SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                              --------------------

                                    FORM 10-Q

X    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

     For the quarterly period ended March 30, 1997

     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 0-17980

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


                            RALLY'S HAMBURGERS, INC.
             (Exact name of registrant as specified in its charter)

DELAWARE                                                      62-1210077
(State or other jurisdiction of                        (IRS Employer ID Number)
incorporation or organization)

          10002 Shelbyville Road, Suite 150, Louisville, Kentucky 40223

        Registrant's telephone number, including area code: 502/245-8900

     Indicate  by check  mark  whether  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 such shorter  period that the Registrant
was  required  to file such  reports)  and (2) has been  subject to such  filing
requirements for the past 90 days.

                             Yes  X           No

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock as of the latest practicable date.

                 CLASS - Common stock, Par value $.10 per share

                 OUTSTANDING AT MAY 5, 1997 - 20,826,002 shares


<PAGE>




<TABLE>
<CAPTION>


                    RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES

                                      INDEX


<S>          <C>                        <C>                                                                  <C>
PART I.      Financial Information                                                                           PAGE NO.

             ITEM 1.                    Consolidated Financial Statements

                                        Consolidated Balance Sheets as of December 29, 1996 and March 30,
                                        1997 (Unaudited)                                                        2

                                        Consolidated Statements of Operations (Unaudited) for the
                                        Quarters Ended March 31, 1996 and March 30, 1997                        3

                                        Consolidated Statements of Cash Flows (Unaudited) for the               
                                        Quarters Ended March 31, 1996 and March 30, 1997                        4

                                        Notes to Consolidated Financial Statements (Unaudited)                  5

             ITEM 2.                    Management's Discussion and Analysis of Financial Condition and
                                        Results of Operations                                                   12

PART II.     Other Information

             ITEM 1.                    Legal Proceedings                                                       17

             ITEM 6.                    Exhibits and Reports on Form 8-K                                        17

SIGNATURES                                                                                                      18
     
             EXHIBIT 27                 Financial Data Schedule (for SEC use only)                              19   
</TABLE>



<PAGE>



PART I.           FINANCIAL INFORMATION

ITEM 1.           Consolidated Financial Statements
<TABLE>
<CAPTION>

                                        RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
                                                CONSOLIDATED BALANCE SHEETS
                                       AS OF  DECEMBER  29, 1996 AND MARCH 30,1997 
                                    (In  thousands,  except shares and per share amounts)
                                                                                                                              
                                                                                                                  (UNAUDITED)       
                                                                                               DECEMBER 29,         MARCH 30,
                                                                                                  1996                1997
                                                                                             ----------------   -----------------
<S>                                                                                          <C>                <C>   
ASSETS
Current assets:
   Cash and cash equivalents                                                                 $     2,285        $     3,244
   Restricted cash                                                                                 1,649               1,413
   Investments                                                                                     1,958               1,790
   Royalties receivable, net of reserve for doubtful accounts of $1,405 and $1,563 
     at December 29, 1996 and March 30, 1997, respectively                                           437                 421
   Accounts and other receivables, including $565 and $831 from related parties at 
     December 29, 1996 and March 30, 1997, respectively, net of reserve for doubtful 
     accounts of $301 and $299 at December 29, 1996 and March 30, 1997, respectively               1,698               1,790
   Inventory, at lower of cost or market                                                             794                 787
   Current portion of notes receivable, including $40 from related parties at 
     December 29, 1996 and March 30, 1997, net of reserve for doubtful accounts of
      $130 and $83 at December 29, 1996 and March 30, 1997, respectively                              76                  90
   Prepaid expenses and other current assets                                                         999               1,016
   Assets held for sale                                                                              596                 244
                                                                                             ----------------   -----------------
         Total current assets                                                                     10,492              10,795
Assets held for sale                                                                               1,426               1,176
Property and equipment, at historical cost, less accumulated depreciation of $39,188 
   and $40,465 at December 29, 1996 and March 30, 1997, respectively                              69,806              69,673
Notes receivable, less current portion, including $87 and $79 from related parties 
   at December 29, 1996 and March 30, 1997, respectively, net of reserve for doubtful 
   accounts of $723 and $423 at December 29, 1996 and March 30, 1997, respectively                   697                 596
Goodwill, less accumulated amortization of $2,243 and $2,386 at December 29, 1996 
   and March 30, 1997, respectively                                                               10,482              10,339
Reacquired franchise and territory rights, less accumulated amortization of $1,984 
   and $2,204 at December 29, 1996 and March 30, 1997, respectively                               11,439              11,219
Other intangibles, less accumulated amortization of $2,459 and $2,579 at 
   December 29, 1996 and March 30, 1997, respectively                                              4,769               4,649
Other assets, less accumulated amortization of $1,101 and $1,176 at December 29, 
   1996 and March 30, 1997, respectively                                                           3,147               2,871
                                                                                             ----------------   -----------------
         Total assets                                                                        $   112,258         $   111,318
                                                                                             ================   =================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
   Accounts payable                                                                          $     4,884         $     5,166
   Accrued liabilities                                                                            13,600              13,834
   Current maturities of long-term debt and obligations under capital leases                       1,484               1,350
                                                                                             ----------------   -----------------
         Total current liabilities                                                                19,968              20,350
Senior notes, net of discount of $429 and $403 at December 29, 1996 and 
   March 30, 1997, respectively                                                                   57,897              57,923
Long-term debt, less current maturities                                                            4,775               4,562
Obligations under capital leases, less current maturities                                          5,408               5,280
Other liabilities                                                                                  4,845               4,511
                                                                                             ----------------   -----------------
         Total liabilities                                                                        92,893              92,626
                                                                                             ----------------   -----------------
Commitments and contingencies (Note 5)
Shareholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized,  no shares issued                     --                  --
Common stock, $.10 par value, 50,000,000 shares authorized, 20,788,000 and 
   20,820,214 shares issued at December 29, 1996 and March 30, 1997, respectively                  2,079               2,082
Additional paid-in capital                                                                        71,023              71,299
Less:  Treasury shares, 273,000 at December 29, 1996 and March 30, 1997                           (2,108)             (2,108)
Retained deficit                                                                                 (51,629)            (52,581)
                                                                                             ----------------   -----------------
         Total shareholders' equity                                                               19,365              18,692
                                                                                             ----------------   -----------------
         Total liabilities and shareholders' equity                                          $   112,258         $   111,318
                                                                                             ================   =================
<FN>
          The accompanying notes to consolidated financial statements
        are an integral part of these consolidated financial statements.
</FN>
</TABLE>
                                       2


<PAGE>




<TABLE>
<CAPTION>

                                         RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF OPERATIONS

                                                       (Unaudited)

                                         (In thousands except per share amounts)

                                                                                QUARTERS ENDED
                                                                        MARCH 31,             MARCH 30,
                                                                          1996                  1997
                                                                      --------------        --------------
<S>                                                                   <C>                   <C>
REVENUES:
   Restaurant sales                                                    $    40,508          $   31,250
   Franchise revenues and fees                                               1,404               1,135
   Owner fee income                                                          -                     210
                                                                      --------------        --------------
                                                                      --------------        --------------
         Total revenues                                                     41,912              32,595
                                                                      --------------        --------------

COSTS AND EXPENSES:
   Restaurant cost of sales                                                 14,801               9,936
   Restaurant operating expenses, exclusive of
     depreciation and amortization and advertising
     and promotion expenses shown separately below                          19,552              13,767
   General and administrative expenses                                       4,660               3,952
   Advertising and promotion expenses                                        2,848               1,354
   Depreciation and amortization                                             2,688               2,288
   Owner expense                                                             -                     300
   Provision for restaurant closures and other                                 732                 (17)
                                                                      --------------        --------------
         Total costs and expenses                                           45,281              31,580
                                                                      --------------        --------------

   Income (loss) from operations                                            (3,369)              1,015
                                                                      --------------        --------------

OTHER INCOME (EXPENSE):
   Interest expense                                                         (2,313)             (1,880)
   Interest income                                                             345                 103
   Other                                                                       (29)                (40)
                                                                      --------------        --------------
         Total other (expense)                                              (1,997)             (1,817)
                                                                      --------------        --------------

Loss before income taxes and
  extraordinary items                                                       (5,366)               (802)

PROVISION (BENEFIT) FOR INCOME TAXES                                        (1,682)                150
                                                                      --------------        --------------

Loss before extraordinary items                                             (3,684)               (952)

EXTRAORDINARY ITEM (net of tax expense of $1,817)                            4,522                 -
                                                                      --------------        --------------

Net income (loss)                                                      $       838          $     (952)
                                                                      ==============        ==============


Earnings (loss) per common share:
   Loss before extraordinary item                                      $       (.24)        $       (.05)
   Extraordinary item                                                           .29                -
                                                                      --------------        --------------

Earnings (loss) per common share                                       $        .05         $       (.05)
                                                                      ==============        ==============

Weighted average shares outstanding                                         15,670              20,538
                                                                      ==============        ==============
<FN>
          The accompanying notes to consolidated financial statements
        are an integral part of these consolidated financial statements.
</FN>
</TABLE>
                                       3


<PAGE>
<TABLE>
<CAPTION>

                              RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 4)
                                             (Unaudited)

                                           (In thousands)
                                                                                                   QUARTERS ENDED
                                                                                            MARCH 31,          MARCH 30,
                                                                                              1996                1997
                                                                                           ------------        -----------
<S>                                                                                        <C>                 <C>    
CASH FLOWS PROVIDED FROM (USED IN) OPERATING ACTIVITIES:
   Net income (loss)                                                                       $      838          $   (952)
   Adjustments to reconcile net income (loss) to net cash provided by (used in)
     operating activities:
        Depreciation and amortization                                                           2,688             2,597
        Provision for restaurant closures and other                                               732               (17)
        Provision for losses on receivables                                                       159               (43)
        Extraordinary items, before tax expense of $1,817                                      (6,339)               --
                                                         --------------
        Other                                                                                     351               276
        Changes in assets and liabilities, net of effects from business combinations:
          (Increase) decrease in assets:
            Receivables                                                                          (212)             (791)
            Inventory                                                                             148                 7
            Prepaid expenses and other current assets                                            (116)              (35)
            Other assets                                                                         (259)              221
          Increase (decrease) in liabilities:
            Accounts payable, accrued interest and other accrued liabilities                      600               476
            Accrued income taxes                                                                 (111)              (57)
            Other liabilities                                                                    (340)             (334)
                                                                                           ------------        -----------

              Net cash provided by (used in) operating activities                              (1,861)            1,348
                                                                                           ------------        -----------

CASH FLOWS PROVIDED FROM (USED IN) INVESTING ACTIVITIES:
   Decrease in investments                                                                      4,933               168
   Notes receivable                                                                               204               297
   Pre-opening costs                                                                               (1)              (55)
   Capital expenditures                                                                          (311)           (1,073)
   Proceeds from the sale of property and equipment and assets held for sale                    2,621               481
                                                                                           ------------        -----------

              Net cash provided by (used in) investing activities                               7,446              (182)
                                                                                           ------------        -----------

CASH FLOWS PROVIDED FROM (USED IN) FINANCING ACTIVITIES:
   Decrease in restricted cash                                                                    --                236
   Net borrowings on line of credit                                                               500                --
   Principal payments of debt                                                                  (1,624)             (376)
   Senior notes retirement                                                                    (11,053)               --
   Proceeds from the issuance of common stock, net of costs of issuance                            14                32
   Principal payments on capital lease obligations                                               (148)              (99)
                                                                                           ------------        -----------

              Net cash used in financing activities                                           (12,311)             (207)
                                                                                           ------------        -----------

              Net increase (decrease) in cash                                                  (6,726)              959
                                                                                           ------------        -----------

CASH AND CASH EQUIVALENTS, beginning of period                                                  9,494             2,285
                                                                                           ------------        -----------

CASH AND CASH EQUIVALENTS, end of period                                                   $    2,768          $  3,244
                                                                                           ============        ===========
<FN>
          The accompanying notes to consolidated financial statements
        are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                       4

<PAGE>



                    RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

            (Tabular dollars in thousands, except per share amounts)



1.   FINANCIAL STATEMENT PRESENTATION

     The  accompanying  unaudited  consolidated  financial  statements have been
     prepared in accordance with the rules and regulations of the Securities and
     Exchange Commission for interim financial information. Accordingly, they do
     not  include  all the  information  and  footnotes  required  by  generally
     accepted   accounting   principles  for  complete   financial   statements.
     Therefore,  it is suggested that the accompanying  financial  statements be
     read in  conjunction  with  the  financial  statements  and  notes  thereto
     included in the  Company's  annual  report on Form 10-K for the fiscal year
     ended December 29, 1996  ("10-K").  Except as disclosed  herein,  there has
     been no material  change in the  information  disclosed in the notes to the
     consolidated  financial  statements  included in the 10-K.  Forward looking
     statements  contained  herein  should  be  read  in  conjunction  with  the
     cautionary statements contained in the 10-K.

     The consolidated financial statements include Rally's Hamburgers,  Inc. and
     its wholly-owned  subsidiaries,  each of which is described below.  Rally's
     Hamburgers,  Inc. and its subsidiaries are collectively  referred to herein
     as the context  requires as "Rally's"  or the  "Company".  All  significant
     intercompany  accounts and transactions have been eliminated.  On March 25,
     1997,  the Company  entered into a letter of intent to merge with  Checkers
     Drive-In Restaurants. See Note 9.

     Rally's is one of the largest  chains of double  drive-thru  restaurants in
     the United  States.  At March 30,  1997,  the Rally's  system  included 469
     restaurants  in 19  states,  primarily  in the  Midwest  and  the  Sunbelt,
     comprised of 214 Company-owned and operated, 229 franchised restaurants and
     26  Company-owned  restaurants  in Western  markets  which are  operated as
     Rally's  restaurants  by  CKE  Restaurants,  Inc.  ("CKE"),  a  significant
     shareholder of the Company,  under an operating  agreement which began July
     1996.  Two  additional   Company-owned  stores  covered  by  the  operating
     agreement have been converted to the Carl's Jr. format and are not included
     in the above store count. The Company's restaurants offer high quality fast
     food. The Company  primarily serves the drive-thru and take-out segments of
     the  quick-service  restaurant  industry.  The  Company  opened  its  first
     restaurant in January 1985 and began offering franchises in November 1986.

     Rally's  Hamburgers,  Inc., Rally's of Ohio, Inc., Self Service Drive Thru,
     Inc. and Hampton Roads Foods,  Inc. own and operate Rally's  restaurants in
     various  states.   Additionally,   Rally's  Hamburgers,  Inc.  operates  as
     franchisor of the Rally's brand. Rally's Management,  Inc. provides overall
     corporate management of the Company's businesses. Rally's Finance, Inc. was
     organized for the purpose of making loans to Rally's franchisees to finance
     the acquisition of restaurant  equipment and modular  buildings.  RAR, Inc.
     was  organized  for the  purpose of  acquiring  and  operating  a corporate
     airplane and is currently inactive. The Company's wholly-owned  subsidiary,
     ZDT  Corporation,  was formed to own the Zipps brand and franchise  system.
     MAC I was organized for the purpose of acquiring a manufacturer  of modular
     buildings and is currently inactive. The manufacturing business was sold in
     January 1995.


                                       5
<PAGE>

     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
     disclosures  of  contingent  assets  and  liabilities  at the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates  when  actual  transactions   anticipated  are  consummated.   In
     addition,  despite management  diligence,  changes in estimates do and will
     continue  to  occur  due  to  changes  in  available   relevant   data  and
     consummation of the events and transactions. The statements are prepared on
     a going concern basis.  Certain of the most significant  estimates  include
     useful lives assigned to  depreciable/amortizable  assets,  fair value less
     costs to sell of long-lived  assets held for sale, fair value of long-lived
     assets   held   for  use,   future   net   occupancy   costs   related   to
     closed/disposable  properties,  accruals for the Company's self-insured and
     high deductible  insurance programs and disclosures  regarding  commitments
     and contingencies.

     In the  opinion of  management,  the  accompanying  unaudited  consolidated
     financial  statements  include  all  adjustments  considered  necessary  to
     present  fairly,  when read in  conjunction  with the 10-K,  the  Company's
     financial  position as of March 30, 1997 and the results of its  operations
     for the fiscal  quarters  ended March 31, 1996 and March 30, 1997, and cash
     flows for the fiscal  quarters ended March 31, 1996 and March 30, 1997. The
     results  of  operations  for  such  interim  periods  are  not  necessarily
     indicative of the results to be expected for the full year.

     In March 1997, the Financial Accounting Standards Board issued Statement of
     Financial  Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128")
     which is  effective  for both  interim  and  annual  periods  ending  after
     December 15, 1997.  SFAS 128 replaces the standards for computing  earnings
     per share previously  found in Accounting  Principles Board Opinion No. 15,
     "Earnings  Per  Share"  ("APB  15").  Due to the  existence  of a loss from
     operations  for the quarters  ended March 31, 1996 and March 30, 1997,  the
     inclusion  of options  and  warrants  result in an  antidilutive  per share
     amount.  Therefore,  for all periods  presented,  such options and warrants
     would be excluded  from earnings per share  calculations  under both APB 15
     and, on a proforma basis, SFAS 128.

     Certain  items  have been  reclassified  in the  accompanying  consolidated
     financial  statements for prior periods in order to be comparable  with the
     classification  adopted for the current period. Such  reclassifications had
     no effect on previously reported net income.

2.   RESTRICTED CASH

     Restricted cash consists of amounts held in various Certificates of Deposit
     as collateral  for Letters of Credit and Automated  Clearing  House ("ACH")
     transactions.

3.   INVESTMENTS

     Excess  funds have been  invested in U.S.  Treasury  and  investment  grade
     corporate    debt    securities.    These    securities   are   deemed   as
     "available-for-sale" under SFAS 115, "Accounting for Certain Investments in
     Debt and Equity  Securities"  and are  reported at fair  value.  Unrealized
     holding  gains and losses,  excluding  those losses  considered to be other
     than  temporary,  are  reported as a net amount in a separate  component of
     shareholders'  equity.  There were no unrealized holding gains or losses at
     December  29, 1996 and March 30,  1997.  Provisions  for declines in market
     value are made for losses  considered to be other than  temporary.  No such
     provision was necessary for any period  presented.  The market value of the
     portfolio  was   determined   based  on  quoted  market  


                                       6
<PAGE>

     prices for these  investments.  Realized  gains or losses  from the sale of
     investments are based on the specific identification method.

     The carrying  value is equal to the market value of investments at December
     29, 1996 and March 30, 1997 and consists of the following:

          December 29, 1996
          -----------------
          United States government and its agencies    $      500
          Corporate debt instruments                        1,458
                                                       =============
          Total                                        $    1,958
                                                       =============

          March 30, 1997
          --------------
          United States government and its agencies    $      500
          Corporate debt instruments                        1,290
                                                       =============
          Total                                        $    1,790
                                                       =============

     The  proceeds  from the sale of  investments  and  related  gross gains and
     losses for the  quarters  ended  March 31,  1996 and March 30, 1997 were as
     follows:

                                                        QUARTERS ENDED
                                                  ----------------------------
                                                    MARCH 31,      MARCH 30,
                                                      1996           1997
                                                  ------------   ------------

          Proceeds from the sale of investments   $    4,933      $     168
          Gross gains realized                            --             --
          Gross losses realized                           --             --

4.   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

                                                         QUARTERS ENDED
                                                  ----------------------------
                                                    MARCH 31,      MARCH 30, 
                                                      1996           1997
                                                  ------------   -------------

     Interest paid (net of amount capitalized)     $     847      $      330
     Income taxes paid                                   238             173
     Capital lease obligations incurred                  111              --

     Interest  incurred during the construction of restaurants is capitalized as
     a  component  of  the  cost  of  the  restaurants  and  is  amortized  on a
     straight-line basis over the estimated useful lives of the restaurants. The
     amount of interest capitalized in all quarters was insignificant.

     For purposes of the  statement  of cash flows,  the Company  considers  all
     highly liquid debt instruments with an original maturity of three months or
     less at the date of purchase to be cash equivalents.

                                       7

<PAGE>


5.   COMMITMENTS AND CONTINGENCIES

     Litigation

     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,  against
     Rally's,  Burt  Sugarman and GIANT  Group,  Ltd.  ("GIANT")  and certain of
     Rally's  present and former  officers and directors  and its auditors.  The
     complaints allege defendants  violated the Securities Exchange Act of 1934,
     among other  claims,  by issuing  inaccurate  public  statements  about the
     Company 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.  In October  1995,  the  plaintiffs  filed a motion to
     disqualify  Christensen,  Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
     ("Christensen,  Miller")  as counsel  for  defendants  based on a purported
     conflict of interest  allegedly arising from the representation of multiple
     defendants as well as Ms.  Glaser's  position as both a former  director of
     Rally's  and  a  partner  in  Christensen,   Miller.  Defendants  filed  an
     opposition to the motion, and the motion to disqualify Christensen,  Miller
     was  denied.  The  action was stayed  between  May 30 and July 31,  1996 to
     facilitate  settlement  discussions.  One  settlement  conference  has been
     conducted; no others are currently scheduled.  Fact discovery is now set to
     be  completed  in late May  1997.  No trial  date has been  scheduled  yet.
     Management  is unable to predict  the outcome of this matter at the present
     time or whether or not certain  available  insurance  coverages will apply.
     The  defendants  deny  all  wrongdoing  and  intend  to  defend  themselves
     vigorously in this matter.  Discovery is proceeding.  Because these matters
     are in a preliminary  stage,  the Company is unable to determine  whether a
     resolution  adverse  to the  Company  will  have a  material  effect on its
     results of operations or financial  condition.  Accordingly,  no provisions
     for any liabilities that may result upon adjudication have been made in the
     accompanying   financial   statements.   An  estimate   of  defense   costs
     reimbursable  under the Company's  directors'  and  officers'  insurance is
     included  in "Other  Assets"  in the  accompanying  consolidated  financial
     statements.

     In February 1996, Harbor Finance Partners ("Harbor") commenced a derivative
     action,  purportedly  on behalf of  Rally's  against  GIANT and  certain of
     Rally's officers and directors before the Delaware  Chancery Court.  Harbor
     named Rally's as a nominal defendant.  Harbor claims that the directors and
     officers  of both  Rally's  and GIANT,  along with  GIANT,  breached  their
     fiduciary  duties to the public  shareholders of Rally's by causing Rally's
     to repurchase from GIANT certain Rally's Senior Notes at an inflated price.
     Harbor seeks "millions of dollars in damages", along with rescission of the
     repurchase  transaction.  In the  fall of  1996,  all  defendants  moved to
     dismiss the action. On April 3, 1997, the Chancery Court denied defendants'
     motions. The Company denies all wrongdoing and intends to vigorously defend
     the  action.  It is not  possible  to predict the outcome of this action at
     this time.

     Rally's  filed a lawsuit on August 12,  1996  against  Arkansas  Investment
     Group,  Inc.  ("AIGI"),  a franchisee  that currently  operates ten Rally's
     restaurants located in Arkansas. The lawsuit seeks to recover royalties and
     contributions  to the  Rally's  National  Advertising  Fund  owed  by  AIGI
     pursuant to the applicable franchise agreements,  which total approximately
     $540,000  with  accrued  

                                       8

<PAGE>
     interest as of March 30, 1997.  After  falling in arrears on its  royalties
     and advertising fund  contributions,  Rally's and AIGI negotiated a written
     agreement to allow AIGI to make payments under a revised payment  schedule.
     AIGI also  defaulted on that written  obligation.  AIGI has filed an Answer
     and  Counterclaim  in which it  alleges it does not owe the  royalties  and
     advertising  contributions due to its alleged disagreement with operational
     and marketing  decisions of Rally's and Rally's  alleged  failure to rebate
     sums obtained from suppliers. AIGI has asserted causes of action for breach
     of contract,  violation of the Arkansas  Franchise  Practices  Act,  unjust
     enrichment and fraud. The  Counterclaim  alleges that AIGI has been damaged
     in excess of approximately  $75,000 (the minimum  jurisdictional amount for
     federal  court),  but no specific  amount of damages is  identified  in the
     Counterclaim.  Rally's denies AIGI's  allegations and intends to vigorously
     defend the Counterclaim.  Because the litigation is in a preliminary stage,
     the  Company is unable to  determine  whether a  resolution  adverse to the
     Company  will  have a  material  effect on its  results  of  operations  or
     financial  condition.  Accordingly,  no provisions for any liabilities that
     may result upon adjudication  have been made in the accompanying  financial
     statements.

     In December 1994, Rally's entered into two franchise  agreements with Kader
     Investments,  Inc.  ("Kader") for the  development and operation of Rally's
     Hamburgers  restaurants  in Anaheim,  California  and  Tustin,  California.
     Rally's  assisted the franchisee in developing and opening the restaurants.
     On November 27, 1996, Kader filed a six-count  Complaint against Rally's in
     the California  Superior Court for Orange County (Case No. 772257) alleging
     material misrepresentation, respondent superior, breach of contract, breach
     of the implied  covenant of good faith and fair  dealing,  fraud and unfair
     competition. These claims arise out of allegations concerning Rally's offer
     and sale of two franchises (under a two-store development  agreement),  and
     Rally's actions during the term of the  agreements.  The Complaint seeks as
     relief  rescission of the parties'  franchise and  development  agreements;
     general  damages of at least  $1,494,277  and  $1,400,000  for the material
     misrepresentation  and  fraud  counts,  respectively;  general  damages  in
     unspecified amounts as to the other counts; punitive damages in unspecified
     amounts;  and attorneys' fees. Rally's filed an Answer, and intends to file
     a Cross-Complaint  alleging breach of contract. The court has permitted the
     parties to hold discovery in abeyance for a short period pending settlement
     discussions.  Rally's is currently attempting to settle the claim. However,
     the outcome of such settlement discussion is uncertain at this time. Should
     discussions  not result in a  settlement,  Rally's  intends  to  vigorously
     defend  against the  claims.  Because the  litigation  is in a  preliminary
     stage, the Company is unable to determine  whether a resolution  adverse to
     the Company  will have a material  effect on its results of  operations  or
     financial  condition.  Accordingly,  no provisions for any liabilities that
     may result upon adjudication  have been made in the accompanying  financial
     statements.

     The Company is  involved  in other  litigation  matters  incidental  to its
     business. With respect to such other suits, management does not believe the
     litigation  in which it is  involved  will have a material  effect upon its
     results of operation or financial condition.

     Other Commitments

     The  Company  is  contingently  liable  on  certain  franchisee  lease/loan
     commitments totaling approximately $350,000.

     The Company,  from time to time,  negotiates purchase contracts for certain
     items used in its  restaurants  in the normal course of business.  Although
     some  of  these  contracts  contain  minimum  purchase   quantities,   such
     quantities do not exceed expected usage over the term of such agreements.

                                       9

<PAGE>
6.   ASSETS HELD FOR SALE

     Assets held for sale include land and modular  buildings idled by the prior
     years' slowdowns in the Company's  expansion plans and land associated with
     the  closure  of stores.  The  Company  has  recorded  significant  charges
     resulting from restructurings,  other restaurant closings and certain other
     charges more fully discussed in the 10-K.

7.   IMPAIRMENT OF LONG-LIVED ASSETS

     The Company adopted  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),  at the  beginning  of the fourth  quarter,
     1995. This Statement establishes accounting standards for the impairment of
     long-lived assets, certain identifiable intangibles and goodwill related to
     those  assets to be held and used,  and for  long-lived  assets and certain
     identifiable  intangibles  to  be  disposed  of.  SFAS  121  requires  that
     impairment for long-lived  assets and  identifiable  intangibles to be held
     and used,  if any,  be based on the fair  value of the  assets.  Long-lived
     assets and  certain  identifiable  intangibles  to be disposed of are to be
     reported at the lower of  carrying  amount or fair value less cost to sell.
     For purposes of applying this Statement,  the Company determines fair value
     utilizing the present value of expected  future cash flows using a discount
     rate commensurate with the risks involved.

     Long-lived  assets considered for impairment under SFAS 121 are required to
     be grouped at the "lowest level for which there are identifiable cash flows
     that are  largely  independent  of the cash  flows  of other  groups."  The
     Company believes the most correct  application of this standard is obtained
     by examining  individual  restaurants where circumstances  indicate that an
     impairment  issue may exist.  In  addition,  if an asset  being  tested for
     recoverability was acquired in a business  combination  accounted for using
     the  purchase  method,  the  goodwill  that  arose in that  transaction  is
     included as part of the asset being evaluated and in determining the amount
     of any impairment.

     During the first quarter of 1996, two additional restaurants,  due to their
     continued  poor  operating  performance,  were  determined  to be impaired,
     resulting  in charges of  approximately  $754,000  included in the caption,
     Provision  for  restaurant  closures and other.  No  additional  long-lived
     assets have been determined to be impaired in the first quarter of 1997. As
     required by the Standard,  the Company will continue to periodically review
     its assets for impairment where circumstances indicate that such impairment
     may exist.

8.   REPURCHASE OF SENIOR NOTES

     On January 29, 1996, the Company  repurchased,  in two  transactions,  at a
     price of $678.75 per $1,000 principal amount, $22 million face value of its
     9 7/8%  Senior  Notes due in the year 2000 from  GIANT . The price  paid in
     each transaction  represented the market closing price on January 26, 1996.
     The first transaction  involved the repurchase of $16 million face value of
     the Notes for $11.1 million in cash.  The second  transaction  involved the
     purchase of $6 million  face value of Notes in exchange  for a $4.1 million
     short-term  note,  due in three  installments  of principal  and  interest,
     issued by Rally's.  The Company  paid the final  installment  on this note,
     together  with  accrued  interest  thereon,  on  September  27,  1996.  The
     repurchase  resulted in an extraordinary  gain, net of tax, of $4.5 million
     or $.29 per share.  An  additional  $4.7  million face amount of the Senior
     Notes were retired during the fourth quarter,  1996 at an aggregate gain of
     $200,000.  The 

                                       10

<PAGE>

     remaining outstanding Notes are publicly traded and at March 30, 1997 had a
     market  value of $53.5  million  based on the quoted  market price for such
     notes.

     These purchases  reduced total interest expense by  approximately  $329,000
     for the first quarter of 1996 and $703,000 for the first quarter of 1997.

9.   PROPOSED MERGER

     On March 25, 1997, the Company announced that it had agreed in principle to
     a merger  transaction  pursuant to which the  Company  will become a wholly
     owned subsidiary of Checkers Drive-In Restaurants, Inc. ("Checkers"). Under
     the terms of the letter of intent,  each share of Rally's common stock will
     be converted into three shares of Checkers' common stock upon  consummation
     of the merger.  The  transaction  is subject to  negotiation  of definitive
     agreements,  receipt  of  fairness  opinions  by  each  party,  receipt  of
     stockholder  and other  required  approvals and customary  conditions.  The
     Company continues to work through certain conditions that are a requirement
     of the letter of intent.



                                       11
<PAGE>


ITEM 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

The  Company  reported  a net loss of  $952,000  or $.05 per share for the first
quarter  of 1997,  which  represents  a 74%  improvement  over  the Loss  before
extraordinary  item of $3.7  million  or $.24 per share in the prior  year first
quarter. Net income for the prior year quarter of $838,000 or $.05 per share was
attributable to an  extraordinary  gain, net of tax, of $4.5 million or $.29 per
share from the early  extinguishment  of debt during the quarter,  offset by the
operating loss noted above.

Total  revenues  declined 22% quarter to quarter due to fewer  Company  units in
operation, lower same store sales and lower franchise revenues,  somewhat offset
by the impact of new stores and re-openings.  The agreement with CKE Restaurants
for operation of the Company's 28 West Coast  restaurants was the primary reason
for the decline in the number of Company units in operation.

The Company  attributes  the  improved  performance  over the prior year's first
quarter to its sustained  reductions in store level costs which were an integral
part of its overall  turnaround  plan.  Many of such  reductions  were initially
implemented in the last half of 1996.  This  improvement  was somewhat offset by
lower average unit volumes,  which decreased  leverage of fixed and semivariable
costs.  Store level  profits grew from  $619,000  last year to almost $4 million
this year,  and profit  margins  improved by 11  percentage  points.  Additional
detail of quarterly comparatives is provided below.

Historically,  the Company's  first quarter is its lowest  volume  quarter.  The
Company's  primary  challenge  continues to be one of improving same store sales
trends. The Company's new advertising of its newly adopted brand positioning did
not begin in all  Company  markets  until the  ninth  week of the  thirteen-week
quarter.  Prior to the full rollout, the Company initiated the campaign in three
of its  markets  in  December  1996.  Management  believes  that the five  weeks
"on-air" in the quarter were insufficient to significantly  alter the same store
sales trends,  which  remained  essentially  unchanged  from the fourth  quarter
trends. Company-operated units declined 14% during the quarter, while franchised
same store sales  declined 8%. Same store sales in the three markets  rolled out
in December have  performed 8% better than the  aggregate of all other  markets.
Management  believes this is partially  attributable to the timing of the recent
increase in price point  advertising by major  competitors  and to the Company's
prolonged  "off-air" hiatus during the fourth quarter.  Management believes that
this new positioning provides the best opportunity for the Company to create and
defend a profitable brand in a very competitive environment.  The Company cannot
outspend  its  much  larger  competitors  who are  expected  to  continue  their
aggressive  price  promotions;  however,  the Company  will  continue to utilize
television advertising of this new positioning on a continuous basis as it makes
tactical  refinements to stimulate  increased  consumer trial of its new, higher
quality burger products.

As more fully  discussed in Note 9 to the  accompanying  consolidated  financial
statements,  on March 25,  1997,  the  Company  announced  that it had agreed in
principle  to a merger  transaction  pursuant to which the Company will become a
wholly owned subsidiary of Checkers Drive-In Restaurants, Inc. ("Checkers").

During the quarter,  the Company  opened 5 units,  including  one unit  reopened
based on the Company's attainment of improved store level economics. Franchisees
have opened 3 units during the quarter and closed 6 units. For 1997,  management
expects to open a total of 18 Company  units,  including  3  reopenings,  and 20
franchised units.

                                       12

<PAGE>

Results of Operations

Rally's revenues are derived primarily from  Company-owned  restaurant sales and
royalty fees from franchisees. The Company also receives revenues from the award
of exclusive rights to develop Rally's  restaurants in certain  geographic areas
(area  development  fees) and the award of licenses to use the Rally's brand and
confidential  operating  system  (franchise  fees).  Systemwide sales consist of
aggregate  revenues  of  Company-owned  and  franchised  restaurants  (including
CKE-operated).   Company  revenue  also  includes  payments  resulting  from  an
operating   agreement  with  CKE,  referred  to  as  Owner  fee  income  in  the
accompanying  consolidated  financial  statements.  Restaurant  cost  of  sales,
restaurant  operating expenses,  depreciation and amortization,  and advertising
and promotion relate directly to Company-owned and operated restaurants. General
and   administrative   expenses  relate  to  both   Company-owned  and  operated
restaurants  and franchise  operations.  Owner expenses  relate to  CKE-operated
restaurants and consist primarily of depreciation and amortization.

The table below sets forth the percentage relationship to total revenues, unless
otherwise  indicated,  of certain items  included in the Company's  consolidated
statements of operations and operating data for the periods indicated:
<TABLE>
<CAPTION>

                                                                                         QUARTER ENDED
                                                                                 -------------------------------
                                                                                  MARCH 31,        MARCH 30,
                                                                                     1996             1997
                                                                                 -------------   ---------------
<S>                                                                              <C>             <C>   
     Restaurant sales                                                                   96.7%           95.9%
     Franchise revenues and fees                                                         3.3             3.5
     Owner fee income                                                                    0.0              .6
                                                                                 -------------   ---------------
                                                                                       100.0%          100.0%
                                                                                 =============   ===============

Costs and expenses
  Restaurant cost of sales (1)                                                          36.5%           31.8%
  Restaurant operating expenses (1)                                                     48.3            44.1
  General and administrative expenses                                                   11.1            12.1
  Advertising and promotion
    expenses (1)                                                                         7.0             4.3
  Depreciation and amortization (1)                                                      6.6             7.3
  Owner expense (2)                                                                     --             142.8%
  Provision for restaurant closures and other                                            1.8            (0.1)
  Income (loss) from operations                                                         (8.0)            3.1
  Total other (expense)                                                                 (4.8)           (5.6)
                                                                                 -------------   ---------------

  Net loss before income taxes and extraordinary items                                 (12.8)           (2.5)

   Net income (loss)                                                                     2.0%           (2.9)%
                                                                                 =============   ===============

Number of restaurants:
  Restaurants open at the beginning of period                                          481             467
                                                                                 -------------   ---------------

  Company restaurants opened (closed or transferred), net during period                 (1)              5
  Franchised restaurants opened (closed or transferred), net during period               2              (3)
                                                                                 -------------   ---------------
  Total restaurants opened (closed or transferred), net during period                    1               2
                                                                                 -------------   ---------------
  Total restaurants open at end of period                                              482             469
                                                                                 =============   ===============

(1)      As a percentage of restaurant sales.
(2)      As a percentage of owner fee income.
</TABLE>

                                       13

<PAGE>

Quarter Ended  March 31, 1996 Compared with Quarter Ended March 30, 1997

Systemwide  sales  decreased 11% to $68.2 million for the quarter  compared with
$76.6 million a year ago. This decrease is primarily  attributable to systemwide
same store sales  declines of 12%.  The decline in same store sales is primarily
due to lower quarter to quarter media  spending as a result of the timing of the
launch of the advertising of the Company's newly adopted Bigger,  Better Burgers
positioning  and the Company's  decision not to match the deep  discount  offers
which  greatly  impacted  store  margins in the prior year. In the fall of 1996,
management  decided to limit media spending until work with its new  advertising
agency on new creative and brand positioning was completed.  The new advertising
campaigns  and  enhanced  menu  offering  started in most  markets at the end of
February, as previously discussed.

Total Company  revenues  decreased 22% to $32.6 million for the quarter compared
with $41.9  million a year ago.  Company-owned  and  operated  restaurant  sales
decreased $9.3 million to $31.3 million due to a 14% decline in same store sales
during the  quarter and to a decline in  revenues  of  approximately  $5 million
attributable to the Company's operating agreement with CKE, as discussed in Note
1 to the accompanying consolidated financial statements.

Restaurant cost of sales, as a percentage of sales,  decreased to 31.8% for 1997
compared with 36.5% for the comparable  quarter of the prior year.  This decline
is primarily due to the impact of implemented  cost reduction  strategies and to
reduced levels of discounting in the current year quarter.  These cost reduction
strategies   include   selective   changes  in  some   product   and   packaging
specifications  as well as  renegotiation  of purchase  terms and  selection  of
alternative  vendors.  Management  intends  to  continue  to  consumer  test and
implement such cost savings strategies in its stores, where appropriate.

Restaurant  operating  expenses were 44.1% of sales  compared with 48.3% for the
comparable  quarter  of the  prior  year.  The  reduction  is  primarily  due to
management's  cost  reduction  actions in the labor  area and better  fixed cost
coverage  in stores  operated by the Company  during the current  year  quarter,
primarily the result of the CKE operating  agreement covering certain high fixed
cost restaurants in Western markets.  The identified and implemented  changes in
staffing levels and labor  deployment in certain stores are yielding  savings in
management and crew labor. Management believes that these cost reduction actions
should favorably influence ongoing operating expense performance; however, their
impact may be partially offset by expected increases in the minimum wage.

General and administrative  expenses were approximately  $700,000 lower than the
prior year quarter but represented  12.1% of total revenues  compared with 11.1%
for the  comparable  quarter of the prior year due to the lower overall  revenue
levels.  This dollar  decrease  was  primarily  attributable  to the transfer of
operational responsibility for certain restaurants in Western markets to CKE, to
a reduction in non-restaurant  staffing levels, lower levels of bad debts and to
a reduction in bonuses payable for the quarter.

Advertising  expenses decreased  approximately  $1.5 million,  or 2.7 percentage
points,  in the first  quarter of 1997  compared to the same quarter of 1996 due
primarily to fewer weeks "on air" in the current year  quarter.  The new Bigger,
Better Burgers campaign started in most markets at the end of February, ending a
lengthy "off-air" period in those markets.

Depreciation  and  amortization  decreased  approximately  $400,000 in the first
quarter of 1997 compared to the same quarter of 1996. This decrease is primarily
due to a  segregation  into  Owner  expense  of  depreciation  and  amortization
associated  with the  CKE-operated  properties.  See Note 1 to the  accompanying
consolidated financial statements, for further discussion.

                                       14

<PAGE>

Owner  expenses of $300,000 in the first quarter of 1997 represent the Company's
segregated  ownership  cost  related  to the 28  units  operated  by CKE.  These
expenses consist primarily of depreciation and amortization  associated with the
properties.

Provision for restaurant  closures and other of $732,000 in the first quarter of
1996  primarily  relates to a charge in the prior year quarter for the estimated
impairment of two restaurants  under SFAS 121. No additional  long-lived  assets
have been determined to be impaired in the first quarter of 1997.

Interest  expense  decreased  19% in the first  quarter of 1997 to $1.9  million
compared to $2.3 million in 1996  primarily due to the early  extinguishment  of
debt  during  1996.  See  Note  8 to  the  accompanying  consolidated  financial
statements, for further discussion.

Interest income decreased 70% in the first quarter of 1997 to $103,000  compared
to $345,000 in 1996,  due to lower  interest  earned on self insurance and other
security deposits.

The  Company's  net  tax  provision  was  essentially  flat  between  years  and
represents  state taxes  expected to be payable for both years.  The Company has
continued not recording a benefit for the currently  recordable  book losses due
to uncertainty of their ultimate realizability.

The  extraordinary  item in the  first  quarter  of  1996  represents  the  gain
recognized,  net of taxes,  on the early  retirement of debt.  See Note 8 to the
accompanying consolidated financial statements, for further discussion.

Liquidity and Capital Resources

The Company's  cash flow provided from operating  activities  was  approximately
$1.3  million  for the first  quarter  of 1997  compared  with cash flow used in
operating  activities of  approximately  $1.9 million for the same period in the
prior year.  This increase  resulted  primarily  from the higher net income from
operations in 1997,  adjusted for depreciation,  amortization and other non-cash
items.

Capital expenditures of approximately $1.1 million for the first quarter of 1997
were funded primarily through operating activities,  sales of surplus properties
and existing cash balances.  Approximately  $760,000 of these  expenditures were
for the  construction or conversion of new stores and for the reopening of three
units  previously  closed.  Five of these stores  opened in the first quarter of
1997,   including  one  unit  reopened.   Seven  additional  stores  were  under
construction  at March 30,  1997,  including  two units  which  were  previously
closed.  Remaining  capital  expenditures  were  primarily  for the purchase and
installation of certain replacement equipment.

The  Company  plans to open 15 new units in 1997 and  reopen 3 units  previously
closed.  Full  year  capital  expenditures  are  expected  to be in the range of
approximately $6 million to $8 million, inclusive of replacement capital.

Principal  payments of debt and capital  leases totaled  approximately  $475,000
during the first  quarter of 1997.  The  Company is required to make a mandatory
sinking fund payment on June 15, 1999  calculated to retire 33 1/3% in aggregate
original  principal  amount of the Senior Notes issued with the balance maturing
on June 15, 2000. Such sinking fund requirement,  due to debt repurchases in the
prior year, is now approximately $1.6 million.

The Company is actively  marketing  the assets  included in the caption  "Assets
held for  sale" in the  accompanying  consolidated  balance  sheet  and  expects
realization in cash over the next 3 to 24 months, 

                                       15


<PAGE>

although  actual  timing of such cash  flows  cannot be  predicted.  The  assets
contained in this caption are recorded at management's  current estimate of fair
market value less costs to sell.  There can be no  assurances  that these values
will be ultimately  realized.  Approximately  $481,000 was generated  during the
first quarter of 1997 from the sale of such assets.

During the first quarter,  the Company continued to receive funds (approximately
$100,000)  on land  contracts  which are the subject of an  aggregate  amount of
approximately  $1.8 million of  sale/leaseback  financing.  The interest rate on
such  facility is  approximately  12.5%.  The holder of such  contracts has been
unable,  since the end of the quarter, to complete  contractual  requirements to
fund such transactions. Such inability by the holder to fulfill the contracts is
not  anticipated  to impact the  Company's  overall  liquidity  in any  material
respect.

The Company completed its Shareholder Rights Offering on September 20, 1996. The
Offering raised over $10.8 million in gross proceeds,  offset by legal and other
issuance costs of approximately  $437,000.  In addition to the approximate $10.8
million of gross proceeds provided by the Offering,  the Warrants issued as part
of the Offering  could  provide  approximately  $10.8  million for the Company's
future growth. As of March 30, 1997,  4,816,835  Warrants were outstanding.  Any
proceeds  generated from the exercise of such warrants may be used for new store
construction,  refurbishment of some existing  restaurants and for other general
corporate purposes, including possible further debt reduction.

On December 20, 1996,  the Company  issued  warrants to purchase an aggregate of
1,500,000  restricted  shares of its Common Stock to CKE and  Fidelity  National
Financial,  Inc. These warrants have a three-year  term and are not  exercisable
until  December 20, 1997.  The exercise  price is $4.375 per share,  the closing
price of the Common Stock on December 20, 1996. The underlying  shares of Common
Stock have not been registered with the Securities and Exchange  Commission and,
therefore, are not freely tradable. If these warrants are exercised, the Company
will receive approximately $6.6 million in additional capital.

The Company believes existing cash balances and cash flow from operations should
be sufficient to fund its current operations and obligations. The ability of the
Company to satisfy its obligations under the Senior Notes, however, continues to
be dependent  upon,  among other factors,  the Company  successfully  increasing
revenues and profits.

                                       16
<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.   Legal  Proceedings - See Note 5 to Part I, Item 1 which is
          incorporated herein by reference.

ITEM 6.   Exhibits and Reports on Form 8-K.

          (a) Exhibits:

              EXHIBIT NUMBER                DESCRIPTION OF DOCUMENT
             ----------------       --------------------------------------------
                  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.

                 27                 Financial Data Schedule (for SEC use only)

          (b) Reports on Form 8-K:

          There were no Form 8-K reports filed during the first quarter of 1997.



                                       17
<PAGE>


                                   SIGNATURES



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


                            RALLY'S HAMBURGERS, INC.





Date: May 14, 1997          By:    /s/ Donald E. Doyle
                                 -----------------------------------------------
                                 Donald E. Doyle
                                 President and Chief Executive Officer





Date: May 14, 1997          By:    /s/ Mark A. Noltemeyer
                                 -----------------------------------------------
                                 Mark A. Noltemeyer
                                 Senior Vice President, Finance
                                 (Principal Financial and Accounting Officer)




                                       18