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 22, 1998

[X] 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)

            600 Cleveland Street, Eighth Floor, Clearwater, FL 33755
                    (Address of principal executive offices)

        Registrant's telephone number, including area code: 813/441-3500

         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 APRIL 15, 1998 - 28,871,123 shares

<PAGE>
                                TABLE OF CONTENTS
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                                                                                                             Page No.
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PART I            FINANCIAL INFORMATION

     Item 1.      Financial Statements

                  Condensed Consolidated Balance Sheets
                      March 22, 1998 and December 30, 1997........................................................3

                  Condensed Consolidated Statements of Operations
                      Quarter ended March 22, 1998 and March 30, 1997.............................................5

                  Condensed Consolidated Statements of Cash flows
                      Quarter ended March 22, 1998 and March 30, 1997.............................................6

                  Notes to Condensed Consolidated Financial Statements (unaudited)................................7

     Item 2.      Management's Discussion and Analysis of Financial Condition
                       and Results of Operations.................................................................10

PART II           OTHER INFORMATION

     Item 1.      Legal Proceedings..............................................................................14

     Item 2.      Changes in Securities..........................................................................14

     Item 3.      Defaults Upon Senior Securities................................................................14

     Item 4.      Submission of Matters to a Vote of Security Holders............................................14

     Item 5.      Other Information..............................................................................14

     Item 6.      Exhibits, Financial Statement Schedules and Reports on Form 8-K................................14

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                                       2
<PAGE>

PART 1.        FINANCIAL INFORMATION

Item 1.        Financial Statements (Unaudited)

                    RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                  ASSETS
                                                                                          (Unaudited)
                                                                                           March 22,        December 28,
                                                                                              1998             1997
                                                                                         ---------------  ---------------------
<S>                                                                                     <C>                   <C>    
Current assets:

Cash and cash equivalents                                                                $     2,794          $     4,008
Restricted cash                                                                                1,380                1,380
Investments                                                                                      344                  446
Accounts receivable                                                                            3,003                1,949
Notes receivable                                                                                 116                    -
Inventory                                                                                      1,158                1,052
Prepaid expenses and other current assets                                                        926                1,057
Assets held for sale                                                                             926                1,076
                                                                                        -----------------   ------------------
      Total current assets                                                                    10,647               10,968


Property and equipment, net of accumulated depreciation                                       66,523               68,067
Investment in affiliate                                                                       24,979               24,988
Notes receivable, long term portion                                                              700                  872
Goodwill, less accumulated amortization of $2,943 and $2,811 respectively                      9,782                9,913
Reacquired franchise and territory rights, less accumulated amortization of $3,254
   and $2,991, respectively                                                                   12,495               12,758
Other intangibles, less accumulated amortization of $2,958 and $2,894, respectively            4,270                4,334
Other assets                                                                                   2,420                2,397
                                                                                        -----------------   ------------------
                                                                                         $   131,816          $   134,297
                                                                                        =================   ==================

</TABLE>


See notes to Condensed Consolidated Financial Statements

                                       3
<PAGE>
                    RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

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<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                                (Unaudited)
                                                                                                 March 22,         December 28,
                                                                                                   1998                1997
                                                                                               --------------   -----------------
<S>                                                                                            <C>                <C>  
Current liabilities:

Accounts payable                                                                                $     8,084         $       7,076
Accrued liabilities                                                                                  11,942                13,507
Current maturities of long-term debt and obligations under capital leases                             1,170                 1,194
                                                                                            -----------------   -----------------
         Total current liabilities                                                                   21,196                21,777

Senior notes, net of discount of $296 and $321, respectively                                         58,030                58,005
Long-term debt, less current maturities                                                               3,847                 4,017
Obligations under capital leases, less current maturities                                             5,147                 5,228
Other non-current liabilities                                                                         3,173                 3,757
                                                                                               -----------------   -----------------
         Total liabilities                                                                           91,393                92,784
                                                                                               -----------------   -----------------

Stockholders' equity:

Preferred stock, $.10 par value, 5,000,000 shares authorized, 45,667 shares issued                        5                     5
Common stock, $.10 par value, 50,000,000 shares authorized, 24,843,657 and 24,836,900
   shares issued, respectively                                                                        2,484                 2,484
Additional paid-in capital                                                                           97,269                97,277
Less:  Treasury shares, 273,000                                                                      (2,108)               (2,108)
Retained deficit                                                                                    (57,227)              (56,145)
                                                                                               -----------------   -----------------
         Net stockholders' equity                                                                    40,423                41,513
                                                                                               -----------------   -----------------
                                                                                                $   131,816         $     134,297
                                                                                               =================   =================


</TABLE>

See notes to Condensed Consolidated Financial Statements

                                       4

<PAGE>
                    RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands except per share amounts)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                   Quarter Ended
                                                                          --------------------------------
                                                                            March 22,         March 30,
                                                                              1998              1997
                                                                          --------------    --------------
<S>                                                                      <C>               <C>   
REVENUES:                                                                                     
   Restaurant sales                                                        $   30,962       $   31,250
   Franchise revenues and fees                                                  1,043            1,135
   Owner fee income                                                               159              210
                                                                          --------------    --------------
         Total revenues                                                        32,164           32,595
                                                                          --------------    --------------

COSTS AND EXPENSES:
   Restaurant food and paper costs                                             10,047            9,936
   Restaurant labor costs                                                       9,708            9,606
   Restaurant occupancy expense                                                 1,552            1,518
   Restaurant depreciation and amortization                                     1,554            1,782
   Other restaurant operating expense                                           2,663            2,744
   Advertising expense                                                          1,644            1,354
   Owner expense                                                                  257              300
   Other depreciation and amortization                                            627              579
   Loss on investment in affiliate                                                 42                -
   General and administrative                                                   3,482            3,818
   Losses on assets to be disposed of                                              31              (17)
                                                                          --------------    --------------
         Total costs and expenses                                              31,607           31,620
                                                                          --------------    --------------

   Operating income                                                               557              975
                                                                          --------------    --------------

OTHER INCOME (EXPENSE):
   Interest expense                                                            (1,690)          (1,880)
   Interest income                                                                 77              103
                                                                          --------------    --------------
       Loss before income tax expense                                          (1,056)            (802)
                                                                          --------------    --------------
    Income Tax Expense                                                             26              150
                                                                          --------------    --------------
       Net Loss                                                            $   (1,082)      $     (952)
                                                                          ==============    ==============
Comprehensive Income (Loss)                                                $   (1,082)      $     (952)
                                                                          ==============    ==============

Net loss per common share-basic                                            $     (.04)      $     (.05)
                                                                          ==============    ==============
Net loss per common share-diluted                                          $     (.04)      $     (.05)
                                                                          ==============    ==============

Weighted average number of common shares - basic                               24,568           20,538
                                                                          ==============    ==============
Weighted average number of common shares - diluted                             24,568           20,538
                                                                          ==============    ==============

</TABLE>
                                       5
<PAGE>

                    RALLY'S HAMBURGERS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                           Quarter Ended
                                                                                  --------------------------------
                                                                                    March 22,         March 30, 
                                                                                      1998              1997
                                                                                  --------------  ----------------

<S>                                                                             <C>               <C>   
Cash flows from operating activities:
   Net loss                                                                      $   (1,082)       $      (952)
   Adjustments to reconcile net loss to net cash provided by (used in)
     operating activities:
        Depreciation and amortization                                                 2,438              2,597
        Provision for losses on assets to be disposed of                                 31                (17)
        Deferred loan cost amortization                                                  94                 96
        Provisions for bad debt                                                          35                (43)
        Investment in affiliates earnings (loss)                                         42                  -
        Provisions for income taxes                                                      26                150
        Other                                                                             -                180
        Changes in assets and liabilities, net of effects from
          business combinations:
          (Increase) decrease in assets:
            Receivables                                                              (1,033)              (791)
            Inventory                                                                   (55)                 7
            Prepaid expenses and other current assets                                     7                (35)
            Other assets                                                                (23)               221
          Increase (decrease) in liabilities:
            Accounts payable                                                          1,008                282
            Accrued and other liabilities                                            (1,993)              (347)
                                                                                 ----------------  ----------------
              Net cash (used in) provided by operating activities                      (505)             1,348
                                                                                 ----------------  ----------------
Cash Flows from investing activities:
   Decrease in investments                                                              102                168
   Notes receivable                                                                       -                297
   Pre-opening costs                                                                      -                (55)
   Capital expenditures                                                                (623)            (1,073)
   Proceeds from the sale of property and equipment and assets held for sale            119                481
   Cash paid for investment in affiliates                                               (32)                 -
                                                                                 ----------------  ----------------
              Net cash used in investing activities                                    (434)              (182)
                                                                                 ----------------  ----------------
Cash flows from financing activities:
   Decrease in restricted cash                                                            -                236
   Principal payments of debt                                                          (275)              (376)
   Proceeds from the issuance of common stock, net of costs of issuance                   -                 32
   Principal payments on capital lease obligations                                        -                (99)
                                                                                 ----------------  ----------------
              Net cash used in financing activities                                    (275)              (207)
                                                                                 ----------------  ----------------
              Net (decrease) increase in cash                                        (1,214)               959
Cash at beginning of period                                                           4,008              2,285
                                                                                 ================  ================

Cash at  end of period                                                           $    2,794        $     3,244
                                                                                 ================  ================

Supplemental disclosures of cash flow information---
              Interest paid                                                      $      267        $       330
                                                                                 ================  ================
              Income taxes paid                                                  $       21        $       173
                                                                                 ================  ================
</TABLE>
                                       6
<PAGE>

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


Note 1  Summary of Significant Accounting Policies

(a)               Basis of presentation - The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
the information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
necessary to present fairly the information set forth therein have been
included. The operating results for the quarter ended March 22, 1998, are not
necessarily an indication of the results that may be expected for the fiscal
year ending December 28, 1998. 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 Company's Annual Report on form 10-K for
the year ended December 28, 1997. Therefore it is suggested that the
accompanying financial statements be read in conjunction with the Company's
December 28, 1997 consolidated financial statements. As of December 29, 1997 the
Company changed from a 13 week quarter to a 12 week quarter with the exception
of the fourth quarter which consists of sixteen weeks.

(b)               Purpose and Organization - The principal business of Rally's
Hamburgers, Inc. (the "Company", "Rally's") is the operation and franchising of
Rally's Restaurants. Rally's is one of the largest chains of double drive-thru
restaurants in the United States. At March 28,1998, the Rally's system included
478 restaurants in 18 states located primarily in the Midwest and the Sunbelt
and are comprised of 229 Company-owned and operated, 249 franchised restaurants,
including 27 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.

                  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 inter-company accounts and transactions have been eliminated. The
investment in affiliate, which is owned more than 20% and less than 50%
represents an investment in Checkers Drive-In Restaurants, Inc. ("Checkers") and
is recorded under the equity method.

                  Rally's Hamburgers, Inc., and three of it's subsidiaries,
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 1 was organized for the purpose of acquiring a
manufacturer of modular buildings and is currently inactive. The manufacturing
business was sold in January 1995.

(c)               Revenue Recognition - The Company recognizes franchise fees as
income on the date a restaurant is opened, at which time the Company has
performed its obligations relating to such fees. Area development fees are
generated from the awarding of exclusive rights to develop, own and operate
Rally's restaurants in certain geographic areas pursuant to an Area Development
Agreement. Such fees are recognized as income on a pro rata basis as the
restaurants are opened or upon the cancellation or expiration of an Area
Development Agreement. Both franchise fees and area development fees are
non-refundable. The Company also receives royalty fees from franchisees
typically in the amount of 4% of each franchised restaurant's gross revenues, as
defined in the Franchise Agreement. Royalty fees are recognized as earned.

(d)               Cash and Cash Equivalents - The Company considers all highly
liquid instruments purchased with an original maturity of less than three months
to be cash equivalents.

(e)               Restricted Cash - Restricted cash consists of amounts held in
various Certificates of Deposit as collateral for Letters of Credit and
Automated Clearinghouse ("ACH") transactions.

                                       7
<PAGE>


(f)               Investments - All of the Company's investment securities are
deemed as "available-for-sale" under SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities". Accordingly, investments are
reported at fair value with unrealized holding gains and losses, excluding those
losses considered to be other than temporary, reported as a net amount in a
separate component of shareholders' equity. Provisions for declines in market
value are made for losses considered to be other than temporary. Realized gains
or losses from the sale of investments are based on the specific identification
method. No unrealized gains or losses were recorded for any period presented,
due to the quoted market prices of the Company's investments approximating the
cost.

(g)               Receivables - Receivables consist primarily of franchise fees,
royalties and notes due from franchisees and owner fee income and advances to
the National Advertising Fund which provides broadcast creative production for
use by the Company and its franchisees. Allowances for doubtful receivables were
$697,000 at March 22, 1998 and $431,000 at December 28, 1997.

(h)               Inventory - Inventory is valued at latest invoice cost, which
approximates the lower of first-in, first-out cost or market.

(i)               Impairment of Long Lived Assets - The Company accounts for
tangible property and intangibles under the 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 to the level supported by the forecasted discounted cash flow in cases
where undiscounted cash flow projected does not exceed the book value of the
related assets.

(j)               Property and Equipment - Property and equipment are
depreciated using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes. The estimated useful lives for
financial reporting purposes are the shorter of 20 years or the lease life plus
available renewal options for buildings and property held under capital leases,
eight years for furniture and equipment, five years for software and computer
systems and the life of the lease for leasehold improvements. Expenditures for
major renewals and betterments are capitalized while expenditures for
maintenance and repairs are expensed as incurred.

(k)               Earnings (Loss) per common share - Basic earnings (loss) per
common share is calculated based upon the Company's reported income and the
weighted average common shares outstanding of 24,568,000 and 20,538,000 for
quarters ended March 22, 1998 and March 30, 1997, respectively. The income loss
and average shares outstanding for purposes of the computation of diluted
earnings per share are the same as for the computation of basic earnings per
share. Potentially dilutive convertible preferred stock, common stock warrants
and common stock options have no effect, as they are anti-dilutive for all
periods presented.

(l)               New Accounting Standards - In June 1997, the Financial
Accounting Standards Board issued SFAS 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. Comprehensive income is the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. This statement is effective for
fiscal years beginning after December 15, 1997. Reclassification of the
Company's financial statements for earlier periods provided for comparative
purposes are required under SFAS 130.

(m)               Year 2000 - Many computer systems using two-digit fields to
store years must be converted to read four-digit fields before the turn of the
century in order to recognize the difference between the years 1900 and 2000.
The Company's software system and certain Restaurant level hardware will be
upgraded or replaced in time to meet the Year 2000 requirements at a cost
estimated at approximately $300,000 and will be funded through operating cash
flows. The Company anticipates expensing all costs associated with these systems
changes as the costs are incurred.

(n)               Reclassifications - 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.


Note 2            Related Party Transaction

                  Effective November 30, 1997, the Company entered into a
Management Services Agreement, pursuant to which certain of the management of
Checkers Drive-In Restaurants, Inc. ("Checkers") is providing key services to
Rally's, including executive management, financial planning and accounting,
franchise administration, purchasing and human resources. In addition, Rally's
and Checkers share certain of their executive officers, including Chief
Executive Officer and 


                                       8
<PAGE>

the Chief Operating Officer. The Management Services Agreement carries a term of
seven years, terminable upon the mutual consent of the parties. The Company
incurs fees from Checkers relative to the shared departmental costs times the
respective store ratios. Checkers increased its corporate and regional staff in
late 1997 and early 1998 in order to meet the demands of the agreement, but
management believes that sharing of administrative expenses under the terms of
the agreement will enable Checkers to attract the management staff with
expertise necessary to more successfully manage and operate both Checkers and
the Company at significantly reduced costs to both entities. Although the number
of Checkers employees has grown to handle the increased workload, the costs of
each department are equitably allocated between the Company and Checkers in
accordance with the Management Services Agreement. The total cost of these
services was $913,000 during the quarter ended March 22, 1998.


Note 3            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,
Louisville division, against Rally's, Burt Sugarman and GIANT and certain of
Rally's present and 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, case number C-94-0039-L(CS). 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. 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.
The Chancery Court conducted a hearing on November 26, 1996 and denied the
motions to dismiss on April 3, 1997. 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.

                  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 arose 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 sought 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, but on December 18, 1997 in settlement of the
litigation, the parties entered into a memorandum of understanding pursuant to
which the Company would purchase Kader's restaurants for $1.65 million. The
purchase price consisted of $855,000 in cash, $375,000 in restricted stock and
$420,000 in notes. The transaction closed on April 24, 1998 and the action has
been dismissed.


                                       9
<PAGE>

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


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

Introduction

                  The Company commenced operations in 1985 to operate and
franchise Rally's Hamburgers. As of March 22, 1998, the Company had an ownership
interest in 229 Company-operated Restaurants and an additional 249 restaurants
were operated by franchisees, including 27 Company-owned restaurants in Western
markets which are operated as Rally's restaurants by CKE Restaurants, Inc.
("CKE") under an operating agreement which began in July, 1996. During the first
quarter of fiscal 1998, the Company and its franchisees combined experienced a
net increase of one operating restaurant. In 1998, the franchise community has
indicated intent to open approximately 10 new units and the Company intends to
open approximately two new restaurants.

                  The Company's fiscal year end historically has ended on the
Sunday closest to December 31 and has included twelve reporting periods and
quarters that include 13 weeks each. Effective with fiscal year 1998, the fiscal
year will end on the Monday closest to December 31 and includes thirteen
reporting periods, three quarters that include twelve weeks and the fourth
quarter that will include sixteen weeks.

                  During the first quarter of fiscal 1998, sales at the
Company's comparable stores increased 1.6% over the same twelve weeks in the
prior year. The quarterly comparison of total restaurant dollars is negatively
impacted by the extra week of sales ($2.6 million) in the prior year's first
quarter as described above. Partially offsetting the impact of reporting one
less week of sales during the quarter are the incremental sales related to the
addition of 23 units in fiscal year 1997 ($2.2 million).

                  The increase in comparable store sales was the first such
increase since the first quarter of fiscal year 1996. The increase in sales can
be attributable to a more complete schedule of television advertising during the
current year as compared to the prior year during which no television
advertising occurred in most markets during the first eight weeks of the
quarter. In addition, the Company feels that the new advertising campaign that
focuses more on taste rather than toys, movie tie-ins or playgrounds will
succeed in creating a point of difference for the consumer.

                  The Company continues to test the viability of adding dining
rooms to existing restaurants to provide indoor seating for those customers that
consider that an important criteria in their choice of a restaurant. As of March
22, 1998, dining rooms have been added to five restaurants with resulting sales
increases ranging from 7% to 35%. With the experience gained from this initial
test group, management is now surveying all company-owned units to determine the
next group of stores that will be considered for the dining room addition.

                  The Company experienced increases in food, paper and labor
costs during the first quarter of 1998. These costs totaled 63.8% of restaurant
revenues versus 62.5% in the first quarter of 1997. This increase is due
primarily to certain price point promotions and additional labor used to focus
on speed of service improvements during the first quarter of 1998.

                  Effective November 30, 1997, the Company entered into a
Management Services Agreement with Checkers Drive-In Restaurants, Inc.
("Checkers") whereby Checkers provides administrative services such as
accounting, information technology, human resources, purchasing and other
functional and management services for the Company. The Management Services
Agreement carries a term of seven years, terminable upon the mutual consent of
the parties. The Company pays fees to Checkers relative to the shared
departmental costs times the respective store ratio. Management believes that
the sharing of administrative expenses under the terms of this agreement will
enable the companies to attract the management staff with expertise necessary to
more successfully manage and operate both Checkers and the Company at
significantly reduced costs to both entities.

                                       10

<PAGE>
Results of Operations

         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
                                                                                         (Unaudited)
                                                                              ----------------------------------
                                                                                  March 22,        March 30,
                                                                                    1998              1997
                                                                              ------------------ ---------------
<S>                                                                           <C>                <C>   
Revenues
     Restaurant sales                                                                96.3%              95.9%
     Franchise revenues and fees                                                      3.2%               3.5
     Owner fee income                                                                  .5%                .6
                                                                              ------------------ ---------------
                                                                                    100.00%            100.0%
                                                                              ================== ===============
Costs and Expenses
  Restaurant food and paper costs (1)                                                32.4%              31.8%
  Restaurant labor costs (1)                                                         31.4%              30.7%
  Restaurant occupancy expense (1)                                                    5.0%               4.9%
  Restaurant depreciation and amortization (1)                                        5.0%               5.7%
  Other restaurant operating expense (1)                                              8.6%               8.8%
  Advertising expense (1)                                                             5.3%               4.3%
  Owner expense (2)                                                                 161.6%             142.9%
  Other depreciation and amortization                                                 1.9%               1.8%
  Loss on investment in affiliate                                                     0.1%               0.0%
  General and administrative expenses                                                10.8%              11.7%
  Losses on assets to be disposed of                                                  0.1%              (0.1%)
                                                                              ------------------ ---------------
     Total costs and expenses                                                        98.3%              97.0%
                                                                              ------------------ ---------------
  Operating income                                                                    1.7%               3.0%

Other Income and (Expense)
   Interest income                                                                    0.2%               0.3%
   Interest expense                                                                  (5.3)%             (5.8)%
                                                                              ------------------ ---------------
   Net loss before income tax expense                                                (3.3)%             (2.5)%
                                                                              ------------------ ---------------

    Income tax expense                                                                0.1%               0.5%
                                                                              ================== ===============
     Net loss                                                                        (3.4)%             (2.9)%
                                                                              ================== ===============

Number of Restaurants:
    Restaurants open at the beginning of period                                       477                467
                                                                              ----------------     -------------

    Company restaurants opened (closed or transferred), net during period               -                  5
    Franchised  restaurants  opened  (closed  or  transferred),  net during             1                 (3)
period
                                                                              ----------------     -------------
    Total restaurants opened (closed or transferred), net during period                 1                  2
                                                                              ================     =============
    Total restaurants open at end of period                                           478                469
                                                                              ================     =============
</TABLE>


(1)   As a percentage of Restaurant sales.
(2)   As a percentage of Owner fee income.

                                       11

<PAGE>


Comparison of Historical Results - Quarter Ended March 22, 1998 and Quarter 
Ended March 30, 1997

                  Revenues. The comparison of total revenues for the quarter is
impacted by the inclusion of thirteen weeks in the quarter-ended March 30, 1997
as opposed to twelve weeks in the quarter ended March 22, 1998 as discussed
above. Total revenue for the twelve weeks ended March 22, 1998 of $32.2 million
reflects a decrease of $431,000 from the revenue of $32.6 million that was
recognized for the thirteen weeks ended March 30, 1997. Revenue that was
recognized during the extra week of the quarter ended March 30, 1997 was $2.6
million. Offsetting the negative comparative impact of the extra week of sales
was an increase in comparable store sales for Company-owned restaurants of 1.6%
compared to the same twelve weeks of the prior year. Comparable Company-owned
restaurants are those continuously open during both reporting periods. In
addition to comparable store sales increases, sales generated by 23 new
company-owned units that opened during the prior fiscal year generated $2.2
million of incremental sales over the same twelve weeks of the prior year.

                  Costs and expenses. Restaurant food and paper cost increased
to 32.4% of Restaurant sales in the quarter ended March 22, 1998 compared to
31.8% of Restaurant sales in the quarter ended March 30, 1997. The increase is
due primarily to certain discounting to promote sales during the first quarter
of 1998.

                  Restaurant labor costs, which includes restaurant employees'
salaries, wages, benefits, and related taxes increased to 31.4% of Restaurant
sales for the quarter ended March 22, 1998 compared to 30.7% of Restaurant sales
for the quarter ended March 30, 1997. This increase is due primarily to
additional labor used to focus on speed of service improvements and the
discounting that occurred during the quarter ended March 28, 1998.

                  Restaurant occupancy expense, which includes rent, property
taxes, licenses and insurance totaled $1.6 million or 5.0% of Restaurant sales
for the quarter ended March 22, 1998 compared to $1.5 million or 4.9% of
Restaurant sales for the quarter ended March 30, 1997. The dollar increase is
due primarily to the addition of 23 restaurants during fiscal year 1997.

                  Restaurant depreciation and amortization decreased to $1.6
million for the quarter ended March 22, 1998 compared to $1.8 million for the
quarter ended March 30, 1997. During the prior year, the depreciation for each
quarter was generally 25% of the projected annual total. During the current
year, the depreciation for the first three-quarters will be approximately 23% of
the projected annual total and depreciation for the fourth quarter will be
approximately 31% of the projected annual total. As discussed above, the first
three-quarters will each include 3 four-week accounting periods and the fourth
quarter will include 4 four-week accounting periods. In addition to this change,
certain assets have become fully depreciated since the end of the quarter ended
March 30, 1997 offset by the addition of the 23 units during the same time
period.

                  Other restaurant operating expenses include all other
restaurant level operating expenses other than food and paper costs, labor and
benefits, rent and other occupancy costs and specifically includes utilities,
maintenance and other costs. These expenses were consistent, totaling $2.7
million or 8.6% of Restaurant sales for the quarter ended March 22, 1998
compared to $2.7 million or 8.8% of Restaurant sales during the quarter ended
March 30, 1997.

                  Advertising expense increased to $1.6 million or 5.3% of
Restaurant sales for the quarter ended March 22, 1998 compared to $1.4 million
or 4.3% of Restaurant sales for the quarter ended March 30, 1997. The increase
is due to a more complete schedule of television advertising during the current
year as compared to the prior year during which no television advertising
occurred in most markets during the first eight weeks of the quarter.

                  Owner expenses of $257,000 for the quarter ended March 22,
1998 represent the Company's segregated ownership cost related to the 29 units
operated by CKE. These expenses consist primarily of depreciation and
amortization associated with the properties.

                  The loss on investment in affiliate of $42,000 represents the
Company's share of the income of Checkers Drive-In Restaurants, Inc.
("Checkers") for the quarter ended March 22, 1998 offset by the amortization of
related goodwill.

                  General and administrative expenses were $3.5 million for the
quarter ended March 22, 1998 compared to $3.8 million for the quarter ended
March 30, 1997. This reduction is due to the inclusion of thirteen weeks in the
quarter ended March 30, 1997 versus twelve weeks in the quarter ended March 22,
1998 and the initial savings associated with the Management Services Agreement
with Checkers.

                  Interest expense. Interest expense decreased to $1.7 million
for the quarter ended March 22, 1998 which included twelve weeks compared to
$1.9 million for the quarter ended March 30, 1997 which included thirteen weeks.
A portion of this decrease relates to the decreased weighted average balance of
debt outstanding during respective periods.

                                       12
<PAGE>

                  Interest income. Interest income decreased 25.2% for the
quarter ended March 22, 1998 to $77,000 compared to $103,000 for the quarter
ended March 30, 1997 due to lower average investments.

                  Income tax. The company's net tax provision for both quarters
represents estimated state income taxes expected to be payable for both years.
The Company has continued not recording a benefit for the current book losses
due to uncertainty of their ultimate realization.

Liquidity and Capital Resources

                  The Company's cash flow used in operating activities was
approximately $.5 million for the quarter ended March 22, 1998 compared with
cash flow provided by operating activities of approximately $1.3 million for the
quarter ended March 30, 1997. This decrease resulted primarily from the payment
of accrued liabilities and the increase in receivables.

                  Capital expenditures of approximately $.6 million for the
quarter ended March 22, 1998 were funded primarily through sales of surplus
properties and existing cash balances. These expenditures were primarily for the
construction of side dining rooms or conversion of existing stores. Remaining
capital expenditures were primarily for the purchase and installation of certain
replacement equipment.

                  The Company plans to open approximately two new units in 1998.
Full year capital expenditures are expected to be in the range of approximately
$2 million to $3 million, inclusive of replacement capital but excluding costs
that may be incurred related to the addition of dining rooms to existing units.

                  Principal payments of debt and capital leases totaled
approximately $275,000 during the quarter ended March 22, 1998. 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 12 months, 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 $119,000 was generated during the quarter ended March 22, 1998
from the sale of such assets.

                  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
became exercisable on 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 exercised, these warrants
would provide approximately $6.6 million in additional capital to the Company.
The proceeds generated from any 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.

                  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.

                                       13
<PAGE>


                  PART II.  OTHER INFORMATION

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

Item 2.       Changes in Securities

              None.

Item 3.       Defaults Upon Senior Securities

              None.

Item 4.       Submission of Matters to a Vote of Security Holders

              None.

Item 5.       Other Information

              None.

Item 6.       Exhibits and Reports on Form 8-K

   (a)        27 Financial Data Schedule

   (b)        Reports on 8-K:

              The following Form 8-K reports were filed during the quarter
              ended March 22, 1998:

              The Company filed a Report on Form 8-K/A with the commission
              dated March 3, 1998, reporting under Item 7, the audited
              financial statements of Checkers Drive-In Restaurants, Inc. and
              the required Pro-forma financial information related to that
              certain Exchange Agreement between the Company and CKE
              Restaurants, Inc, Fidelity Financial, Inc., GIANT GROUP, LTD. and
              other parties named in Exhibit A to the Exchange Agreement.

  
                                       14
<PAGE>


SIGNATURE



                  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.
                                        ------------------------------------
                                              (Registrant)



Date: May 6, 1998                       By:  /s/Joseph N. Stein
                                             -------------------------------
                                             Joseph N. Stein
                                             Chief Financial Officer
                                             (Principle Accounting Officer)



                                       15