traded on the NASDAQ (trading symbol: CHKRZ). The total Checkers Rights
Offering Warrants exercised during 2001, prior to expiration, was 592,084,
providing the Company with $2.68 million in proceeds.

d) Warrants--As a result of the Merger, the Company assumed warrants
previously issued by Checkers in settlement of litigation (the "Settlement
Warrants"). The Settlement Warrants permitted the acquisition of an aggregate
425,000 shares of the Company's Common Stock. The Settlement Warrants were
exercisable at any time during the thirty day period beginning from the date
approval was obtained from the Securities and Exchange Commission for this
registration and expired on July 31, 2001. The Company's Board of Directors
reduced the original exercise price of $1.375 by two thirds effective September
20, 1999 to $0.4583. As a result of the one-for-twelve reverse stock split, it
now requires the exercise of twelve warrants to receive one share of the
Company's Common Stock for an aggregate exercise price of $5.50 per share.
Settlement Warrants exercised during 2001 and 2000 were 635,343 and 1,048,
respectively, providing approximately $292,000 in additional proceeds prior to
expiration.

Also as a result of the Merger, the Company assumed 20 million warrants
issued by Checkers on November 22, 1996 in connection with the restructuring of
its primary credit facility (the "Restructuring Warrants"). The Restructuring
Warrants are exercisable at any time from the date of issuance until November
22, 2002. The Company's Board of Directors reduced the original exercise price
of $0.75 by two thirds effective September 20, 1999 to $0.25. As a result of
the one-for-twelve reverse stock split, it now requires the exercise of twelve
warrants to receive one share of the Company's Common Stock for an aggregate
exercise price of $3.00 per share. If all of the Restructuring Warrants were to
be exercised, they would provide approximately $5 million in additional
proceeds. The Company registered the common stock issuable under the
Restructuring Warrants and is obligated to maintain such registration for the
life of the warrants. The holders of the Restructuring Warrants also have other
registration rights relating to the common stock to be issued thereunder. The
Restructuring Warrants contain customary anti-dilution provisions. During
fiscal 2001 and 2000, 1,139,602 and 1,139,592 warrants were exercised,
respectively.

Note 13: Extraordinary Items

The extraordinary item for fiscal 2000 represents a loss on early retirement
of debt, net of tax expense of $0. The extraordinary items for fiscal 1999
represents a gain on the early retirement of debt, net of tax expense of $0.

Note 14: Quarterly Financial Data (Unaudited)

The following table represents selected quarterly financial data for the
periods indicated (in 000's except per share data). Earnings per share are
computed independently for each of the quarters presented. Accordingly, the sum
of the quarterly earnings per share in fiscal 2001 and 2000 does not equal the
total computed for the year:

First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------

Year Ended December 31, 2001
Revenues............................. $35,295 $37,237 $37,989 $51,091 $161,612
Income from operations............... 1,823 1,658 986 2,964 7,431
Net income before extraordinary
item................................ 843 776 452 2,264 4,335
Extraordinary item................... -- -- -- -- --
------- ------- ------- ------- --------
Net income........................... 843 776 452 2,264 4,335
======= ======= ======= ======= ========
Earnings per share before
extraordinary item:
Basic............................... 0.09 0.08 0.05 0.21 0.43
======= ======= ======= ======= ========
Diluted............................. 0.07 0.07 0.04 0.19 0.36
======= ======= ======= ======= ========
Year Ended January 1, 2001
Revenues............................. $52,187 $47,106 $37,820 $44,077 $181,190
Income from operations............... 1,154 2,923 1,735 2,239 8,051
Net income (loss) before
extraordinary item.................. (534) 1,379 809 917 2,571
Extraordinary item................... 109 152 -- (490) (229)
------- ------- ------- ------- --------
Net income (loss)....................... (425) 1,531 809 427 2,342
======= ======= ======= ======= ========
Earnings (loss) per share before
extraordinary item:
Basic............................... (0.06) 0.14 0.09 0.10 0.27
======= ======= ======= ======= ========
Diluted............................. (0.06) 0.14 0.08 0.09 0.25
======= ======= ======= ======= ========

Note 15: Commitments and Contingencies

a) Lease Commitments--The Company leases land and buildings generally under
agreements with terms of, or renewable to, 15 to 20 years. Some of the leases
contain contingent rental provisions based on percentages of gross sales. The
leases generally obligate the Company for the cost of property taxes, insurance
and maintenance. Rent expense totaled $10.9 million, $7.0 million and $11.4
million in 2001, 2000 and 1999, respectively.

Following is a schedule, by year, of future minimum lease commitments for
operating leases at December 31, 2001:

Year
----

2002.............................................................. $ 16,634
2003.............................................................. 14,252
2004.............................................................. 11,437
2005.............................................................. 9,729
2006.............................................................. 8,811
Thereafter........................................................ 39,491
--------
Total........................................................... $100,354
========

b) Self Insurance--For 2001 the Company was self-insured for most workers'
compensation, general liability and automotive liability losses subject to per
occurrence and aggregate annual liability limitations. The Company maintains
$3.4 million as collateral securing self-insured claims until they are settled.
The Company is also self-insured, subject to umbrella policies, for health care
claims for eligible participating employees subject to certain deductibles and
limitations. The Company determines its liability for claims incurred but not
reported on an actuarial basis.

c) Employment Contract--Effective November 20, 2000, the Company entered
into a new employment agreement with its Chief Executive Officer. This new
contract terminates the agreement dated December 14, 1999. The CEO will
continue to serve as a director of the Company. The term of the agreement is
for three years with two additional one year options to extend at the Company's
option. The annual base salary of $440,000 shall be increased by 5% each year.
The CEO is entitled to participate in the Company's incentive bonus plan and
was granted options to purchase 200,000 shares of the Company's common stock at
$5.00 per share and 200,000 shares at $6.00 per share. The options cliff vest
three years from the date of the agreement. The agreement may be terminated at
any time for cause. If the CEO is terminated without cause, he will be entitled
to receive a lump sum amount equal to the remaining term of the contract. The
agreement contains confidentiality and non-competition provisions.

d) Litigation--Jonathan Mittman et al. v. Rally's Hamburgers, Inc., et
al. In January and February 1994, two putative class action lawsuits were
filed, purportedly on behalf of the stockholders of Rally's, in the United
States District Court for the Western District of Kentucky, Louisville
division, against Rally's, Burt Sugarman and Giant Group, Ltd. and certain of
Rally's former officers and directors and its auditors. The cases were
subsequently consolidated under the case name Jonathan Mittman et. al. vs.
Rally's Hamburgers, Inc., et. al. The complaints allege that the defendants
violated the Securities Exchange Act of 1934, among other claims, by issuing
inaccurate public statements about Rally's in order to arbitrarily inflate the
price of its common stock. The plaintiffs seek unspecified damages. On April
15, 1994, Rally's filed a motion to dismiss and a motion to strike. On April 5,
1995, the Court struck certain provisions of the complaint but otherwise denied
Rally's motion to dismiss. In addition, the Court denied plaintiffs' motion for
class certification; the plaintiffs renewed this motion, and despite opposition
by the defendants, the Court granted such motion for class certification on
April 16, 1996, certifying a class from July 20, 1992 to September 29, 1993.
Motions for Summary Judgment were filed by the parties in September 2000, and
rulings by the Court are pending. The defendants deny all wrongdoing and intend
to defend themselves vigorously in this matter. Management is unable to predict
the outcome of this matter at the present time or whether or not certain
available insurance coverages will apply.

A Complaint was originally filed by the Company in July of 1995 against Mr.
Gagne ("Gagne") and Tampa Checkmate Food Services, Inc. ("Tampa Checkmate"), a
company controlled by Mr. Gagne, to collect on a promissory note in the
original principal amount of $1,007,295 (the "promissory note") and foreclose
on a mortgage securing the promissory note issued by Tampa Checkmate, enforce
the terms of a personal guaranty executed by Mr. Gagne, and obtain declaratory
relief regarding the rights of the respective parties under Tampa Checkmate's
franchise agreement with the Company. The counterclaim and third party
complaint, as amended, generally alleged that Mr. Gagne, Tampa Checkmate and
Checkmate Food Services, Inc. ("Checkmate") were induced into entering into
various franchise agreements with personal guarantees to the Company based upon
misrepresentations by the Company and the named individuals and alleged
violations of Florida's Franchise Act, Florida's Deceptive and Unfair Trade
Practices Act, and breaches of implied duties of "good faith and fair dealings"
in connection with a settlement agreement and franchise agreement between
various of the parties.

On or about July 15, 1997, Tampa Checkmate filed a Chapter 11 petition in
the United States Bankruptcy Court for the Middle District of Florida, Tampa
Division entitled In re: Tampa Checkmate Food Services, Inc., and numbered as
97-11616-8G-1 on the docket of said Court. As noted above, the bankruptcy
filing stayed the Company's claim against Tampa Checkmate to collect the
promissory note. The Company filed a motion in the Bankruptcy Court to
establish its right to set-off, or in the alternative, recoup, the full amount
due the Company under the promissory note against the judgments. On March 17,
2001 and May 23, 2001, the Bankruptcy Court entered orders recognizing the
Company's right to setoff the amount owed by Tampa Checkmate under the
promissory note against the judgments and lifting the automatic stay to allow
the Company to proceed "to effect the setoff and/or recoupment permitted by
this Court to include proceeding in state court or other appropriate forum to
determine the amounts owed, if any, by the Debtor (Tampa Checkmate) to
Checkers."

e) Purchase Commitments--The Company has purchase agreements with various
suppliers extending beyond one year. Subject to the suppliers' quality and
performance, the purchases covered by those agreements aggregate approximately
$104.6 million in 2002 and a total of approximately $116.8 million for the
years 2003 through 2006.

Note 16: Subsequent Events (Unaudited)

a) Reacquired Restaurants--On January 26, 2002, we reacquired the Checkers'
restaurants in Philadelphia which were previously sold to a franchisee in
February 2001. As a result of the acquisition, deferred revenues of $2.1
million were removed from the balance sheet along with the associated note
receivable which was to be collected in installments through 2005. As a result
of the gain deferral in 2001 at the time of the sale, no gain or loss will be
recognized from this event.

b) Commitments--On February 22, 2002, we committed to the purchase and
installation of approximately $550,000 of point-of-sale systems in 45 Company-
owned restaurants.

c) Standby Letter of Credit--On March 9, 2002, we received a letter of
credit for $1.1 million from SouthTrust Bank. This letter of credit will
replace a $1.0 million certificate of deposit currently collateralizing
projected future workers' compensation claims for the time period 1993-1999
when the Company was self-insured in Florida.

d) Stock Based Compensation--On February 12, 2002, the Board of Directors
approved the grant of 50,000 stock options to Mr. Maggard, the Chairman of the
Board. On February 19, 2002, the Compensation Committee of the Board of
Directors approved a grant of 25,000 stock options to each of the Company's
nine Directors.

e) Equity Proceeds--Subsequent to December 31, 2001, additional options and
warrants were exercised into 261,499 shares of common stock for which the
Company received net proceeds of $781,108.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, officers and holders of more than 10% of the Company's
common stock to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership. Based solely upon a
review of the forms, reports and certificates filed with the Company by such
persons, all such Section 16(a) filing requirements were complied with by such
persons in 2001.

The following table sets forth the names and ages of our directors and the
positions they hold:

Name Age Position
---- --- --------

Ronald B. Maggard........ 52 Chairman of the Board of Directors
Peter C. O'Hara.......... 46 Director and Vice Chairman of the Board
Daniel J. Dorsch......... 49 President, Chief Executive Officer and Director
Terry N. Christensen..... 61 Director
Willie D. Davis.......... 67 Director
David Gotterer........... 73 Director
William P. Foley, II..... 57 Director
Clarence V. McKee........ 59 Director
Burt Sugarman............ 63 Director

RONALD B. MAGGARD has served as a director since August 1999, and as
Chairman of the Board since September 2001. For more than the past five years,
Mr. Maggard has been President of Maggard Enterprises, Newport Beach, CA, which
owns 20 franchised Long John Silver Mr. Maggard is also currently a director of
Santa Barbara Restaurant Group.

PETER C. O'HARA has served as a director since June 1998 and Vice Chairman
since September 1999. He has served as president of Capital Management of L.I.,
N.Y., Inc., a Checkers franchise area developer for Long Island, New York from
March 1994 through October 2001.

DANIEL J. DORSCH has served as the Chief Executive Officer, President and a
director since December 1999. Mr. Dorsch is also a multi-unit franchise owner
for Papa John's Pizza, earning franchisee of the year in 1998. Since 1994, Mr.
Dorsch has also owned and operated franchises with Honda, Kawasaki, Yamaha,
Suzuki, & Seadoo.

TERRY N. CHRISTENSEN has served as a director since November 1996. Mr.
Christensen has been a partner in the law firm of Christensen, Miller, Fink,
Jacobs, Glaser, Weil & Shapiro, LLP since May 1988. Mr. Christensen is a
director of Giant Group, Ltd. and MGM Mirage. Christensen, Miller, Fink,
Jacobs, Glaser, Weil & Shapiro, LLP performed legal services for us in 1999,
2000 and 2001. Such services have related to litigation, compliance with
securities laws and other business matters.

WILLIE D. DAVIS has served as a director since August 1999. Mr. Davis has
been the President and a director of All-Pro Broadcasting, Inc., a holding
company operating several radio stations, for more than the past five years.
Mr. Davis currently also serves on the board of directors of Sara Lee
Corporation, K-Mart Corporation, Dow Chemical Company, Metro-Goldwyn-Mayer
Inc., MGM Mirage, Basset Furniture Industries, Incorporated and the Strong
Fund.

DAVID GOTTERER has served as a director since August 1999. Mr. Gotterer has
been a partner in the accounting firm of Mason & Company, LLP, New York, New
York, for more than the past five years. Mr. Gotterer is a director and Vice
Chairman of Giant Group, Ltd.

WILLIAM P. FOLEY, II has served as a director since November 1996. Mr. Foley
has been Chairman of the Board of Santa Barbara Restaurant Group, Inc. since
July 1997. He has been the Chairman of the Board and Chief Executive Officer of
Fidelity National Financial, Inc. which, through its subsidiaries, is a title
insurance underwriting company, since its formation in 1984. He has been
Chairman of the Board and Chief Executive Officer of Fidelity National Title
Insurance Company since April 1981. Mr. Foley is also currently serving as
Chairman of the Board of Directors of CKE Restaurants, Inc., owner, operator
and franchisor of quick-service restaurants, primarily under the Carl's Jr. and
Hardee's brand names, and is a director of Micro General Corporation, Miravant
Medical Technologies and Fresh Foods, Inc.

CLARENCE V. MCKEE has served as a director since June 1996. Mr. McKee has
been the President and Chief Executive Officer of McKee Communications, Inc., a
Tampa, Florida based company engaged in the acquisition and management of
communications companies, since October 1992. He is a former chairman of the
Florida Association of Broadcasters and former director of Florida Progress
Corporation and its subsidiary Florida Power Corporation.

BURT SUGARMAN has served as a director since June 1997. Mr. Sugarman has
been the Chairman of the Board, President and Chief Executive Officer of Giant
Group, Ltd. for the past five years. Mr. Sugarman served as Chairman of the
Board of Rally's Hamburgers, Inc. from November 1994 to October 1997.

Executive Officers

Set forth below is a description of the business experience and the ages of
our executive officers, other than Mr. Dorsch, whose experience is described
above. Executive officers serve at the discretion of our Board of Directors.

STEVE COHEN (50) has served as our Senior Vice President of Human Resources
since December 1997. From May 1995 to December 1997, Mr. Cohen was the Field
Human Resources Manager for EZCorp in Austin, Texas.

DAVID G. KOEHLER (44) has served as our Chief Financial Officer, Vice
President of Finance and Treasurer since August 2001. Mr. Koehler is a
certified public accountant with over 17 years of experience in Accounting,
Investment Banking, Corporate Finance, and Information Technology. Previously
he was Vice President of Finance at Pinnacle Towers from 1999 to 2001, and
Chief Financial Officer of Fauquier Bank from 1994 to 1999. Additionally, he
worked in PricewaterhouseCoopers LLP's and Ernst & Young's consulting
practices. He graduated in 1984 with a Bachelor of Science from Old Dominion
University with majors in accounting, finance and management information
services.

ADAM NOYES (32) has served as Vice President of Purchasing and Operations
since August 2000. He served as Vice President of Purchasing and Quality
Assurance from October 1998 to August 2000. Senior Director of Purchasing from
May 1998 to September 1998. Director of Purchasing from June 1996 to April
1998. Prior to this, Mr. Noyes served Checkers in the capacity of Restaurant
Support Services from April 1991 to May 1996.

KEITH SIROIS (50) has served as Vice President of Franchise Operations since
September 1999. From September 1998 to September 1999, he served as Checkers'
Director of Franchise Operations. Mr. Sirois served as a franchise business
consultant with Checkers from August 1996 to September 1998. From March 1992 to
September 1996, Mr. Sirois served as Vice President of Franchise Operations for
Heartwise Express, Inc. in Chicago, Illinois.

RICHARD TURER (40) has served as Vice President of Marketing since September
1999. From July 1998 to September 1999, Mr. Turer served as Director of
Marketing for Checkers and Rally's. From May 1995 to July 1998, he was self-
employed and operated Mill House McCabe, a marketing and promotional company,
in Sparta, New Jersey.

BRIAN R. DOSTER (42) has served as Vice President, Corporate Counsel and
Secretary since November, 2000. He served previously as Assistant General
Counsel and Assistant Secretary of Checkers since April 1999 and September
1999, respectively. From November 1985 to April 1999, he was an attorney for
Amoco Corporation in Chicago, Illinois. Mr. Doster is also a Director of Tampa
Community Health Centers, Inc., a not for profit provider of health services,
since January 2002.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to
the information under the headings "MANAGEMENT--Compensation of Executive
Officers" in the Company's definitive Proxy Statement to be used in connection
with the Company's Annual Meeting of Stockholders, which will be filed with the
commission on or before April 30, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of February 25, 2002,
relating to the beneficial ownership of the common stock by (a) all persons
known by us to beneficially own more than 5% of the outstanding shares of the
common stock, (b) each director, director nominee and executive officer and,
(c) all officers and directors as a group. We had 10,933,069 shares outstanding
as of February 25, 2002.

Number of
Shares Percentage
Beneficially of Shares
Name and Address of Beneficial Owner(1)(2)(3) Owned(1) Outstanding(4)
--------------------------------------------- ------------ --------------

CKE Restaurants, Inc.(5).......................... 1,158,893 9.3%
3916 State Street, Suite 300, Santa Barbara, CA
93105
Giant Group, LTD(6)............................... 994,699 8.0%
9440 Santa Monica Blvd, #407, Beverly Hills, CA
90210
Calm Waters Partnership........................... 988,500 7.9%
100 Heritage Reserve, Menomonee Falls, WI 53051
FMR Corp. ........................................ 944,700 7.6%
82 Devonshire Street, Boston, MA 02109
FleetBoston Financial Corporation................. 714,100 5.7%
100 Federal Street, Boston, MA 02110
Burt Sugarman(7).................................. 325,606 2.6%
Daniel J. Dorsch(8)............................... 287,409 2.3%
Peter C. O'Hara(9)................................ 273,751 2.2%
William P. Foley, II(10).......................... 200,040 1.6%
Ronald B. Maggard(11)............................. 160,999 1.3%
Terry N. Christensen(12).......................... 148,497 1.2%
Willie Davis(13).................................. 147,256 1.2%
David Gotterer(14)................................ 142,281 1.1%
Clarence V. McKee(15)............................. 77,518 *
Steven Cohen(16).................................. 27,378 *
Adam Noyes(17).................................... 9,454 *
Keith Sirois(18).................................. 6,263 *
Richard Turer(19)................................. 5,000 *
All officers and directors as a group (15
persons)(20)..................................... 1,813,118 14.6%

--------
* Represents less than 1% of our outstanding common stock.
(1) Unless otherwise noted, we believe that all shares are beneficially owned
and that all persons named in the table have sole voting and investment
power with respect to all shares of common stock owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from February 25, 2002, upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from February 25, 2002 have been exercised.
(3) Unless otherwise indicated, the address of each stockholder listed is 4300
West Cypress Street, Suite 600, Tampa, Florida 33607.
(4) Percentage calculation assumes owners' derivative securities exercisable
within 60 days from February 25, 2002 have been exercised.
(5) Includes 612,536 shares issuable upon the exercise of presently
exercisable warrants.
(6) Includes 237,416 shares issuable upon the exercise of presently
exercisable warrants held by KCC Delaware, a wholly-owned subsidiary of
Giant Group, LTD.

(7) Includes 322,274 shares subject to options and warrants. Excludes 994,699
shares and warrants held to purchase shares held by Giant Group, Ltd., as
to which Mr. Sugarman disclaims beneficial ownership. Mr. Sugarman is
Chairman of the Board and Chief Executive Officer of Giant Group Ltd.
(8) Includes 75,000 shares issuable upon the exercise of presently
exercisable stock options.
(9) Includes 256,668 shares issuable upon the exercise of presently
exercisable stock options.
(10) Includes 166,649 shares subject to options and warrants. Excludes the
1,158,893 shares and warrants to purchase shares held by CKE Restaurants,
Inc. as to which Mr. Foley disclaims beneficial interest. Mr. Foley is
Chairman of the Board of CKE Restaurants, Inc. Also excludes 175,689
warrants held by Fidelity National Financial, Inc., as to which Mr. Foley
disclaims beneficial ownership. Mr. Foley is Chairman of the Board and
Chief Executive Officer of Fidelity National Financial, Inc.
(11) Includes 128,344 shares issuable upon the exercise of presently
exercisable stock options.
(12) Includes 143,990 shares issuable upon the exercise of presently
exercisable stock options.
(13) Includes 147,256 shares issuable upon the exercise of presently
exercisable stock options.
(14) Includes 142,281 shares issuable upon the exercise of presently
exercisable stock options.
(15) Includes 73,335 shares issuable upon the exercise of presently
exercisable stock options.
(16) Includes 26,637 shares issuable upon the exercise of presently
exercisable stock options.
(17) Includes 9,088 shares issuable upon the exercise of presenting
exercisable stock options.
(18) Includes 5,833 shares issuable upon the exercise of presenting
exercisable stock options.
(19) Includes 5,000 shares issuable upon the exercise of presenting
exercisable stock options.
(20) Includes an aggregate of 1,504,022 shares issuable upon the exercise of
presently exercisable stock options and warrants held by officers and
directors of the company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Beginning in September 1999 the Company engaged Peter O'Hara, one of its
current Directors, to provide consulting services at a monthly fee of $10,000.
Mr. O'Hara discontinued these services in June 2000. Fees for 2000 and 1999
totaled $60,000 and $40,000, respectively.

We shared certain officers and directors with Santa Barbara Restaurant
Group, inc. (Santa Barbara) beginning in 1999 through September 2000. We paid
$274,338 and $104,408 to Santa Barbara for salary payments made on our behalf.
During 2000, Mr. Foley was the chairman of the Board of Directors for both
Santa Barbara and Checkers Drive-In restaurants, Inc.

Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro LLP, a law firm in
which Mr. Christensen is a named partner, performed legal services for the
Company during 2001, 2000 and 1999 amounting to $45,000, $457,000 and $803,000,
respectively. Such services have related to the defense of certain litigation,
compliance with securities laws and other business matters.

Prior to the Merger in August 1999, the Company and Rally's Hamburgers, Inc.
were parties to a management services agreement (the "Management Services
Agreement") pursuant to which Checkers provided key services to Rally's,
including executive management, financial planning and accounting, franchise,
purchasing and human resources services. In addition, Checkers and Rally's
shared certain of their executive officers, including the Chief Executive
Officer and the Chief Operating Officer. The total cost of the services
provided by Checkers to Rally's in 1999 was $4.7 million.

During fiscal 1999, we entered into four lease agreements, which have been
recorded as capital lease obligations, with Granite Financial Inc. whereby we
purchased security equipment for our restaurants valued at $651,346. The lease
agreements are payable monthly ranging from $3,065 to $10,785, including
effective interest rates ranging from 13.381% to 14.04%. All of the leases have
terms of 3 years.

On July 1, 1996, the Company entered into a ten-year operating agreement
with Carl Karcher Enterprises, Inc., the subsidiary of CKE that operates the
Carl's Jr. restaurant chain. Pursuant to the agreement, CKE began operating 29
Rally's owned restaurants located in California and Arizona, two of which were
converted to a Carl's Jr. format. Including closures from prior periods, there
were 23 remaining restaurants as of July 3, 2001 operating under the agreement
when we repossessed all but the two operating as Carl's Jr. in accordance with
the terms of the original operating agreement. The original agreement was
cancelable after an initial five-year period, or July 1, 2001, at the
discretion of CKE. The agreement was approved by a majority of the independent
Directors of the Company. Prior to the agreement, the Company's independent
Directors had received an opinion as to the fairness of the agreement, from a
financial point of view, from an investment banking firm of national standing.
Under the terms of the operating agreement, CKE was responsible for any
conversion costs associated with transforming restaurants to the Carl's Jr.
format, as well as, the operating expenses of all the restaurants. The Company
had retained ownership of all the restaurants, two of which were Carl's Jrs.
and was entitled to receive a percentage of gross revenues generated by each
restaurant.

PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1.0 The following financial statements of the Registrant are included
in Part II, Item 8:

Index to Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2001 and January 1,
2001.
Consolidated Statements of Operations and Comprehensive Income for
each of the three years in the three-year period ended December 31,
2001.
Consolidated Statements of Shareholders' Equity for each of the
three years in the three-year period ended December 31, 2001.
Consolidated Statements of Cash Flow for each of the three years in
the three-year period ended December 31, 2001.
Notes to Consolidated Financial Statements

2.0 All schedules have been omitted because the required information is
not applicable, not required or is included elsewhere in the
financial statements and notes thereto.

3.0 The list of exhibits set forth in Item 14, (c) below is
incorporated herein by reference.

(b) Reports on Form 8-K.

None.

2.1 Agreement and Plan of Merger dated January 28, 1999 between the
Company and Checkers Drive-In Restaurants, Inc. filed as exhibit
10.18 to the Company's 1998 Form 10-K and incorporated herein by
reference.

3.1 Restated Certificate of Incorporation of the Company, as filed with
the Commission as Exhibit 3.1 to the Company's Registration
Statement on Form S-1 filed on September 26, 1991 (File No. 33-
42996), is hereby incorporated herein by reference.

3.2 Certificate of Amendment to Restated Certificate of Incorporation
of the Company, as filed with the Commission as Exhibit 3 to the
Company's Form 10-Q for the quarter ended June 30, 1993, is
hereby incorporated herein by reference.

3.3 Certificate of Amendment to Certificate of Incorporation of the
Company dated August 9, 1999, as filed with the Commission as
Exhibit 3.3 to the Registrant's Form 10-K for the year ended
January 3, 2000.

3.4 Certificate of Merger of Domestic Corporations dated August 9,
1999, as filed with the Commission as Exhibit 3.4 to the
Registrant's Form 10-K for the year ended January 3, 2000.

3.5 Certificate of Amendment to Certificate of Incorporation of the
Company dated August 9, 1999, as filed with the Commission as
Exhibit 3.5 to the Registrant's Form 10-K for the year ended
January 3, 2000.

3.6 By-laws, as amended through February 16, 1995, of the Registrant,
as filed with the Commission as Exhibit 3.3 to the Company's Form
10-Q for the quarter ended March 27, 1995, is hereby incorporated
herein by reference.

3.7 Certificate of Incorporation of Checkers of Puerto Rico, Inc. a
wholly-owned subsidiary of the Registrant, dated March 17, 2000.

3.8 Certificate of Merger of Merger Acquisition Corporation 1, a
wholly-owned subsidiary of the Registrant, dated June 8, 2000.

3.9 Certificate of Merger of ZDT Corporation, a wholly-owned
subsidiary of the Registrant, dated June 8, 2000.

3.10 Certificate of Merger of Hampton Foods, Inc., a wholly-owned
subsidiary of the Registrant, dated June 9, 2000.

3.11 By-Laws, Certificate of Incorporation and Articles of
Incorporation of CheckerCo, Inc., a wholly-owned subsidiary of
the Registrant, dated January 16, 2001, as filed with the
Commission as Exhibit 3.1 to the Registrant's Form 10-Q for the
quarter ended March 26, 2001.

**3.12 Certificate of Merger of Rally's Management, Inc., a wholly-owned
subsidiary of the Registrant, dated December 28, 2001.

4.1 Form of Warrant Agreement dated August 9, 1999 between Checkers
Drive-In Restaurants, Inc. and American Stock Transfer and Trust
Company, Inc., as a Warrant Agent including form of Warrant
Certificate, as filed with the Commission as Exhibit 4.3 to the
Registrant's Form 10-K for the year ended January 3, 2000.

4.2 Amended and Restated Credit Agreement, dated as of November 22,
1996, between the Company, CKE Restaurants, Inc., as Agent, and
the lenders listed therein, as filed with the Commission as
Exhibit 4.1 on the Company's Form 8-K, dated November 22, 1996,
is hereby incorporated by reference.

4.3 Second Amended and Restated Security Agreement, dated as of
November 22, 1996, between the Company and CKE Restaurants, Inc.,
as Agent, and the lenders listed therein, as filed with the
Commission as Exhibit 4.2 on the Company's Form 8-K, dated
November 22, 1996, is hereby incorporated by reference.

4.4 Form of Warrant issued to lenders under the Amended and Restated
Credit Agreement, dated November 22, 1996, between the Company
and CKE Restaurants, Inc., as Agent, and the lenders listed
therein, as filed with the Commission as Exhibit 4.3 on the
Company's Form 8-K, dated November 22, 1996, is hereby
incorporated by reference.

4.5 Other Debt Instruments--Copies of debt instruments for which the
related debt is less than 10% of the Company's total assets will
be furnished to the Commission upon request.

10.1 Form of Indemnification Agreement between the Company and its
directors and certain officers, as filed with the Commission as
Exhibit 4.4 to the Company's Registration Statement on Form S-1
filed on September 26, 1991 (File No. 33-42996), is hereby
incorporated herein by reference.

10.2 1991 Stock Option Plan of the Company, as amended on May 10, 1994,
as filed with the Commission as Exhibit 4 to the Company's
Registration Statement on Form S-8 filed on June 15, 1994 (File
No. 33-80236), is hereby incorporated herein by reference.

10.3 Amendment to 1991 Stock Option Plan, as filed with the Commission
on page 18 of the Company's proxy statement dated May 15, 1998 is
incorporated herein by reference.

10.4 1994 Stock Option Plan for Non-Employee Directors, as filed with
the Commission as Exhibit 10.32 to the Company's form 10-K for the
year ended January 2, 1995, is hereby incorporated by reference.

10.5 Lease between Blue Ridge Associates and the Company dated November
17, 1987. (Filed as Exhibit 10.6 to Rally's Registration Statement
on Form S-1, dated October 11, 1989, and incorporated herein by
reference).

10.6 Note Repayment Agreement dated as of April 12, 1996 between the
Company and Nashville Twin Drive-Thru Partners, L.P., as filed
with the Commission as Exhibit 10.36 to the Company's Form 10-K
for the year ended January 1, 1996, is hereby incorporated by
reference.

10.7 Operating Agreement by and between Rally's Hamburgers, Inc. and
Carl Karcher Enterprises. (Filed as Exhibit 10.43 to CKE
Restaurants, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended May 20, 1996, and incorporated herein by reference.)

10.8 Employment Agreement between the Company and Daniel J. Dorsch
dated December 14, 1999, as filed with the Commission as Exhibit
10.17 to the Registrant's Form 10-K for the year ended January 3,
2000.

10.9 Checkers Drive-In Restaurants, Inc. Employee Stock Purchase Plan,
as filed with the Commission as Exhibit 10.18 to the Registrant's
Form 10-K for the year ended January 3, 2000.

10.10 Loan Agreement: Senior Credit Facility A between the Registrant
and Textron Financial Corporation, dated June 15, 2000 as filed
with the Commission as Exhibit 10.19 to the Registrant's Form 10-Q
for the quarter ended June 19, 2000, is hereby incorporated by
reference.

10.11 Loan Agreement: Subordinate Credit Facility B and C between the
Registrant and Textron Financial Corporation, dated June 15, 2000,
as filed with the Commission as Exhibit 10.20 to the Registrant's
Form 10-Q for the quarter ended June 19, 2000, is hereby
incorporated by reference.

10.12 Asset Purchase Agreement between the Registrant and Titan
Holdings, LLC, dated January 26, 2000.

10.13 Asset Purchase Agreement between the Registrant and Altes, LLC,
dated April 24, 2000.

10.14 Amended and restated 1994 Stock Option Plan, as amended and
restated on September 15, 2000.

10.15 Amended and restated 1991 Stock Option Plan, as amended and
restated on September 15, 2000.

10.16 Employment Agreement, dated November 20, 2000, between the
Registrant and Daniel J. Dorsch.

10.17 2001 Stock Option Plan of the Company, as filed with the
Commission as Appendix B to the Company's Proxy dated August 6,
2001, is incorporated herein by reference.

21 Subsidiaries of the Company:
(a) Rally's of Ohio, Inc., an Ohio corporation.
(b) Rally's Management, Inc., a Kentucky corporation (merged
with Checkers Drive-In Restaurants, Inc., effective December
28, 2001).

(d) Checkers of Puerto Rico, Inc., a Puerto Rican corporation.

**23.1 Consent of KPMG LLP.
--------
**Filed herewith

(d) Financial Statement Schedules:

Described in Item 14 (a) (2) of this Form 10-K

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tampa,
State of Florida on March 20, 2002.

Checkers Drive-In Restaurants, Inc.

/s/ Daniel J. Dorsch
By: _________________________________
Daniel J. Dorsch
President and Chief Executive
Officer

Pursuant to requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Company and in the
capacities indicated on March 20, 2002.

Signature Title
--------- -----

/s/ Ronald B. Maggard Director and Chairman of the Board
___________________________________________
Ronald B. Maggard

/s/ Peter C. O'Hara Director, Vice Chairman of the Board
___________________________________________
Peter C. O'Hara

/s/ Daniel J. Dorsch President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Daniel J. Dorsch

/s/ David G. Koehler Treasurer and Chief Financial Officer
___________________________________________ (Principal Financial and Accounting
David G. Koehler Officer)

/s/ Terry N. Christensen Director
___________________________________________
Terry N. Christensen

/s/ Clarence V. McKee Director
___________________________________________
Clarence V. McKee

/s/ Burt Sugarman Director
___________________________________________
Burt Sugarman

/s/ William P. Foley, II Director
___________________________________________
William P. Foley, II

/s/ Willie D. Davis Director
___________________________________________
Willie D. Davis

/s/ David Gotterer Director
___________________________________________
David Gotterer