<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549
                                  ------------
                                   FORM 10-K
(Mark One)

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

For the fiscal year ended July 3, 1999           Commission File No. 0-11271

                             WALL STREET DELI, INC.
             (exact name of registrant as specified in its charter)
        DELAWARE                                             63-0514240
(State of Incorporation)                               (IRS Employer I.D. No.)
                       ONE INDEPENDENCE PLAZA, SUITE 100
                           BIRMINGHAM, ALABAMA 35209
                    (Address of principal executive offices)

                                 (205) 870-0020
                        (Registrant's Telephone Number)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                               Name of each exchange
          Title of each class                   on which registered
          -------------------                   -------------------
                None                                   None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT

                          Common Stock, $.05 par value
                          ----------------------------
                                (Title of Class)

Indicate whether the registrant 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, and has been subject to such filing requirements for the past 90
days.

                Yes    [X]                No     [ ]

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

The aggregate market value of the registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $4,339,940 on September 28,
1999 based on the NASDAQ National Market System closing price on that date.

As of September 28, 1999 there were 2,896,477 shares of the registrant's Common
Stock, $.05 par value, outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-K.


<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
             Item No                                                                                           Page
             -------                                                                                           ----
<S>                                                                                                            <C>
PART I
             1.     Business......................................................................................3
             2.     Properties....................................................................................9
             3.     Legal Proceedings............................................................................11
             4.     Submission of Matters to a Vote of Security Holders..........................................11
             4.1    Executive Officers...........................................................................11
PART II
             5.     Market for the Registrant's Common Equity and Related
                    Stockholder Matters..........................................................................12
             6.     Selected Consolidated Financial Data.........................................................13
             7.     Management's Discussion and Analysis of Financial Condition and
                    Results of Operations........................................................................14
             8.     Financial Statements.........................................................................27
             9.     Changes in and Disagreements with Accountants on Accounting and
                    Financial Disclosure.........................................................................48
PART III
            10.     Directors and Executive Officers                                                              *
            11.     Executive Compensation                                                                        *
            12.     Security Ownership of Certain Beneficial Owners and Management                                *
            13.     Certain Relationships and Related Transactions                                                *
PART IV
            14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................49
                           Index to Schedules and Exhibits.......................................................50
                           Signatures............................................................................52
</TABLE>

      *     Portions of the Proxy Statement for the Registrant's 1999 Annual
            Meeting of Shareholders are incorporated by reference in Part III
            of this Form 10-K.


                                       2
<PAGE>   3

                             WALL STREET DELI, INC.


                                     PART I

ITEM 1:      BUSINESS

GENERAL

         The executive headquarters and principal office of Wall Street Deli,
Inc. (the "Company") are located at One Independence Plaza, Suite 100,
Birmingham, Alabama 35209, telephone (205)870-0020. The Company operates a
chain of quick service, delicatessen style restaurants, presently located in
fifteen cities: Atlanta, Birmingham, Chicago, Cincinnati, Cleveland, Dallas,
Denver, Houston, Indianapolis, Los Angeles, Louisville, Newark, Philadelphia,
St. Louis, and Washington, D.C. Most of the Company's 104 company-owned stores
are located in large suburban and downtown office buildings and are designed to
serve the population in and around those buildings. The Company also has 17
franchised locations.

OVERVIEW OF FISCAL 1999

         Wall Street Deli reported a net loss of approximately $2,333,000, or
$0.79 per share, in fiscal 1999 compared with a net loss of approximately
$3,842,000, or $1.24 per share, for fiscal 1998. The loss includes non-cash
charges of $0.9 million and $3 million for fiscal 1999 and 1998, respectively,
for impairment of assets under SFAS 121, and an increase of approximately
$989,000 and $1,437,000 for fiscal 1999 and 1998, respectively, in its valuation
reserve against deferred tax assets. In addition, the 1999 loss reflects
approximately $160,000 in expenses related to terminated discussions concerning
the potential sale or other business combination transaction involving the
Company.

         Excluding the effect of the SFAS 121 charges and merger expenses in
fiscal 1999 and the SFAS 121 changes in 1998, the loss per share was $0.44 in
fiscal 1999 compared to $0.27 in fiscal 1998.

         Fiscal 1999 revenues were approximately $58.3 million compared with
$63.8 million in fiscal 1998. The decline in revenues reflects the result of the
sale to a franchisee of five of the Company's six Los Angeles stores effective
January 1, 1999, combined with a same store sales decline of 5.0 percent. The
Los Angeles stores generated revenues of approximately $2,822,000 in fiscal
1998, and $1,226,000 during the first half of fiscal 1999, prior to the sale.

         The same store sales decline is attributable to the adverse effects of
increased competition in several primary markets, as well as operational
difficulties. In particular, the Company


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<PAGE>   4



experienced continued problems in its Dallas market, along with a significant
decline in Cleveland and Cincinnati due to operational and management issues.

         In substantial measure these operational and management difficulties
were related to the considerable time and effort expended during the year in
discussions concerning the possibility of a business combination transaction.
Following several months of time-consuming and otherwise costly deliberation
and analysis with two different parties, the Company announced in early July
1999, just after the end of the 1999 fiscal year, that the last of those
discussions had terminated. After considering the status of its negotiations
regarding a possible transaction, as well as several other strategic
alternatives, the board of directors of Wall Street Deli concluded that a sale
of the Company would not be in the best interests of the stockholders at this
time. The board has stated that the Company is not for sale due to the low
valuation of the stock and the potential for rebuilding shareholder value.

         While management believes it was clearly important for the Company to
have made every responsible effort in doing the work necessary for these
discussions, in an organization of this size the effect had a
disproportionately large cost, especially in terms of the drain on management
and administrative time and attention. The cost in employee confidence and
morale at all levels of headquarters and field operations was also
considerable. The inevitable disruptions and uncertainties attendant to
discussions and negotiations of a possible sale of the Company, including the
loss of several key personnel and the difficulty of recruiting replacements
under those circumstances, all contributed heavily to the managerial and
operational problems that are evidenced in fiscal 1999 sales declines.

         However, as the Company also announced in July, the conclusion of
these discussions has afforded the Company the opportunity for a new strategic
plan to rebuild shareholder value. The Company has retained The Byrne Companies
to assist it in creating a business plan for future growth, including a
possible franchising strategy. The Byrne Companies, of Sioux Falls, South
Dakota, is a consulting firm specializing in human assessment and performance.
Its president and chief executive officer is William M. Byrne, who became a
member of Wall Street Deli's board of directors in September 1998. Mr. Byrne
has expertise in strategic and tactical planning in the restaurant business; he
is also president and chief executive officer of Taco John's of Iowa, which is
a franchisee of Taco John's International, operating 14 Taco John's units.

         During 1999 the Company opened one new store and sold or closed a
total of nine stores, including the conversion in January 1999 of five stores
in the Los Angeles area to franchises. Net sales from these five stores
accounted for 29 percent of the decline in net sales reported by the Company.

         Wall Street Deli's franchise program, still in early stages of growth,
also showed the effects of the Company sale discussions during the last half of
fiscal 1999, as both the Company and


                                       4
<PAGE>   5



potential franchisees naturally were constrained by the uncertainties associated
with those discussions. As of the end of the year, 17 franchise units were open
and one agreement had been signed for development in fiscal 2000. Since fiscal
year end, one additional agreement has been signed. The Company's revenues for
franchising were below expectations for fiscal 1999. Franchise revenues included
$83,000 in franchise fees and $189,000 in continuing royalty income. The Company
has agreements in principle to open four new units with Host Marriott services.
These locations will consist of two units in the Tampa airport, one unit in Salt
Lake City and one unit in Memphis. The Company anticipates that the Salt Lake
City unit and one of the Tampa units will be opened during fiscal year 2000. The
Company will continue to market its brand with Host Marriott Services in the
future. In its revised strategic plan, the Company is looking at ways to enhance
its concept and will look to franchising to accelerate this growth vehicle. The
Company does not presently expect that a substantial number of new agreements
will be signed in fiscal 2000.

         New menu offerings during fiscal 1999 included the Manhattan Melts
sandwich line, followed up at year-end by the Uptown Turkey sandwich line. The
three new Manhattan Melts were introduced into the concept on a new Italian
flat bread product. This high quality, high-end product was introduced to
include sandwiches such as the Midtown Melt, Times Square Trio and Empire Roast
Beef. The Midtown Melt includes ham, Genoa salami, provolone cheese, hoagie
sauce and lettuce. The Times Square Trio combines pastrami, turkey, salami,
pepper jack cheese, lettuce, tomato and honey mustard dressing. The Empire
Roast Beef introduces caramelized onions, pepper jack cheese, roast beef and
horseradish sauce. While the Company does not yet have the ability to measure
sales attributable to specific menu items, management's belief is that all
these sandwiches were very well received by our customers, as was an
introduction of the new Italian flat bread. The Company expects to develop and
offer new breads in the future.

         During the year there were several changes in senior personnel,
particularly in the accounting and finance area. Kevin Conaway, treasurer and
chief accounting officer, resigned his position at the beginning of fiscal
1999. Julie Christian was promoted to vice president-controller at that time;
she resigned at the beginning of the third quarter. Jeff Pate was hired early
in the fourth quarter as chief financial officer. Mr. Pate was employed in
connection with the Company's discussions concerning a possible business
combination, and with the Company's agreement that if the business combination
did not transpire, he would have the option of resigning with an agreed
severance arrangement. Subsequent to the end of the fiscal year, Mr. Pate
resigned from the Company in accordance with that agreement. A national search
is underway to fill the position of chief financial and accounting officer.
Robert G. Barrow, the Company's vice chairman of the board, continues to serve
in the capacity of chief financial officer until the position is filled.
Additional senior management changes had occurred as of the date of this
report, and more are expected as the Company works toward attracting new talent
and making other changes to improve operations.



                                       5
<PAGE>   6

         During fiscal 1999, the Company continued to work on upgrading its
management information systems. The Company installed order entry capabilities
in the Washington, DC catering office and continued to refine this as a point
of sale (POS) test system. The Company has identified the need for a much more
sophisticated POS system. Management anticipates beginning installation of this
system during fiscal 2000, though the timing will be dependent upon, among
other things, the availability of equipment leasing opportunities as well as
technical personnel. The investment in POS will provide management with much
needed specific information at the store level, particularly the ability to
measure sales attributable to its various menu items. It is also expected to
provide management with more timely information that will be used for faster
and more precise evaluation of store performance. The Company's management
information department was one of the functional areas adversely affected by
the potential sale discussions, and its progress during the year was slowed.
This area is one in which substantial effort is expected to be focused during
fiscal 2000. The Company is also working on its remaining year 2000 compliance
issues; as discussed later in this report, all systems are now scheduled to be
year 2000 compliant by October 31, 1999.

RESTAURANT OPERATIONS

         The Wall Street Deli typical store consists of a made to order deli
sandwich station, a soup express and salad bar. Store sizes range from 800
square feet to 5,000 square feet. The smaller stores, known as Express units,
typically have the same menu but do not have a salad bar. The Company expects
to refine the Express concept for future growth.

         A hallmark of Wall Street Deli menu offerings is fresh ingredients of
very high quality. Restaurants feature set items as part of a core menu.
Gourmet sandwiches are made to order at the time the customer places the order,
ensuring both freshness and accuracy. In addition to traditional deli-style
sandwiches and salad bars, most store locations serve breakfast items early in
the morning. Breakfast fare includes an assortment of bagels, muffins and fresh
fruit, as well as coffee and juices. Store hours center around customer
traffic, which in many office buildings translates to early morning until
mid-afternoon.

         Typical staffing for a flagship Wall Street Deli store includes a
manager and assistant manager, and 6 to 15 other employees. Most store
employees work at least 35 hours each week, which the Company considers
full-time, but some part-time employees are used as appropriate.

         Store managers, as well as division and district managers are
compensated on a salary plus bonus basis, with bonuses based on gross profits.
Since most of the stores are geared to office environments, and thus to office
working hours, the Company also believes that it enjoys a competitive advantage
by its ability to attract and recruit employees, especially store managers,
because of the absence of night and weekend store hours.


                                       6
<PAGE>   7



SITE SELECTION CRITERIA AND LEASING

         The majority of the Company's stores are located in major urban retail
locations. Wall Street Deli seeks locations for its company stores that have
high pedestrian traffic and dense office populations in prime downtown sites in
large cities. The most desirable location for these restaurants is on the
ground floor of a large office building with both a lobby entrance and a street
entrance. The franchise emphasis is expected to be on suburban markets while
the company stores remain concentrated in urban areas. One new company store
was opened in fiscal 1999, and one is presently planned for fiscal 2000.

         The Company believes the site selection process is critical in
determining the potential success of a store. A variety of factors are
considered in the site selection process for Wall Street Deli stores, including
local market demographics, site visibility and accessibility and proximity to
significant generators of potential customers in a two block radius. The
Company also reviews competition and attempts to analyze the sales of other
stores operating in the area.

         The Company leases all of its store locations. The leases vary
significantly in their terms and provisions. Annual rents generally are based
on the greater of a fixed rate or a percentage of net sales or revenues and
generally provide for escalation of rents based on increases in the lessor's
annual operating expenses. The terms of the leases vary from five to ten years,
with most of the more recent leases being ten years, typically with one
five-year renewal option. See also "Item 2 - Properties."

COMPETITION

         In a business long acknowledged as highly competitive, the Company
continues to face ever increasing competition for the quick service restaurant
customer. As more specialty concepts enter the market, such as the coffees and
bagels featured today at Wall Street Deli, customers have more choices.

         The quick service restaurant business also remains highly competitive
with respect to concept, price, location, food quality and service. While
competition has historically been affected by, among other things, changes in
customer taste, economic and real estate conditions, demographic trends,
traffic patterns, as well as national and local competitive factors, the number
of competitors is greater than ever, thus heightening the effect of all those
factors.

         The Company also must compete for store locations and labor force.
Competitors include a large number of national chains and national branded
concepts that have established brand recognition through marketing and have the
financial resources to increase market share through new locations, as well as
many new and growing competitors. The competition for employees is a growing
problem also. With the ever-increasing number of new concepts and restaurants,


                                       7
<PAGE>   8

attracting and retaining qualified employees is more and more difficult, even
though the Company believes it enjoys a competitive advantage because of its
generally more popular business hours.

         With the advent of its franchising program, the Company is also
competing for franchisees with franchisors of other restaurants and various
concepts.

GOVERNMENT REGULATION

         All of the Company's stores are subject to inspection and regulation by
public health authorities. Most leasehold improvements made to the Company's
stores are subject to local and state building code requirements. The Company is
subject to the Fair Labor Standards Act which governs such matters as minimum
age requirements, overtime and other working conditions. The Company believes
that its conduct of business is in substantial compliance with these and other
applicable government regulations.

         A large number of the Company's store personnel are paid at levels
based upon the federal minimum wage level. Accordingly, changes in such minimum
wage levels affect the Company's labor costs.

         A significant number of the Company's employees are not covered by
health insurance. The Company is unable to predict the scope or effect, if any,
of any future government regulation or legislation affecting employee health
care benefits.

SERVICE MARKS

         The Company's trade name "WALL STREET DELI" and its design were
registered as a service mark on the Principal Register of the United States
Patent and Trademark Office in 1993. In 1990, the Company's trade name "R.C.
COOPER'S" was registered as a service mark. The service mark "SANDWICH CHEF" and
design was registered on the Principal Register of the United States Patent and
Trademark Office in 1974. The application for the Company's trade name "STREET
WRAPS" and its design were filed in 1998, and the statutory notice period for
the filing of opposition has passed, with none being filed.

EMPLOYEES

         As of July 3, 1999, the Company employed approximately 779 persons,
including 32 managerial, 20 administrative, and 727 store employees. None of the
Company's employees are represented by labor unions. The Company considers its
relationship with its employees to be good.

                                       8
<PAGE>   9

INFORMATION AS TO CLASSES OF SIMILAR PRODUCTS OR SERVICES

         The Company operates in only one industry segment. All significant
revenues and earnings relate to retail sales of food to the general public
through company-owned and company-operated stores. The Company does not yet
have significant revenues from franchise operations, and has no operations
outside the continental United States.

ITEM 2:  PROPERTIES

CORPORATE HEADQUARTERS

         The Company maintains its corporate headquarters in Birmingham,
Alabama, in leased office space which includes facilities for franchisee
training and support, as well as for training and support for Company stores.
Located near downtown Birmingham, the corporate office is less than one block
from a Wall Street Deli flagship store. Management expects this facility to be
adequate for the Company's corporate headquarters and store support facility
for the foreseeable future.

STORE LOCATIONS

         The Company leases all of its division offices and stores. The
following table shows the locations of the Company's stores (exclusive of
franchised locations) by city at July 3, 1999:


<TABLE>
<CAPTION>
                                               Number of
    City                                     Restaurants
--------------------                         -----------
<S>                                          <C>
Atlanta                                                5
Birmingham                                            10
Chicago                                               16
Cincinnati                                             4
Cleveland                                              3
Dallas                                                12
Denver                                                 8
Houston                                               11
Indianapolis                                           1
Los Angeles                                            1
Louisville                                             1
Newark                                                 1
Philadelphia                                           5
</TABLE>


                                       9
<PAGE>   10

<TABLE>
<CAPTION>
                                               Number of
    City                                     Restaurants
--------------------                         -----------
<S>                                          <C>
St. Louis                                              2
Washington, D.C.                                      24
                                                     ---
                              TOTALS                 104
                                                     ===
</TABLE>

      While the general economy in the various cities is an important element,
the Company's experience is that careful placement of stores in office
buildings and regional malls is in many respects unique to each situation. The
locations and character of the stores and their surroundings, and the effect of
those elements on their suitability, adequacy, productive capacity and
utilization is integral to the Company's business, and is discussed in Item 1
of this Report, particularly under the caption "Site Selection Criteria and
Leasing."

      Franchised stores as of July 3, 1999, were located in the following
cities:

<TABLE>
<CAPTION>

                                                         Number of
    City                                               Restaurants
--------------------                                   -----------
<S>                                                    <C>
Atlanta                                                          1
Birmingham                                                       4
Columbus (Ohio State Univ.)                                      1
Denton (North Texas State Univ.)                                 1
Houston                                                          1
Lake Jackson, Texas                                              1
Los Angeles                                                      5
Nashville                                                        1
Orlando                                                          1
Tampa                                                            1
                                                                --
                                      TOTALS                    17
                                                                ==
</TABLE>

         Mr. Alan Kaufman, Chairman of the Board, and Mr. Robert Barrow, Vice
Chairman of the Board, are general partners of CBK Associates, which until
October 27, 1996 leased to the Company its catering offices in Memphis,
Tennessee. During the Company's 1997 fiscal year rents paid to CBK Associates
were $12,000.

         Mr. Alan Kaufman, Mr. Robert Barrow, Mr. Jeffrey Kaufman, President
and Chief Executive Officer and Mr. Steve Barrow, Secretary and Vice President,
are general partners in Rex Associates, which leased to the Company its former
administrative offices in Memphis, Tennessee. Pursuant to the relocation of the
Company's administrative offices from Memphis to Birmingham


                                      10
<PAGE>   11

and the subsequent consolidation with the Company's executive headquarters, the
lease agreement terminated effective September 30, 1997. The administrative
office lease was entered into May 1994 for a term of ten years beginning
September 1, 1994, and provided for an annual escalation of rents based on the
consumer price index. During the Company's 1998 and 1997 fiscal years, rents
paid to Rex Associates were $18,500 and $69,672, respectively.

      Management believes these transactions to have been on terms no less
favorable than could have been obtained from unaffiliated third parties.

ITEM 3: LEGAL PROCEEDINGS

         The Company is party to several pending legal proceedings, all of
which are deemed by the management of the Company to be ordinary routine
litigation incidental to the business, and none of which is believed likely to
have a material adverse effect on the Company, its financial position or
operations.

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

         During the fourth quarter of the Company's fiscal year covered by this
report, no matter has been submitted to a vote of security holders, through the
solicitation of proxies or otherwise.

ITEM 4.1: EXECUTIVE OFFICERS

         The executive officers of the Company are as follows:

<TABLE>
<S>                                      <C>
Alan V. Kaufman                          Chairman of the Board
Robert G. Barrow                         Vice Chairman of the Board and Chief Financial Officer
Jeffrey V. Kaufman                       President and Chief Executive Officer
David A. Thomas                          Senior Vice President - Marketing
Steven G. Barrow                         Vice President - Corporate Development and Secretary
</TABLE>

         Alan V. Kaufman, age 61, was Chairman of the Board, Chief Executive
Officer and President of the Company from its formation in 1966 through 1995.
After the close of the 1995 fiscal year, Mr. Kaufman stepped down as President
and Chief Executive Officer, and continues as its Chairman. Mr. Kaufman is the
father of Jeffrey V. Kaufman.

         Robert G. Barrow, age 62, served as President and Chief Executive
Officer from 1995 until February 1997, when he became Vice Chairman of the
Board. He also serves as Chief Financial Officer of the Company, and has served
in that capacity since 1981, except during a portion of fiscal 1999 (as
discussed in more detail on page 5 of this report). Mr. Barrow was Executive
Vice


                                      11
<PAGE>   12

President from 1981 to 1995, and has been a Director of the Company since 1967.
Mr. Barrow is the father of Steven G. Barrow.

         Jeffrey V. Kaufman, age 37, has been employed by the Company since
1985 and has served as its President and Chief Executive Officer since June,
1998. He was Vice President-Central Region, from 1989 until his promotion to
Senior Vice President-National Operations Manager in August 1992. He then
served as Executive Vice President and Chief Operating Officer from 1995 until
becoming President in June, 1998. Mr. Kaufman has been a Director of the
Company since 1995. Mr. Kaufman is the son of Alan V. Kaufman.

         David A. Thomas, age 39, joined the Company in 1983 and was promoted
to the position of Senior Vice President-National Operations in June 1997, then
to Senior Vice President-Marketing in February 1998. He served as the Company's
division manager for Washington, D.C. from 1984 until his appointment in 1992
to Vice President-Eastern Region.

         Steven G. Barrow, age 33, was the Company's Director of Information
Systems from 1993 until May 1997, when he was named Vice President-Corporate
Development. Mr. Barrow has also served as the Company's corporate Secretary
since 1993. Following the close of fiscal 1998 he became Vice
President-Information Systems. He was Senior Systems Analyst for M.S. Carriers
from 1992 to 1993 and worked for the Company on a part-time basis in various
capacities related to information systems from 1988 until 1992. Mr. Barrow is
the son of Robert G. Barrow. Mr. Barrow has resigned his position with the
Company effective October 31, 1999.

                                    PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock is traded in the over-the-counter market
and is quoted in the NASDAQ National Market System under the symbol WSDI. The
following table sets forth, for the fiscal periods indicated, the high and low
sales prices as reported on the NASDAQ National Market System.

<TABLE>
<CAPTION>
FISCAL 1998                                                          High                 Low
                                                                     ----                 ---

<S>                                                                 <C>                   <C>
Quarter Ended September 27, 1997                                    4                     3 1/2
Quarter Ended December 27, 1997                                     3 5/8                 3 1/4
Quarter Ended March 28, 1998                                        3 3/4                 3 9/16
Quarter Ended June 27, 1998                                         5 1/4                 4 1/16
</TABLE>


                                      12
<PAGE>   13

<TABLE>
<CAPTION>

FISCAL 1999                                                         High                  Low
                                                                    ----                  ---

<S>                                                                <C>                     <C>
Quarter Ended September 26, 1998                                   5 1/4                   3
Quarter Ended December 26, 1998                                    4 1/8                   3
Quarter Ended March 27, 1999                                       5 1/8                   3
Quarter Ended July 3, 1999                                         4 7/8                   2 11/16
</TABLE>

         On September 28, 1999, there were approximately 330 record holders of
the Company's Common Stock, including shares held in "street name" by nominees
who are record holders.

         The Company has never declared or paid a cash dividend, and it is the
present policy of the Board of Directors to retain all earnings for the
development of the Company's business. Any payment of dividends in the future
will depend upon the Company's earnings, capital requirements, financial
condition and such other factors as the Board of Directors may deem relevant.
In the past, the Company from time to time has effected stock splits in the
form of stock dividends, resulting in the issuance of additional shares of
Common Stock to the shareholders of the Company. No assurances are made that
the Company will effect any stock splits or declare any stock dividends in the
future.

ITEM 6: SELECTED FINANCIAL DATA

         The following table sets forth selected consolidated financial data
for the Company for each of the five fiscal years in the period ended July 3,
1999 and as of July 3, 1999, June 27, 1998, June 28, 1997, June 29, 1996 and
July 1, 1995. The selected consolidated financial data set forth below have
been derived from the consolidated financial statements of the Company, which
have been audited by BDO Seidman, LLP, independent Certified Public
Accountants, as indicated in their report included elsewhere herein. The
selected financial data should be read in conjunction with, and are qualified
in their entirety by, the consolidated financial statements of the Company and
related notes and other financial information included elsewhere in this
report.

<TABLE>
<CAPTION>
                                    1999(1)            1998(2)           1997(3)           1996(4)             1995
                                    ----               ----              ----              ----                ----
<S>                             <C>                <C>                <C>              <C>                <C>
Net sales                       $ 58,258,464       $ 63,780,406       $65,453,642      $ 69,399,058       $ 68,228,119
Net income (loss)               $ (2,333,142)      $ (3,842,430)      $    62,822      $ (2,457,706)      $   (921,011)
Basic and diluted earnings
   (loss) per common share      $       (.79)      $      (1.24)      $       .02      $       (.72)      $       (.27)
Average shares outstanding         2,937,221          3,094,762         3,254,908         3,407,874          3,422,701
Total assets                    $ 17,173,458       $ 19,862,808       $23,065,627      $ 25,668,894       $ 29,163,709
Stockholders' equity            $  9,900,958       $ 12,716,724       $16,936,508      $ 18,229,590       $ 20,653,157
Stores in operation at
    year-end (unaudited)                 104                112               116               124                128
</TABLE>


                                       13
<PAGE>   14

1.       Net loss included a non-cash charge of $.9 million taken as an
         operating expense related to the application of Statement of Financial
         Accounting Standards No. 121, "Accounting for the Impairment of
         Long-Lived Assets and for Long-Lived Assets to be Disposed Of."

2.       Net loss included a non-cash charge of $3.0 million taken as an
         operating expense related to the adoption of Statement of Financial
         Accounting Standards No. 121, "Accounting for the Impairment of
         Long-Lived Assets and for Long-Lived Assets to be Disposed Of."

3.       In June 1997, the Company relocated its administrative offices from
         Memphis, Tennessee to Birmingham, Alabama and consolidated them with
         its executive headquarters in order to centralize the marketing and
         franchise operations and establish a store support center. In
         connection therewith a charge of $0.7 million was taken as an
         operating expense.

4.       Net loss included a non-cash charge of $4.7 million taken as an
         operating expense related to the adoption of Statement of Financial
         Accounting Standards No. 121, "Accounting for the Impairment of
         Long-Lived Assets and for Long-Lived Assets to be Disposed Of."

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

         The following is management's discussion and analysis of certain
significant factors that have affected the Company's financial condition and
earnings during the periods included in the accompanying consolidated balance
sheets and statements of operations.

         Forward Looking Statements. The statements in this Form 10-K that are
not historical fact are forward looking statements. Such statements appear in a
number of places in this report and include statements regarding the intent,
belief or expectations of the Company and its management with respect to, among
other things, the Company's operating performance, anticipated growth
strategies, trends in the food service industry and other trends that may
affect the Company's financial condition or results of operations. Such
statements are subject to numerous risks and uncertainties which could cause
actual results to differ materially from those anticipated or projected,
including, among others, recent changes in management, new franchising programs
and other new products and programs, competition for customers, labor force and
store sites, the effects of changes in the economy such as inflation and
unemployment rates, and weather conditions and seasonal effects. In addition, a
significant area of uncertainty and risk has been occasioned by
recently-terminated discussions concerning the possible sale of the Company and
subsequent new strategic planning.

         Readers are cautioned not to place undue reliance on these forward
looking statements which speak only as of the date hereof and reflect only
management's belief and expectations based upon presently available
information.

         Readers are also urged to carefully review and consider the various
disclosures made by the Company which attempt to advise interested parties of
the factors which affect the Company's


                                      14
<PAGE>   15



business, including the disclosures made in other periodic reports on Forms
10-K, 10-Q and 8-K filed with the Securities and Exchange Commission.

Results of Operations

         The following table sets forth, for the periods indicated, the
percentages of net sales represented by certain items in the Company's
consolidated statements of income.

<TABLE>
<CAPTION>
                                                         Fiscal Year Ended
                                                ----------------------------------
                                                 JULY 3,     JUNE 27,     JUNE 28,
                                                  1999         1998         1997
                                                ----------------------------------
<S>                                             <C>          <C>          <C>
Net sales                                        100.0%       100.0%       100.0%
Cost of sales                                     89.9         90.3         88.9
                                                 -----        -----        -----
Gross profit                                      10.1          9.7         11.1
Administrative and general                        12.4         10.8         11.6
Impairment of long-lived assets                    1.5          4.7           --
Operating income (loss)                           (3.8)        (5.8)        (0.5)
Other income (expenses)
  (Interest expense) and other income, net         (--)        (0.2)         0.6
                                                 -----        -----        -----
Income (loss) before taxes on income (loss)       (3.8)        (6.0)         0.1
Taxes on income (loss)                             0.2           --           --
                                                 -----        -----        -----
Net income (loss)                                 (4.0)%       (6.0)%        0.1%
                                                 =====        =====        =====
</TABLE>

FISCAL 1999 COMPARED TO FISCAL 1998

Net Sales

         Net sales decreased in fiscal 1999 by approximately $5,522,000, or 8.7
percent, from fiscal 1998, primarily due to an approximate 5.0 percent decline
in same store sales and a reduction in the number of Company stores from 112 at
June 27, 1998 to 104 at July 3, 1999. Of the net sales decrease, approximately
$4,544,000 reflects sales from company owned stores in operation during fiscal
1998 that had been closed or sold by the end of fiscal 1999.

         During fiscal 1999 the Company sold or closed a total of nine stores,
including the conversion in January 1999 of five stores in the Los Angeles area
to franchises. Net sales from these five stores were approximately $1,226,000
in fiscal 1999 compared to approximately $2,822,000 in fiscal 1998, accounting
for 29 percent of the decline in net sales reported by the Company.

         Average annual sales per store were approximately $525,000 in fiscal
year 1999 and $565,000 in fiscal year 1998, a decline of approximately 7.1
percent. In addition, same store sales fell 5.0 percent over the same period.


                                      15
<PAGE>   16

         The Company continues to face intense competition in the quick serve
food industry and management believes this negative trend is largely
attributable to the expansion and marketing strategies of competitors. During
the last half of the fiscal year, the Company also sustained the adverse effect
of uncertainties and distractions created by the recently terminated
discussions concerning the potential sale of the Company. Management problems
and operational difficulties in certain markets, principally Dallas, Cleveland
and Cincinnati, had a significant adverse effect on net sales.

         Management continues to combat the adverse effect of competitive
pressures, primarily through new product and promotional offerings designed to
add ongoing menu variety for customers. During fiscal 1999, the Company
launched its "Soho Spud" program followed by "Manhattan Melts" and "Uptown
Turkey" sandwich lines, as well as the introduction of "Italian Flat Bread."
The Company expects to introduce at least one promotional product each quarter
and to offer additional bread selections and other enhancements. Promotions
such as "Manhattan Melts" and "Italian Flat Bread" which have had the most
successful reception have been added to the permanent menu. The Company cannot
precisely measure the sales attributable to its various menu items, but
management's assessment is that the initial results of this promotion program
have been modestly favorable. While results are not believed to have
significantly increased same store sales, management is pleased with this
implementation and will look to similar quality upgrades for other products as
part of its ongoing menu enhancement efforts.

         Although the Company's franchise program, still in its early stage, was
adversely effected during the year by the focus of management's attention on
discussions regarding the sale of the Company, franchising continues to be
looked upon as a growth vehicle. The Company's franchising director resigned in
September 1998 and the search for a replacement was delayed while discussions
regarding the sale of the Company were taking place.

         During fiscal 1999 the Company expanded its market presence through
franchising into Nashville, Tennessee and Orlando, Florida, and a unit was
opened in the Ohio State University student union. The Company continued to
expand the "Wall Street Deli" trade name to non-traditional venues such as
college campuses, stadiums and convenience stores.

         Thirteen franchised stores, including the five formerly company-owned
Los Angeles stores, were opened during fiscal 1999 and a franchise agreement for
one additional unit was also signed prior to year-end. One franchised store in
Houston was closed when the lease expired. The Company also has commitments with
Host Marriott to open four airport units in Tampa (two), Memphis and Salt Lake
City. There were seventeen franchised units open as of July 3, 1999, and
revenues from franchise fees and royalties were $272,000 in fiscal 1999.

         As in prior years, the Company continued to implement pricing
adjustments and price changes that were not significant on an overall basis,
and considers price changes in products sold to have had an immaterial effect
on sales in the current year.


                                      16
<PAGE>   17

Cost of Sales

         Cost of sales as a percent of net sales decreased in fiscal 1999 to
89.9 percent from 90.3 percent in fiscal 1998. The major components of cost of
sales are set out below:

<TABLE>
<CAPTION>
                    Fiscal 1999    % of Sales      Fiscal 1998        % of Sales
                   -------------  -----------     -------------      -----------
<S>                <C>            <C>             <C>                <C>
Food/Paper          $20,568,673       35.3%        $22,414,460           35.2%
Labor                13,381,761       22.9          14,496,226           22.7
Store Expenses       18,444,142       31.7          20,663,103           32.4
                    -----------       ----         -----------           ----
                    $52,394,576       89.9%        $57,573,789           90.3%
                    ===========       ====         ===========           ====
</TABLE>

         Food costs as a percentage of net sales increased 0.2 percent. The
increase was primarily due to new product offerings and quality upgrades to the
salad bar. In the third quarter of fiscal 1998, the Company changed its single
source food vendor; this change has not resulted in any significant immediate
impact on cost, but is expected to further the objectives of improvements in
service, new product flexibility, and pricing and inventory control. The
Company continues to look at ways to lower food cost as a percent of sales
including a new pricing structure for the salad bar, either eliminating the
max-out program or by implementing a tossed salad concept currently being
tested.

         Labor costs as a percent of net sales also increased by 0.2 percent.
An increase of approximately $267,000 for worker's compensation and medical
insurance reserves had the effect of increasing labor costs as a percent of
sales by 0.5 percent for the fiscal year. This was offset by the implementation
of new products that require less production time and continued efforts at cost
containment. The increase in insurance reserves was necessitated by an increase
in the Company's estimate of its aggregate liability for open claims, as actual
claims were higher than anticipated. There were no significant wage increases
during fiscal 1999.

         Store expenses as a percent of net sales decreased 0.7 percent. The
decrease was primarily attributable to the closing of nine stores during the
year, and the concomitant decrease in the number of employees formerly staffing
those stores. A significant portion of fixed store expenses are comprised of
occupancy and employee costs. Occupancy costs include rent, percentage rent,
depreciation, utilities, general liability insurance and other fixed tenant
charges. These charges were lower by approximately $1,036,000 in fiscal 1999 as
compared to fiscal 1998. Employee charges include payroll taxes and fringe
benefits. The total effect of these employee costs was a decrease of
approximately $504,000.

Administrative and General Expenses

         Administrative and general expenses increased approximately $290,000,
or 4.2 percent to approximately $7,194,000 for fiscal 1999 from approximately
$6,904,000 in fiscal 1998. A significant portion of the 1999 increase results
from approximately $200,000 in charges taken in


                                      17
<PAGE>   18

the fourth quarter of 1999 for severance and related costs incurred in
connection with corporate level management changes. However, in fiscal 1998
management changes were made in certain cities with operating difficulties,
principally Denver and Dallas, the New York division office was closed,
divisional management in Houston and Dallas was consolidated and a catering
sales position was eliminated in Los Angeles, resulting in approximately
$335,000 in costs that were not incurred in fiscal 1999. In addition, the
Company incurred approximately $160,000 in expenses related to the terminated
discussions of a possible sale or other business combination involving the
Company.

Sale of Los Angeles Stores

         Effective December 31, 1998, the Company transferred leasehold
improvements and equipment and subleased five stores in the Los Angeles,
California area to California Fresh Deli, Inc. ("CFD"). CFD entered into a
franchise agreement with the Company to operate the five stores and a
management agreement to manage for the Company a sixth store also in the Los
Angeles area for the remainder of the current lease term.

         In this transaction, the Company received approximately $41,000 in
cash and an $800,000 non-interest bearing note. Under the original agreement
the note was payable in monthly installments of $12,000 from June 1999 through
November 2000, and the greater of $13,333 or eight percent of monthly revenues
thereafter until the note is repaid. In June 1999, the payment structure was
amended to specify payments of $9,000 from Jun 1, 1999 through September 30,
1999; $14,000 for October and November 1999; $12,000 for December 1999; $14,000
for January and February 2000; $16,000 in March 2000; and $12,000 each month
thereafter until November 2000. Beginning in December 2000, the payment
consists of the greater of $13,333 or eight percent of monthly revenues
thereafter until the note is repaid. The realization of the note is dependent
on future operations of the five stores and has been reported as "assets of
business transferred under contractual arrangement" net of a valuation
allowance of approximately $162,000 in the attached financial statements.
Franchise fees payable by CFD under the franchise agreement have been deferred
until the note has been paid in full.

Impairment of Long-Lived Assets

         As discussed in the Notes to the Consolidated Financial Statements,
the Company evaluates and measures for impairment under SFAS No. 121 on an
individual store basis. During 1999, events and circumstances indicated that
certain equipment, fixtures and leasehold improvements associated with ten
under-performing stores were impaired. Accordingly, the Company recorded a
pre-tax charge in the fourth quarter of 1999 amounting to approximately $.9
million to adjust the carrying value of these assets to their estimated fair
market value and to provide for associated disposal liabilities. While
management believes that estimates used in evaluation of impairment were
reasonable, actual results could vary significantly. The charge represented
approximately nine percent of the total carrying amount of long-lived assets.
The reduced carrying amount of assets is expected to reduce 2000 depreciation
and amortization by approximately $263,000. Also,


                                      18
<PAGE>   19

because the Company evaluates each store for impairment, future charges are
reasonably possible as estimates of future cash flows change. These charges
will generally arise as estimates used in the evaluation and measurement of
impairment in application of SFAS No. 121 are refined based on new information
or as a result of future events or changes in circumstances that cause other
stores to be impaired. Also, any future expenditures for impaired stores that
would otherwise be capitalized will have to be immediately evaluated for
recoverability.

         The adoption of SFAS No. 121, as well as its ongoing application, has
and will generally result in lower closure costs or increased gains for
impaired stores that are closed or sold, respectively.

Interest Expense, Net

         In fiscal 1999, the Company had interest expense of approximately
$147,000 compared to interest expense of approximately $227,000 in fiscal 1998.
Interest expense is related primarily to the Company's unsecured line of credit
which bears interest at the institution's "prime rate," which was 8.0 percent at
July 3, 1999. The Company had approximately $398,000 outstanding against this
line at July 3, 1999 as compared to approximately $2,005,000 at June 27, 1998.
The interest expense for fiscal 1999 of approximately $147,000 was offset by
$24,000 of interest earned by the Company on notes receivable from prior sales
of fixtures and equipment in various stores.

Taxes on Income

         The Company did not recognize an income tax benefit from losses
incurred in fiscal 1998 and reported a tax provision of $106,366 for 1999
although losses were incurred. A valuation allowance of $1,437,000 was
established in 1998 and increased by $989,000 in 1999 against the deferred tax
assets created by the impairment charges recognized in each year and from tax
benefits generated from each year's losses, contributing to the Company's
effective tax of 4.8 percent and 0.0 percent for fiscal 1999 and 1998,
respectively. Realization of deferred tax assets associated with equipment and
improvements and with net operating losses and credit carryforwards is
dependent upon generating sufficient taxable income to utilize depreciation
deductions on impaired long-lived assets and net operating loss and credit
carryforwards prior to their expirations. Management believes there is risk
that certain of these deferred tax assets may not be realized and, accordingly,
has established a valuation allowance against them. Although realization is not
assured for the remaining deferred tax assets, management believes it is more
likely than not that they will be realized through taxable earnings or
alternative tax strategies.


                                      19
<PAGE>   20

FISCAL 1998 COMPARED TO FISCAL 1997

Net Sales

         Net sales decreased approximately $1,673,000 or 2.6 percent from
fiscal 1997, primarily due to an approximate 1.7 percent decline in same store
sales and the sale of the Memphis division during the second quarter of fiscal
1997. Net sales from the Memphis division were approximately $1,551,000 in
fiscal 1997. During fiscal 1998, the Company opened four new stores, and sold
or closed eight stores that were not meeting performance goals.

         At June 27, 1998, the Company had 95 Wall Street Deli "flagship"
restaurants and 17 other stores, compared to 93 and 23, respectively, at June
28, 1997. Stores categorized as "other" do not meet the criteria of flagship
restaurants generally due to location and store size. Through fiscal 1997, the
Company recorded net sales from the "other" group (which included the few
remaining R.C. Cooper's units and off-premises catering sales) separately from
its flagship restaurants, primarily because of the significant variance in
sales volume between the two groups. The number of stores in the "other" group
continues to decrease and the Company now considers these groupings to have
lost any material significance and no longer records separate financial
information based on store concept.

         Average annual sales per store for all stores were approximately
$565,000 and $551,000 in fiscal year 1998 and 1997, respectively. The increase
in average annual sales per store reflects primarily the continuing change in
the mix of store types from other concepts to flagship restaurants.

         Same store sales in fiscal 1998 declined 1.7 percent as compared to
fiscal 1997. Although management believes "Street Wraps" did not have a
significant effect on net sales, it serves as an alternative product.
Management believes this negative effect on same store sales is generally
attributable to the continuing pressures of competition in expansion and
marketing by competitors, combined with management and operating difficulties
in some cities.

         As in prior years, the Company continued during fiscal 1998 to
implement pricing adjustments and price changes that were not significant on an
overall basis, and considers price changes in products sold to have had, in the
aggregate, an immaterial effect on sales in the current year.

         During the fourth quarter of fiscal 1997 the Company announced the
initiation of a franchise program for both stand-alone Wall Street Deli stores
and the Wall Street Deli stores co-branded with TCBY yogurt products. Five
franchised stores were opened and operating at June 27, 1998. Franchise
agreements for six additional units were also signed prior to fiscal year end.
Subsequent to year end, agreements for seven additional units had been signed.
Initial franchise fees and royalty payments were not significant in 1998.


                                      20
<PAGE>   21

         The Company historically has experienced lower sales in the second
fiscal quarter of each year due to the number of holidays in the months of
October, November and December. This seasonal effect has a negative impact on
sales because the Company's stores are generally located in or near office
buildings.

Cost of Sales

         Cost of sales as a percent of net sales increased in fiscal 1998 to
90.3 percent from 88.9 percent in fiscal 1997. The major components of cost of
sales are set out below:

<TABLE>
<CAPTION>
                    Fiscal 1998     % of Sales      Fiscal 1997      % of Sales
                   -------------   -----------     ------------      ----------
<S>                <C>             <C>             <C>               <C>
Food/Paper          $22,414,460       35.2%         $23,020,494          35.2%
Labor                14,496,226       22.7           14,917,950          22.8
Store Expenses       20,663,103       32.4           20,219,542          30.9
                    -----------       ----          -----------          ----
                    $57,573,789       90.3%         $58,157,986          88.9%
                    ===========       ====          ===========          ====
</TABLE>

         The modest decrease in total food/paper cost of 0.1 percent as a
percentage of net sales reflects continued efforts toward improving operational
efficiencies. Late in the third fiscal quarter of 1998, the Company changed its
single source food vendor; this change has not resulted in any significant
effect on cost, but is expected over the longer term to further the objectives
of improvements in service, additional new product flexibility, and pricing and
inventory control.

         Labor costs as a percent of net sales decreased 0.1 percent due to a
0.6 percent decrease in average store manager salaries, offset by a 0.5 percent
increase in aggregate hourly wages. The federal minimum wage increase,
effective September 1, 1997, has not had a material effect on fiscal 1998 labor
costs.

         Store expenses as a percent of net sales increased 1.5 percent.
Significant store expenses are fixed costs and, on a percentage basis, are
adversely affected by the decrease in same store sales. Restaurant supplies and
promotional expenses increased 0.1 and 0.4 percent, respectively, primarily due
to the implementation of new products, particularly the "Street Wraps" program.
Other store expenses that increased as compared to the previous annual period
included rent operating expenses (0.1 percent), percentage rent (0.3 percent),
taxes and licenses (0.1 percent), depreciation (0.1 percent), amortization (0.2
percent) and register rental (0.1 percent).

Administrative and General Expenses

         Administrative and general expenses decreased approximately $683,000,
or 9.0 percent to approximately $6,904,000 for fiscal 1998 from approximately
$7,587,000 in fiscal 1997. In June 1997, the Company recorded a charge of
approximately $700,000 related to the relocation of its administrative offices
from Memphis to Birmingham and the subsequent consolidation with the Company's
executive headquarters. This move established a store support center and
centralized


                                      21
<PAGE>   22

the operations and administrative functions. Excluding the non-recurring cost
related to this relocation and consolidation, administrative and general
expenses increased approximately $17,000 in fiscal 1998 as compared to the
prior fiscal year.

Impairment of Long-Lived Assets

         As discussed in the Notes to the Consolidated Financial Statements,
the Company evaluates and measures for impairment on an individual store basis.
During 1998, events and circumstances indicated that certain equipment,
fixtures and leasehold improvements associated with ten underperforming stores,
accounting for approximately 9 percent of all Company stores, were impaired.
Accordingly, the Company recorded a pre-tax charge in the fourth quarter of
1998 amounting to approximately $3.0 million to adjust the carrying value of
these assets to their estimated fair market value and to provide for associated
disposal liabilities. While management believes that estimates used in
evaluation of impairment were reasonable, actual results could vary
significantly. The charge represented approximately 19 percent of the total
carrying amount of long-lived assets. The reduced carrying amount of assets was
then expected to reduce 1999 depreciation and amortization by approximately
$450,000. Also, because the Company now evaluates each store for impairment,
future charges are reasonably possible as estimates of future cash flows
change. These charges will generally arise as estimates used in the evaluation
and measurement of impairment upon adoption of SFAS No. 121 are refined based
on new information or as a result of future events or changes in circumstances
that cause other stores to be impaired. Also, any future expenditures for
impaired stores that would otherwise be capitalized will have to be immediately
evaluated for recoverability.

         The adoption of SFAS No. 121, as well as its ongoing application, has
and will generally result in lower closure costs or increased gains for
impaired stores that are closed or sold, respectively.

Sale of Memphis Division

         Effective October 27, 1996, the Company sold the operating assets of
its Memphis division. This sale decreased net sales approximately $1,551,000 as
compared to fiscal 1997.

Interest Expense, Net

         In fiscal 1998, the Company had interest expense of approximately
$227,000 compared to interest expense of approximately $129,000 in fiscal 1997.
Interest expense is related primarily to the Company's $7,500,000 unsecured line
of credit which bears interest at the lower of the 30-day LIBOR rate plus 175
basis points (7.41 percent at June 27, 1998) or the bank's quoted cost of funds
plus 175 basis points (8.4 percent at June 27, 1998). The Company had
approximately $2,005,000 outstanding against this line at June 27, 1998 as
compared to approximately $983,000 at June 28, 1997. The Company also paid
approximately $51,000 in interest due to amended tax return filings in 1998. The
interest expense for fiscal 1998 of


                                      22
<PAGE>   23

approximately $227,000 was offset by $30,000 of interest earned by the Company
on notes receivable from prior sales of fixtures and equipment in various
stores.

Taxes (Benefit) on Income

         The Company did not recognize an income tax benefit from losses
incurred in fiscal 1998. A valuation allowance of $1,437,000 was established
against deferred tax assets created by the impairment charge recognized in the
fourth quarter and from tax benefits generated from current year losses,
reducing the Company's effective tax to 0.0 percent. Realization of deferred
tax assets associated with equipment and improvements and with net operating
loss and credit carryforwards is dependent upon generating sufficient taxable
income to utilize depreciation deductions on impaired long-lived assets and net
operating loss and credits carryforwards prior to their expirations. Management
believes there is risk that certain of these deferred tax assets may not be
realized and, accordingly, has established a valuation allowance against them.
Although realization is not assured for the remaining deferred tax assets,
management believes it is more likely than not that they will be realized
through future taxable earnings or alternative tax strategies. The Company
provided for income taxes of $26,000 for fiscal 1997 with an effective tax rate
of 29.3 percent.

SEASONALITY AND CYCLICALITY

         The Company historically has experienced lower sales in the second
fiscal quarter of each year due to the number of holidays in the months of
October, November and December. This seasonal effect has a negative impact on
sales because the Company's stores are generally located in or near office
buildings. In addition, the inherent cyclicality and seasonality of consumer
spending and dining out habits, as well as local real estate and general
economic conditions, have in the past and may in the future affect the
Company's future sales and earnings, particularly during periods of slow
economic growth or recession.

IMPACT OF INFLATION

         Many of the Company's employees are paid hourly rates related to the
federal minimum wage. Accordingly, inflation-related annual increases in the
minimum wage have historically increased the Company's labor costs. In August
1996, legislation was enacted to increase the minimum wage from $4.25 per hour
to $4.75 on October 1, 1996, and further to $5.15 effective September 1, 1997.
Approximately 66 employees were affected by the September 1997 minimum wage
increase. Construction costs have also increased to developers who lease space
to the Company. Developers have in turn increased and may continue to increase
rents for Company stores. In addition, most of the leases for Company stores
contain rent escalation clauses based upon cost increases incurred by lessors.
In most cases, the Company has been able to increase prices sufficiently to
match increases in its operating costs, but there is no assurance that it will
be able to do so in the future.


                                      23
<PAGE>   24

LIQUIDITY AND CAPITAL RESOURCES

         The Company's ability to obtain the cash required for the conduct of
its business depends upon cash from operations and, to a lesser extent, bank
borrowings. Historically, cash flow from operations and periodic bank
borrowings generally have been sufficient to finance the expansion of the
Company's business. The Company does not maintain significant receivables or
inventory and it receives trade credit in purchasing food and supplies. Stores
not meeting the Company's performance criteria may be closed or sold. The terms
of some such sales require the Company to take back notes, which are contained
in the Company's notes receivable balance, for all or a portion of the sale
price.

         At 1999 fiscal year end, the ratio of the Company's current assets to
current liabilities was .63 to 1.00, as compared to a current ratio of .48 to
1.00 at 1998 fiscal year end. This change reflects the Company's use of
approximately $1,600,000 in fiscal 1999 of available cash to reduce bank
borrowings, offset by an increase of $1,441,000 in bank overdrafts at July 3,
1999. The Company has no long term debt.

         The Company's principal capital requirement is for new equipment and
leasehold improvements for new and existing stores. Capital expenditures for
these purposes were approximately $851,000, $3,283,000 and $2,993,000 for
fiscal years 1999, 1998 and 1997, respectively. Termination of officers' life
insurance policies provided $781,000 in cash during fiscal 1999. It is
presently anticipated that the Company's capital expenditures for fiscal 2000
will be approximately $900,000. In the second quarter of fiscal 1999, the
Company's Board of Directors approved the repurchase of up to 250,000 shares of
the Company's common stock. During 1999 a total of 150,000 shares were
purchased at an average acquisition cost of $3.22.

         The Company has historically met its capital needs from short term
bank borrowings and internally generated funds. Cash generated from operations
totaled approximately $1,518,000, $2,168,000 and $3,426,000 for fiscal years
1999, 1998 and 1997, respectively.

         During fiscal year 1999, the Company had a line of credit which
provided for borrowings up to $7,500,000 from AmSouth Bank of Alabama pursuant
to the terms of a Credit Agreement dated June 19, 1996. The Credit Agreement
was amended and restated effective as of February 1, 1999. The amendment
reduced the amount of the maximum borrowings from $7,500,000 to $4,000,000,
changed the interest rate from a LIBOR based floating rate to prime, and
modified certain financial covenants. The Credit Agreement contains covenants
that require, among other things, the Company to maintain a certain tangible
net worth and to limit the annual capital expenditures of the Company. As of
the end of the fourth quarter of fiscal 1999, the Company's net worth was $9.9
million, which was less than the $12.0 million required by the Credit
Agreement. Also, as of July 3, 1999, the Company's debt service coverage ratio
was 1.23, which was less than the 1.30 required by the Amended Credit
Agreement. The lender waived compliance on these two covenants effective until
the termination date of the current Credit Agreement, October 31, 1999. As a
condition of the waiver, the lender reduced the maximum borrowing amount from


                                      24
<PAGE>   25

$4,000,000 to $1,750,000 and increased the interest rate to prime rate plus 2
percent effective September 20, 1999. The Company expects its future capital
needs will be met primarily by internally generated funds and supplemented as
needed by additional bank borrowings.

IMPACT OF YEAR 2000

         The Company is continuing work on a comprehensive review of its
computer systems that could be affected by the year 2000 issue. The problem is
complex as virtually every computer operation will be affected in some way by
the rollover of the two digit year value to 00. Systems that do not properly
recognize date sensitive information could generate erroneous data or cause a
system to fail. The Company is utilizing internal and external resources in an
attempt to identify and correct, or reprogram, all systems for year 2000
compliance. It is anticipated that all reprogramming efforts will be completed
by October 1999 including testing as needed. The Company's sales reporting and
inventory system was developed internally, and requires modifications.
Unexpected demands during the fiscal year on the Company's technical personnel,
related to the terminated discussions of a possible sale of the Company, delayed
the Company's schedule for completion of necessary modifications; they are now
expected to be completed in October, 1999. Management considers these
modifications to involve a moderate effort and expects to use internal resources
for completion. All computer hardware and other electronic equipment is
currently undergoing compliance testing. Those components failing to meet year
2000 compliance requirements are in the process of being upgraded or replaced as
needed. The Company has spent approximately $33,000 during fiscal 1999 on
training for year 2000 compliance upgrades to the accounting and reporting
software systems. Additionally, the Company plans to spend approximately $60,000
over the first two quarters of fiscal 2000 to complete the year 2000 project.
The Company believes its year 2000 plans are sufficient, but will develop
contingency plans as needed in the future.

NEW ACCOUNTING PRONOUNCEMENTS


                                      25
<PAGE>   26
         In June 1998, the Financial Accounting Standards Board Issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 requires companies to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain or
loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
SFAS 133 amends the guidance in SFAS No. 52, "Foreign Currency Translation," to
permit special accounting for a hedge of a foreign currency forecasted
transaction with a derivative. It also supersedes SFAS No. 80, "Accounting for
Futures Contracts," SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," and SFAS No. 119, "Disclosure about Derivative
Financial Instruments." In addition, it amends SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments," to include in SFAS No. 107 the disclosure
provisions about concentrations of credit risk from SFAS No. 105.

         SFAS 133 is effective for financial statements for years beginning
after June 15, 2000. Historically, the Company has not entered into derivatives
contracts either to hedge existing risk


                                      26
<PAGE>   27
or for speculative purposes. Accordingly, the Company does not expect adoption
of the new standard to materially affect its fiscal 2001 financial statements.

ITEM 8: FINANCIAL STATEMENTS

        The following financial statements are contained at pages 28 through 47
        of this report:

<TABLE>
<CAPTION>

                                                                                                               Page
                                                                                                               ----
      <S>                                                                                                      <C>
      Report of Independent Certified Public Accountants.........................................................28
      Consolidated Financial Statements for Years ended July 3, 1999, June 27, 1998,
             and June 28, 1997:
             Consolidated Balance Sheets - July 3, 1999 and June 27, 1998........................................29
             Consolidated Statements of Operations...............................................................31
             Consolidated Statements of Stockholders' Equity.....................................................32
             Consolidated Statements of Cash Flows...............................................................33

      Summary of Accounting Policies.............................................................................35
      Notes to Consolidated Financial Statements.................................................................39
      Selected Quarterly Financial Data (unaudited) (appearing at Note 10
             of the Notes to Consolidated Financial Statements)..................................................47
</TABLE>


                                      27
<PAGE>   28



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Wall Street Deli, Inc.
Birmingham, Alabama

We have audited the accompanying consolidated balance sheets of Wall Street
Deli, Inc. and subsidiaries as of July 3, 1999 and June 27, 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended July 3, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wall Street Deli,
Inc. and subsidiaries at July 3, 1999 and June 27, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended July 3, 1999, in conformity with generally accepted accounting principles.


Memphis, Tennessee
August 26, 1999 (except as to Note 2,
which is as of September 20, 1999)


                                       28

<PAGE>   29



WALL STREET DELI, INC.
CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                  July 3, 1999          June 27, 1998
-----------------------------------------------------------------------------------------------------
<S>                                                               <C>                    <C>
Assets
Current
     Cash and cash equivalents                                    $  1,305,652           $    409,044
     Accounts and notes receivable, net (Note 1)                       982,975              1,319,436
     Inventories                                                       564,061                583,405
     Refundable income taxes                                           346,140                333,411
     Deferred tax assets (Note 5)                                      495,000                570,000
     Prepaid rent                                                      676,166                 26,548
     Other                                                             202,557                216,111
                                                                  ------------           ------------
Total current assets                                                 4,572,551              3,457,955
                                                                  ------------           ------------
Equipment and improvements (Note 4)
     Equipment and fixtures                                         15,554,760             17,774,870
     Leasehold improvements                                         12,793,819             14,328,565
                                                                  ------------           ------------
                                                                    28,348,579             32,103,435
Less accumulated depreciation and amortization                     (19,132,868)           (19,083,346)
                                                                  ------------           ------------
Net equipment and improvements                                       9,215,711             13,020,089
                                                                  ------------           ------------
Other
      Cash surrender value of insurance ($3,174,495 face
          amount at June 27, 1998) on officers' lives                       --                781,362
     Long-term portion of notes receivable (Note 1)                  1,004,196                211,402
     Deferred tax assets (Note 5)                                    2,381,000              2,392,000
                                                                  ------------           ------------
Total other assets                                                   3,385,196              3,384,764
                                                                  ------------           ------------
                                                                  $ 17,173,458           $ 19,862,808
                                                                  ============           ============
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

                                       29
<PAGE>   30


WALL STREET DELI, INC.
CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                              July 3, 1999          June 27, 1998
-----------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                    <C>
Liabilities and Stockholders' Equity
Current Liabilities
     Bank overdrafts                                                          $  1,441,444           $         --
     Notes payable (Note 2)                                                        398,004              2,004,810
     Accounts payable                                                            1,509,329              1,582,901
     Accruals:
          Taxes other than income                                                  592,053                572,800
          Compensation                                                             798,868                818,765
          Rent                                                                     925,072              1,018,824
          Workers' compensation                                                    972,101                781,145
          Other insurance                                                          459,079                264,424
          Miscellaneous                                                            176,550                102,415
                                                                              ------------           ------------
Total current liabilities                                                        7,272,500              7,146,084
                                                                              ------------           ------------
Commitments and contingencies (Note 8)
Stockholders' equity (Note 3)
     Common stock, $.05 par - shares authorized 20,000,000;
          issued 3,414,802                                                         170,740                170,740
     Additional paid-in capital                                                 10,787,369             10,787,369
     Retained earnings                                                           1,189,940              3,523,082
                                                                              ------------           ------------
                                                                                12,148,049             14,481,191
Treasury stock, at cost, 518,325 and 368,325 shares                             (2,247,091)            (1,764,467)
                                                                              ------------           ------------
Total stockholders' equity                                                       9,900,958             12,716,724
                                                                              ------------           ------------
                                                                              $ 17,173,458           $ 19,862,808
                                                                              ============           ============
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

                                       30

<PAGE>   31



WALL STREET DELI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                 Year ended
                                                            -----------------------------------------------------------
                                                            July 3, 1999          June 27, 1998           June 28, 1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                   <C>                     <C>
Net sales                                                   $ 58,258,464           $ 63,780,406           $ 65,453,642
                                                            ------------           ------------           ------------
Cost of sales
     Food and paper costs                                     20,568,673             22,414,460             23,020,494
     Direct labor                                             13,381,761             14,496,226             14,917,950
     Other operating expenses                                 18,444,142             20,663,103             20,219,542
                                                            ------------           ------------           ------------
Total cost of sales                                           52,394,576             57,573,789             58,157,986
                                                            ------------           ------------           ------------
Gross profit                                                   5,863,888              6,206,617              7,295,656
Administrative and general (Note 9)                            7,194,485              6,904,235              7,586,774
Impairment of long-lived assets (Note 4)                         870,700              2,999,642                     --
                                                            ------------           ------------           ------------
Operating loss                                                (2,201,297)            (3,697,260)              (291,118)
                                                            ------------           ------------           ------------
Other income (expenses)
     Gain on disposal of leasehold improvements
          and equipment                                           32,237                 14,127                204,361
     Interest expense                                           (146,750)              (226,795)              (129,075)
     Interest income                                              24,282                 30,218                 81,986
     Other income - net                                           64,752                 37,280                222,668
                                                            ------------           ------------           ------------
Total other income (expenses)                                    (25,479)              (145,170)               379,940
                                                            ------------           ------------           ------------
Income (loss) before taxes on income                          (2,226,776)            (3,842,430)                88,822
Taxes on income (Note 5)                                         106,366                     --                 26,000
                                                            ------------           ------------           ------------
Net income (loss)                                           $ (2,333,142)          $ (3,842,430)          $     62,822
                                                            ============           ============           ============
Basic and diluted earnings (loss) per common share
     (Note 3)                                               $       (.79)          $      (1.24)          $        .02
                                                            ============           ============           ============
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.


                                       31

<PAGE>   32



WALL STREET DELI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                             Common Stock                                          Treasury Stock
                                     ----------------------                                  ------------------------
                                       Number                  Additional                     Number
                                         of                      Paid-in       Retained         of
                                       Shares       Amount       Capital       Earnings       Shares        Amount
                                     ----------    --------    -----------    -----------    ---------   ------------
<S>                                  <C>           <C>         <C>            <C>            <C>         <C>
Balance, June 29, 1996                3,411,043    $170,552    $10,766,896    $ 7,302,690       1,075    $   (10,548)

Net income for the year                      --          --             --         62,822          --             --
Exercise of stock options                 2,734         137         15,552             --          --             --
Treasury stock acquired                      --          --             --             --     262,750     (1,371,593)
                                     ----------    --------    -----------    -----------    --------    -----------

Balance, June 28, 1997                3,413,777     170,689     10,782,448      7,365,512     263,825     (1,382,141)

Net income for the year                      --          --             --     (3,842,430)         --             --
Exercise of stock options                 1,025          51          4,921             --          --             --
Treasury stock acquired                      --          --             --             --     104,500       (382,326)
                                     ----------    --------    -----------    -----------    --------    -----------

Balance, June 27, 1998                3,414,802     170,740     10,787,369      3,523,082     368,325     (1,764,467)

Net loss for the year                        --          --             --     (2,333,142)         --             --
Treasury stock acquired                      --          --             --             --     150,000       (482,624)
                                     ----------    --------    -----------    -----------    --------    -----------

Balance, July 3, 1999                 3,414,802    $170,740    $10,787,369    $ 1,189,940     518,325    $(2,247,091)
                                     ----------    --------    -----------    -----------    --------    -----------
</TABLE>


See accompanying summary of accounting policies and notes to consolidated
financial statements.

                                       32

<PAGE>   33



WALL STREET DELI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                  Year ended
                                                              ------------------------------------------------------
                                                               July 3, 1999       June 27, 1998       June 28, 1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                <C>                <C>
Operating activities
     Net income (loss)                                         $(2,333,142)        $(3,842,430)        $    62,822
     Adjustments to reconcile net income (loss)
          to net cash provided by operating activities:
               Provision for impairment of
                    long-lived assets                              870,700           2,999,642                  --
               Depreciation and amortization                     3,028,724           3,647,079           3,464,330
               Gain on sale of property and equipment              (32,237)            (14,127)           (369,182)
               Deferred income taxes                                86,000             311,000            (275,000)
               Provision for loss on accounts and
                    notes receivable                               148,750             114,022               1,950
               Changes in operating assets and
                    liabilities:
                        Receivables                                 86,629            (582,880)            579,508
                        Inventories                                 19,344             100,875             (46,483)
                        Refundable income taxes                    (12,729)           (333,411)            239,670
                        Prepaid expenses and other                (636,064)             20,470              15,603
                        Accounts payable                           (73,572)            315,143            (450,863)
                        Accruals                                   365,350            (567,588)            203,502
                                                               -----------         -----------         -----------
Cash provided by operating activities                            1,517,753           2,167,795           3,425,857
                                                               -----------         -----------         -----------
Investing activities
     Payments for purchase of equipment and
          improvements                                            (850,807)         (3,282,982)         (2,992,719)
     Proceeds from sale of equipment and
          improvements                                              24,998             308,141             599,193
     Collections on notes receivable                                71,288             167,173             397,461
      Decrease (increase) in cash surrender value
          of insurance on officers' lives                          781,362             (63,197)           (110,824)
                                                               -----------         -----------         -----------
Cash provided (used) by investing activities                        26,841          (2,870,865)         (2,106,889)
                                                               -----------         -----------         -----------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.


                                       33

<PAGE>   34



WALL STREET DELI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     Year ended
                                                             ------------------------------------------------------
                                                              July 3, 1999        June 27, 1998       June 28, 1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                  <C>                 <C>
Financing activities
     Payments under line of credit                           $(36,359,226)        $(35,346,977)        $(34,429,677)
     Borrowings under line of credit                           34,752,420           36,346,387           32,935,077
     Bank overdrafts                                            1,441,444                   --                   --
     Proceeds from exercise of stock options                           --                4,972               15,689
     Acquisition of treasury stock                               (482,624)            (382,326)          (1,232,843)
                                                             ------------         ------------         ------------
Cash provided (used) by financing activities                     (647,986)             622,056           (2,711,754)
                                                             ------------         ------------         ------------
Net increase (decrease) in cash for the year (Note 7)             896,608              (81,014)          (1,392,786)
Cash and cash equivalents, beginning of year                      409,044              490,058            1,882,844
                                                             ------------         ------------         ------------
Cash and cash equivalents, end of year                       $  1,305,652         $    409,044         $    490,058
                                                             ------------         ------------         ------------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.


                                       34

<PAGE>   35



WALL STREET DELI, INC.
SUMMARY OF ACCOUNTING POLICIES

NATURE OF BUSINESS

      The Company owns, operates and franchises delicatessen-style restaurants
which are located primarily in office buildings or in high foot traffic retail
or business complexes, primarily in central business districts of large
metropolitan cities throughout the United States. The Company also provides
limited catering services in those cities in which its restaurants are located.

PRINCIPLES OF CONSOLIDATION

      The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions are eliminated.

USE OF ESTIMATES

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

      Certain estimates used by management are particularly susceptible to
significant changes in the economic environment. These include estimates of the
realization of long-lived assets and deferred tax assets, as well as amounts
reserved for incurred claims under the workman's compensation policy. Each of
these estimates, as well as the related amounts reported in the financial
statements, are sensitive to near term changes in the factors used to determine
them. A significant change in any one of those factors could result in the
determination of amounts different from those reported in the consolidated
financial statements and the effect of such differences could be material.
Management believes that the estimates used in the consolidated financial
statements are adequate based on the information currently available.

FISCAL YEAR

      The Company operates on a 52-53 week fiscal year ending on the Saturday
closest to June 30 of each year. The fiscal year period ended July 3, 1999
includes 53 weeks and fiscal year periods June 27, 1998 and June 28, 1997
include 52 weeks each.

INVENTORIES

      Inventories of food and restaurant supplies are valued at the lower of
cost (first-in, first-out) or market. Maintenance and office supplies are not
inventoried.


                                       35

<PAGE>   36



EQUIPMENT, IMPROVEMENTS, DEPRECIATION AND AMORTIZATION


      Equipment and improvements are stated at cost. Depreciation of equipment
is computed using the straight-line method for financial reporting purposes over
a seven year estimated useful life.

      Leasehold improvements are amortized using the straight-line method for
financial reporting purposes over the lesser of the useful life of the
improvements or the term of the applicable lease.

      The Company has previously adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("SFAS 121"), for purposes of determining
and measuring impairment of certain long-lived assets.

      The Company reviews long-lived assets to be held and used in the business
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset or a group of assets may not be recoverable. The
Company considers a history of operating losses to be its primary indicator of
potential impairment. Assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows. The Company has
identified the appropriate grouping of assets to be individual restaurants. The
Company deems a restaurant's assets to be impaired if a forecast of undiscounted
future operating cash flows directly related to the assets, including disposal
value, if any, is less than their carrying amount. If a restaurant's assets are
determined to be impaired, the loss is measured as the amount by which the
carrying amount of the assets exceeds their fair value. Fair value is based on
quoted market prices in active markets, if available. If quoted market prices
are not available, an estimate of fair value is based on the best information
available, including prices for similar assets or the results of valuation
techniques such as discounting estimated future cash flows as if the decision to
continue to use the impaired assets was a new investment decision.

      The Company generally measures fair value based on the Company's
experience in disposing of similar under-performing properties. Management
judgment is necessary to estimate fair value. Accordingly, actual results could
vary significantly from such estimates.

REVENUE RECOGNITION

      In connection with its business activity of selling individual and area
franchises, the Company has no significant commitments or obligations resulting
from the franchise agreements. The Company recognizes income from area franchise
sales in accordance with Statement of Financial Accounting Standards No. 45.
Franchise agreements with franchisees provide for initial franchise fees and
continuing royalty payments to the Company based on a percent of sales. The
Company generally charges an initial franchise fee for each new franchised store
that is added. These fees are recognized ratably when substantially all the
services required of the Company are complete and the stores covered by such
agreements commence operations.



                                       36
<PAGE>   37



TAXES ON INCOME

      Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109"). Under SFAS 109, the Company provides for estimated income taxes
payable or refundable on current year income tax returns as well as the
estimated future tax effects attributable to temporary differences and
carryforwards. Measurement of deferred income taxes is based upon enacted tax
laws and tax rates, with the measurement of deferred income tax assets reduced
by estimated amounts of tax benefits not likely to be realized.

EMPLOYEE BENEFITS

      The Company provides a defined contribution retirement plan for
substantially all of its full-time employees which meets the requirements of
Section 401(k) of the Internal Revenue Code. The Company's policy is to fund the
retirement plan costs accrued.

STOCK OPTIONS

      Stock options are granted, under the Company's Incentive Stock Option
Plan, to certain officers and key employees at the prevailing market price on
the date of the grant. Proceeds from the sale of common stock issued under these
options are credited to common stock or treasury stock and additional paid-in
capital at the time the options are exercised. The Company maintains an Employee
Stock Purchase Plan, which allows eligible employees to receive grants of stock
purchase rights at generally 85% of the prevailing market rate on the offering
date. The Company makes no charge to earnings with respect to these options.

      As allowed under the provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), the
Company continues to measure compensation cost for employee stock-based
compensation plans using the intrinsic value based method of accounting
prescribed by the Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and to provide pro forma disclosures of net income
(loss) and earnings (loss) per share as if the fair value based method of
accounting had been applied (see Note 3).

EARNINGS PER SHARE

      The Company has previously adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Basic
EPS excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock are exercised or converted
into common stock, or result in the issuance of common stock that then shares in
the earnings of the Company.



                                       37
<PAGE>   38



FAIR VALUE OF FINANCIAL INSTRUMENTS

      The carrying amounts of the Company's financial instruments, consisting of
cash and cash equivalents, notes and accounts receivable, cash surrender value
of life insurance, accounts payable and notes payable approximate their
respective fair values.

NEW ACCOUNTING PRONOUNCEMENTS

      In June 1998, the Financial Accounting Standards Board Issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires companies to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain or
loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are attributable
to the hedged risk or (ii) the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a hedging instrument, the gain
or loss is recognized in income in the period of change. SFAS 133 amends the
guidance in SFAS No. 52, Foreign Currency Translation, to permit special
accounting for a hedge of a foreign currency forecasted transaction with a
derivative. It also supersedes SFAS No. 80, "Accounting for Futures Contracts,"
SFAS No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," and SFAS No. 119, "Disclosure about Derivative Financial Instruments." In
addition, it amends SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," to include in SFAS No. 107 the disclosure provisions about
concentrations of credit risk from SFAS No. 105.

      SFAS 133 is effective for financial statements for periods beginning after
June 15, 2000. Historically, the Company has not entered into derivatives
contracts either to hedge existing risk or for speculative purposes.
Accordingly, the Company does not expect adoption of the new standard to
materially affect its fiscal 2001 financial statements.



                                       38
<PAGE>   39




WALL STREET DELI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    ACCOUNTS AND NOTES RECEIVABLE

      Accounts and notes receivable consist of the following:


<TABLE>
<CAPTION>
                                                          July 3, 1999         June 27, 1998
                                                          ------------         -------------
<S>                                                       <C>                   <C>
Accounts receivable                                       $   637,496           $ 1,262,505
Notes receivable                                              461,242               333,530
Assets of business transferred under contractual
     arrangement                                              791,000                     0
Other receivables                                             758,804               420,001
                                                          -----------           -----------
                                                            2,648,542             2,016,036
Less allowance for doubtful accounts                         (661,371)             (485,198)
                                                          -----------           -----------
                                                            1,987,171             1,530,838
Less non-current portion of notes receivable               (1,004,196)             (211,402)
                                                          -----------           -----------
                                                          $   982,975           $ 1,319,436
                                                          ===========           ===========
</TABLE>

      The Company's notes receivable generally arise from sales of equipment in
      connection with store closings, bear interest at rates ranging from 8% to
      10%, are repayable monthly in various amounts through July 2004. The notes
      are collateralized by store equipment.

      Activity in the allowance for possible losses is summarized as follows:


<TABLE>
<CAPTION>
                                                                     Year ended
                                                  -----------------------------------------------
                                                  July 3,            June 27,           June 28,
                                                    1999               1998               1997
                                                  --------          ---------           ---------
<S>                                               <C>               <C>                 <C>
Balance, at beginning of period                   $485,198          $ 169,578           $ 167,628
Charged to expense                                 148,750            428,927             106,892
Uncollected balances written off, net of
     recoveries                                     27,423           (113,307)           (104,942)
                                                  --------          ---------           ---------
Balance, at end of period                         $661,371          $ 485,198           $ 169,578
                                                  ========          =========           =========
</TABLE>




                                       39
<PAGE>   40




2.    NOTES PAYABLE

      Notes payable consists of:

<TABLE>
<CAPTION>
                                                       July 3, 1999        June 27, 1998
                                                       ------------        --------------
<S>                                                    <C>                 <C>
Unsecured revolving line of credit with bank,
   borrowings payable on demand, bearing
   interest at the prime rate plus 2% (10.25% at
   September 20, 1999), maturing October 1999             $398,004          $2,004,810
                                                          --------          ----------
Notes payable                                             $398,004          $2,004,810
                                                          --------          ----------
</TABLE>

      The maximum amount of short-term borrowings outstanding during the years
      ended July 3, 1999, June 27, 1998 and June 28, 1997 were $3,135,000,
      $4,383,000 and $2,878,000, respectively. Such borrowings averaged
      approximately $1,647,838 in 1999, $2,457,000 in 1998 and $1,824,000 in
      1997, with a weighted average interest rate of 7.67%, 7.17% and 7.08%,
      respectively, for such periods. The weighted average interest rate was
      calculated by dividing the related interest expense by the average
      short-term borrowings outstanding during the respective periods.

      The Company's unsecured line of credit contains covenants that require,
      among other things, that the Company maintain specified levels of adjusted
      tangible net worth and debt service coverage ratios. The line of credit
      agreement also restricts additional indebtedness, capital expenditures and
      declaration and payment of dividends.

      At July 3, 1999, the Company was not in compliance with its debt service
      coverage ratio covenant nor its tangible net worth ratio and accordingly,
      had requested and was granted waivers and amendments to such covenants
      from its lender for periods up to and including October 31, 1999.
      Additionally, on February 1, 1999, the lender had lowered the available
      line from $7,500,000 to $4,000,000 and changed the interest rate from a
      LIBOR denominated rate to prime. On September 20, 1999, the lender again
      lowered the available line from $4,000,000 to $1,750,000 and increased the
      interest rate from prime to prime plus 2% (10.25% at September 20, 1999).
      There can be no assurance that the Company will not require additional
      waivers in the future or if required, that the lender will grant them.

      Management expects, to extend the expiration date from October 31, 1999 to
      October 31, 2000. However, should negotiations with the lender not proceed
      as expected, management believes there are a number of viable refinancing
      alternatives.

3.    STOCKHOLDERS' EQUITY

      The Company maintains an incentive stock option plan under which officers,
      employees and directors may be granted options to purchase shares of the
      Company's common stock at the



                                       40
<PAGE>   41
      grant date fair market value. Options are generally exercisable upon
      issuance and expire up to five years from the date granted.

<TABLE>
<CAPTION>
                                                                                 Year ended
                                            -------------------------------------------------------------------------------
                                                      July 3,                    June 27,               June 28,
                                                       1999                        1998                   1997
                                            ---------------------------  ------------------------- ------------------------
                                                              Weighted                   Weighted                Weighted
                                                              average                    average                 average
                                                              exercise                   exercise                 exercise
                                             Shares            price      Shares           price    Shares        price
                                             ------          --------    ---------       --------- ---------     ----------
<S>                                         <C>              <C>         <C>             <C>       <C>           <C>
Options outstanding, beginning of period      304,200          5.84       338,400          7.05      238,550        8.38
Options granted                                 2,000          3.88        75,100          3.92      133,200        4.55
Options canceled                             (125,500)         6.34      (109,300)         7.89      (33,350)       6.50

Options outstanding, end of period            180,700          5.71       304,200          5.84      338,400        7.05
Option price range at end of period             $3.38 to                    $3.38 to                   $4.00 to
                                               $13.06            --        $13.06                     $13.06
Options available for grant at end of
     period                                   192,450                      68,950                     34,750

Weighted-average fair value of options,
     granted during the period                               $ 1.21                     $  1.17                   $ 1.58
                                            =========        ======     =========       =======    =========      ======
</TABLE>

      At July 3, 1999, 373,150 shares were reserved for issuance under the plan.

      The Company also maintains an Employee Stock Purchase Plan which covers
      full-time employees which meet certain defined employment requirements. A
      maximum of 142,500 shares may be issued under the plan, and the employees'
      purchase price is the greater of 85% of the fair market value of the stock
      on the date of grant or 85% of the Company's cost to acquire stock for
      issuance under the plan. Rights to acquire shares expire within 12 months
      from date of grant if not exercised. Rights to acquire 1,350, 9,425 and
      1,650 shares remained outstanding as of July 3, 1999, June 27, 1998 and
      June 28, 1997, respectively. A total of 61,627 shares were reserved under
      this plan as of July 3, 1999.

      Stock-based compensation

      All stock options issued to employees have an exercise price not less than
      the fair market value of the Company's common stock on the date of grant,
      and in accordance with accounting for such options utilizing the intrinsic
      value method there is no related compensation expense recorded in the
      Company's financial statements. Had compensation cost for stock-based
      compensation been determined based on the fair value at the grant dates
      consistent with the method of SFAS 123, the Company's net income (loss)
      and earnings (loss) per share would have been reduced to the pro forma
      amounts presented below for the years ended:



                                       41
<PAGE>   42







<TABLE>
<CAPTION>
                                                       July 3,                June 27,                June 28,
                                                         1999                   1998                     1997
                                                    -------------           -------------           -------------
<S>                                                 <C>                     <C>                     <C>
Net income (loss):
     As reported                                    $  (2,333,142)          $  (3,842,430)          $      62,822
     Pro forma                                      $  (2,394,512)          $  (3,923,514)          $      10,163
Earnings (loss) per share of common stock:
     As reported                                    $        (.79)          $       (1.24)          $        0.02
     Pro forma                                      $        (.82)          $       (1.27)          $          --
                                                    =============           =============           =============
</TABLE>


      The fair value of option grants is estimated on the date of grant
      utilizing the Black-Scholes option-pricing model with the following
      weighted average assumptions for grants in 1999, 1998 and 1997; expected
      life of option of 5 years for all years, expected volatility of 25% for
      1999, 25% for 1998 and 24.7% for 1997; risk free interest rate of 4.58%
      for 1999, 5.99% for 1998 and 6.45% for 1997 and a 0% dividend yield for
      all years. The weighted average fair value at date of grants is $1.21 per
      option for 1999 and ranges from $1.11 to $1.37 per option for 1998 and
      $1.43 to $1.77 per option for 1997.

      Additional information relating to stock options outstanding and
      exercisable at July 3, 1999 summarized by exercise price are as follows:

<TABLE>
<CAPTION>
                                                      Weighed Average
                                  Outstanding       -------------------
  Exercise price                 and exercisable     Life      Exercise
   per share                        shares         (years)       Price
-----------------                ---------------    -------    --------
<C>                              <C>                <C>        <C>
$3.38 - $  4.00                        74,000         2.4      $   2.80
$          5.25                        78,800         1.9          5.25
$          8.63                         3,000         1.1          8.63
$11.88 - $13.06                        24,900          .2         12.16
                                     --------
$3.38 to $13.06                       180,700         2.1          5.71
                                     ========        ====      ========
</TABLE>

4.    IMPAIRMENT OF LONG-LIVED ASSETS

      In each of fiscal 1999 and fiscal 1998, events and circumstances indicated
      that certain equipment, fixtures and leasehold improvements associated
      with under-performing stores were impaired. Accordingly, the Company
      recorded a pre-tax charge in the fourth quarters of 1999 and 1998
      amounting to approximately $870,700 and $3,000,000, respectively, to
      adjust the carrying value of these assets to their estimated fair market
      value and to provide for associated



                                       42
<PAGE>   43



      disposal liabilities. While management believes that estimates used in
      evaluation of impairment were reasonable, actual results could vary
      significantly.

5.    Taxes (Benefit) on Income

      The components of taxes (benefit) on income are as follows:


<TABLE>
<CAPTION>
                                        Year ended
                         -----------------------------------------------
                          July 3,           June 27,           June 28,
                           1999               1998               1997
                         --------          ---------           ---------
<S>                      <C>               <C>                 <C>
Current:
     Federal             $ 17,266          $(311,000)          $ 252,000
     State                  3,100                 --              49,000
                         ========          =========           =========
Total current              20,366           (311,000)            301,000
                         --------          ---------           ---------
Deferred:
     Federal               73,000            262,000            (246,000)
     State                 13,000             49,000             (29,000)
                         --------          ---------           ---------
Total deferred             86,000            311,000            (275,000)
                         --------          ---------           ---------
Taxes on income          $106,366          $      --           $  26,000
                         ========          =========           =========
</TABLE>

      Significant components of the Company's deferred tax assets are comprised
of the following at:


<TABLE>
<CAPTION>
                                                     July 3,              June 27,
                                                      1999                  1998
                                                   -----------           -----------
<S>                                                <C>                   <C>
Equipment and improvements                         $ 3,266,100           $ 3,116,800
Accrual for contingent losses                          608,400               568,900
Bad debt allowance                                     249,100               193,000
Alternative minimum tax and other credits              370,000               308,000
Net operating loss carryforward                        753,000               157,000
Other                                                   55,400                55,300
                                                   -----------           -----------
Gross deferred tax asset                             5,302,000             4,399,000
Valuation allowance                                 (2,426,000)           (1,437,000)
                                                   -----------           -----------
Net deferred tax asset                             $ 2,876,000           $ 2,962,000
                                                   ===========           ===========
</TABLE>

      Realization of deferred tax assets associated with equipment and
      improvements and with net operating loss and credit carryforwards is
      dependent upon generating sufficient taxable income to utilize
      depreciation deductions on impaired long-lived assets (Note 4) and net
      operating loss and credits carryforwards prior to their expirations.
      Management believes that there is risk that



                                       43
<PAGE>   44


      certain of these deferred tax assets may not be realized and, accordingly
      has established a valuation allowance against them. Although realization
      is not assured for the remaining deferred tax assets, management believes
      it is more likely than not that they will be realized through future
      taxable earnings or alternative tax strategies.

      Net operating loss and other credit carryforwards expire at various dates
      from 2005 through 2019. Alternative minimum tax credits totaling
      approximately $152,000 may be carried forward indefinitely.

      The effective tax rate on income before taxes on income was different from
      the federal statutory tax rate. The following summary reconciles taxes at
      the federal statutory tax rate with actual taxes and the effective rate:


<TABLE>
<CAPTION>
                                                                            Year ended
                                                 ----------------------------------------------------------------------
                                                      July 3, 1999             June 27, 1998            June 28, 1997
                                                 -------------------     ------------------------    ------------------
<S>                                              <C>           <C>        <C>             <C>        <C>          <C>
                                                       $            %     $                     %    $                 %
Income taxes (benefit) at statutory rate          (757,000)    (34.0)      (1,306,000)    (34.0)       30,200      34.0
Increase (decrease) in taxes resulting
     from:
          State income taxes, net of
              federal tax benefit                   11,100        .5         (154,000)     (4.0)        3,600       4.1
          Meals and entertainment                    5,000        .2           21,200        .6         7,900       8.8
          Officers' life insurance                  25,000       1.1            2,800       0.0       (15,000)    (16.8)
          Tax credits                              (62,000)     (2.7)              --        --            --        --
          Other                                   (104,734)     (4.7)          (1,000)     (0.0)         (700)      (.8)
Increase in valuation allowance                    989,000      44.4        1,437,000      37.4            --        --
                                                 ---------     -----      -----------     -----      --------    ------
Taxes (benefit) on income at
     effective rate                                106,366       4.8               --        --        26,000      29.3
                                                 ---------     -----      -----------     -----      --------    ------
</TABLE>

6.    EARNINGS (LOSS) PER SHARE

      Earnings (loss) per share of common stock and common stock equivalents
      have been computed using 2,937,221 shares in 1999, 3,094,762 shares in
      1998 and 3,254,908 shares in 1997, which represent the weighted average
      number of shares of common stock to be recognized during the respective
      periods. The effect of shares issuable under the stock option plan were
      excluded for 1999 and 1998 as the effect would be anti-dilutive. The
      assumed exercise of the common stock options is not included in the
      computation of common stock equivalents for 1997 because the significant
      majority of common options outstanding were exercisable at prices which
      exceed the common stock market price.




                                       44
<PAGE>   45


7.    SUPPLEMENTAL CASH FLOW INFORMATION

      For purposes of the statements of cash flows, the Company classifies cash
      on hand and in savings and checking accounts and short-term investments
      with a maturity of three months or less as cash equivalents.

      Supplemental cash flow information:

<TABLE>
<CAPTION>
                                                                                 Year ended
                                                               ---------------------------------------------
                                                                  July 3,          June 27,        June 28,
                                                                    1999             1998            1997
                                                               ------------       ----------     -----------
<S>                                                            <C>                <C>            <C>
Cash paid for (received from):
     Interest                                                  $    161,458       $  266,795     $  136,506
     Income taxes                                                   (81,366)         189,025        (19,554)
Non-cash financing and investing activities:
     Notes received from sale of property and
          equipment (net of reserve of $227,000)                    763,000               --        454,031
     Treasury stock acquired from sale of
          property, equipment and accounts
          receivable                                                     --               --        138,750
</TABLE>

8.    COMMITMENTS AND CONTINGENCIES

      A.  Leases

      The Company and its subsidiaries lease various restaurant facilities and
      computer equipment, under noncancellable operating leases, which expire at
      various dates through July 2007. At July 3, 1999, future minimum lease
      payments required under operating leases that have initial noncancellable
      terms in excess of one year are as follows:

<TABLE>
<CAPTION>

                                                        Minimum lease
                  Fiscal year ending                       payments
                  ------------------                    -------------
                  <S>                                   <C>
                  2000                                  $   5,894,551
                  2001                                      5,601,178
                  2002                                      5,283,489
                  2003                                      4,291,493
                  2004                                      2,967,994
                  After 2004                                3,279,789
                                                         ------------
                  Total                                  $ 27,318,494
                                                         ============

</TABLE>


                                       45
<PAGE>   46



      Rent expense for each of the three years in the period ended July 3, 1999
is as follows:

<TABLE>
<CAPTION>
                                                                         Year ended
                                                       --------------------------------------------------
                                                        July 3,            June 27,             June 28,
                                                         1999                1998                 1997
                                                       ----------          ----------          ----------
<S>                                                    <C>                 <C>                 <C>
Basic rentals:
     Noncancellable leases (net of subleases)          $6,412,362          $6,167,078          $6,507,892
     Cancellable equipment leases                         235,893             310,846             417,269
                                                       ----------          ----------          ----------
                                                        6,648,255           6,477,924           6,925,161
Contingent rentals based on sales                         560,558             590,935             418,703
                                                       ----------          ----------          ----------
Total rent expense                                     $7,208,813          $7,068,859          $7,343,864
                                                       ==========          ==========          ==========
</TABLE>

      The Company and its subsidiaries remain obligated, in the event of default
      by the current lessee, on 7 facilities formerly operating under long-term
      leases. Future minimum lease payments remaining under these noncancellable
      operating leases are as follows:

<TABLE>
<CAPTION>
                                                            Minimum remaining
Fiscal year ending                                             lease payments
------------------                                             --------------
<S>                                                             <C>
2000                                                            $     481,944
2001                                                                  414,316
2002                                                                  414,316
2003                                                                  414,316
2004                                                                  405,282
After 2004                                                            398,285
                                                                -------------
Total                                                           $   2,528,459
                                                                =============
</TABLE>

      B.  Workers Compensation and Medical Claims

      The Company is self-insured for workers compensation claims up to $250,000
      for each loss event. Provisions for expected future payments are accrued
      based on the Company's estimate of its aggregate liability for all open
      claims.

      C.  Litigation

      The Company is involved in various legal matters in the ordinary course of
      its business. None of these matters are expected to have a material
      adverse effect on the Company's consolidated financial statements.



                                       46
<PAGE>   47


      D.  Retirement Plan

      Effective January 1, 1996, the Company adopted a tax-qualified employee
      benefit plan ("Plan") which meets the criteria of Section 401(k) of the
      Internal Revenue Code. Under the Plan, participants may elect to defer
      from 2% to 15% of their compensation, and the Company may make
      discretionary contributions, as determined annually by the Company's
      management, of up to 10% of the employee's compensation. Each
      participant's contribution is fully vested at all times. Participants
      become fully vested in contributions made by the Company on a graduated
      scale over a seven-year period. Operations were charged with approximately
      $44,000, $47,000 and $51,000 related to this plan for the years ended July
      3, 1999, June 27, 1998 and June 28, 1997, respectively.

9.    Corporate Relocation

      The corporate offices of the Company were consolidated and relocated to
      Birmingham, Alabama on June 20, 1997. Accordingly, the Company recorded a
      fourth-quarter 1997 charge of $700,000 related to the consolidation.

10.   Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                                                     Thousands of dollars, except per share data
                                                                 --------------------------------------------------
                                                                     1st           2nd         3rd         4th
                                                                 ---------     ---------   ----------   -----------
<S>                                                              <C>           <C>         <C>          <C>
Year ended July 3, 1999:
     Net sales                                                   $  15,299     $  14,485   $  13,805    $ 14,699
     Gross profit                                                    1,657         1,374       1,444       1,388
     Income (loss) before taxes (benefit) on income                     60          (193)       (500)     (1,594)
     Net income (loss)                                                  37          (116)       (439)     (1,815) (a)
     Basic and diluted earnings (loss) per common share                .01          (.04)       (.15)       (.63)

<CAPTION>


                                                                     Thousands of dollars, except per share data
                                                                 ----------------------------------------------------
                                                                     1st          2nd         3rd          4th
                                                                 ----------    ---------   ---------    -------------
<S>                                                              <C>           <C>         <C>          <C>
Year ended June 27, 1998:
     Net sales                                                   $  16,195     $  15,852   $  15,696    $ 16,037
     Gross profit                                                    1,449         1,398       1,554       1,806
     Income (loss) before taxes (benefit) on income                   (282)         (286)         13      (3,287)
     Net income (loss)                                                (169)         (172)          8      (3,509) (b)
     Basic and diluted earnings (loss) per common share               (.05)         (.06)         --       (1.15)
</TABLE>

      (a)    See Note 4 for discussion of the fourth quarter pre-tax charge of
             $870,700 related to impairment of long-lived assets.
      (b)    See Note 4 for discussion of the fourth quarter pre-tax charge of
             $2,999,642 related to impairment of long lived assets.



                                       47
<PAGE>   48



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

      During the fiscal years 1999 and 1998 and through the date of this report,
there has been no change in the Company's independent accountants, nor have any
disagreements with such accountants or reportable events occurred.


                                    PART III

ITEM 10:     DIRECTORS AND EXECUTIVE OFFICERS

      Information required by this item is incorporated by reference from the
sections entitled "Election of Directors" and "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" in the Proxy Statement for the Annual
Meeting of Shareholders to be held December 8, 1999, as filed with the
Securities and Exchange Commission.


ITEM 11:     EXECUTIVE COMPENSATION

      Information required by this item is incorporated by reference from the
section entitled "Executive Compensation" in the Proxy Statement for the Annual
Meeting of Shareholders to be held December 8, 1999, as filed with the
Securities and Exchange Commission.


ITEM 12:     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Information required by this item is incorporated by reference from the
sections entitled "Security Ownership of Management and Certain Beneficial
Owners" and "Election of Directors" in the Proxy Statement for the Annual
Meeting of Shareholders to be held December 8, 1999, as filed with the
Securities and Exchange Commission.


ITEM 13:     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Information required by this item is incorporated by reference from the
section entitled "Executive Compensation" in the Proxy Statement for the Annual
Meeting of Shareholders to be held December 8, 1999, as filed with the
Securities and Exchange Commission.



                                       48
<PAGE>   49
                                    PART IV

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

Financial Statements

         The following financial statements are included in Part II of this
         report (index at page 27):

         Report of Independent Certified Public Accountants

         Consolidated Financial Statements for Years ended July 3, 1999,
         June 27, 1998, and June 28, 1997:

                  Consolidated Balance Sheets - July 3, 1999 and June 27, 1998
                  Consolidated Statements of Operations
                  Consolidated Statements of Stockholders' Equity
                  Consolidated Statements of Cash Flows

         Summary of Accounting Policies

         Notes to Consolidated Financial Statements

         Selected Quarterly Financial Data (unaudited) (appearing at Note 10 of
         the Notes to Consolidated Financial Statements)

Financial Statement Schedules

         All schedules have been omitted since the required information is not
applicable or the information required is included in the financial statements
or the notes thereto.



                                      49
<PAGE>   50

EXHIBITS

         The exhibits set forth in the following Index of Exhibits are filed as
a part of this report:

<TABLE>
<CAPTION>
Exhibit
Number                                       Description
------
<S>      <C>
3.1(b)   Restated Certificate of Incorporation, incorporated by reference from
         the Company's Form 10-K for the year ended June 27, 1998.

3.2      Bylaws (incorporated by reference from the Company's Proxy Statement
         for the Special Shareholders Meeting held on September 25, 1986).

4.4      Credit Agreement, dated June 19, 1996, between AmSouth Bank of Alabama
         and the Company, incorporated by reference from the Company's Form
         10-K for the year ended June 29, 1996.

4.5      Amended and Restated Credit Agreement dated February 2, 1999, between
         Wall Street Deli, Inc., and AmSouth Bank, incorporated by reference
         from the Company's Form 10-Q for the quarter ended December 26, 1998.

10.2     Lease dated February 20, 1981, between the Company and CBK Associates,
         as amended by Amendment Numbers 1, 2 and 3 (incorporated by reference
         from exhibits to the Company's Registration Statement on Form S-2
         under the Securities Act of 1933, Registration No. 33-61700, as filed
         on April 27, 1993).

10.3     Commercial Lease dated May 31, 1994, between the Company and Rex
         Associates (incorporated by reference from the Company's Annual Report
         on Form 10-K for the year ended July 1, 1995).

10.7     Extract of Minutes of the Board of Directors (incorporated by
         reference from exhibits to the Company's Registration Statement on
         Form S-l under the Securities Act of 1933 Registration No. 2-78902, as
         filed on September 28, 1982).

10.8     1983 Incentive Stock Option Plan, incorporated by reference from an
         exhibit to the Company's Annual Report on Form 10-K for the year ended
         June 30, 1984.

10.9     Wall Street Deli, Inc.1989 Incentive Stock Option Plan, as amended,
         incorporated by reference from an exhibit to the Company's Annual
         Report on Form 10-K for the year ended June 30, 1984.
</TABLE>



                                      50
<PAGE>   51
<TABLE>
<S>      <C>
10.10    Asset Purchase Agreement dated as of October 27, 1996, by and among
         Wall Street Deli, Inc., Downtown Food Services, Inc., Executive Chef
         Catering, L.L.C., Robert G. Barrow and Judy Gupton (relating to sale
         of the Memphis division), incorporated by reference from an exhibit to
         the Company's Quarterly Report on Form 10-Q for the quarter ended
         September 28, 1996.

10.11    Wall Street Deli, Inc. Employee Stock Purchase Plan, incorporated by
         reference from Exhibit 4(c) to the Company's Registration Statement on
         Form S-8, Registration no. 333-69553, as filed December 23, 1998.

10.12    Wall Street Deli, Inc. 1997 Incentive Award Plan, incorporated by
         reference from the Company's Proxy Statement for the Annual
         Shareholders Meeting held November 6, 1997.

21       Subsidiaries of the Registrant, filed herewith. page 55

27       Financial Data Schedule, submitted to the Securities and Exchange
         Commission in electronic format
</TABLE>

Reports on Form 8-K

         During the quarter ended July 3, 1999, the Company filed two reports
         on Form 8-K:

                  Report on Form 8-K dated April 15, 1999, reporting an
         extension of the agreement in principle with Trinity Management
         Company, Inc.; and

                  Report on Form 8-K dated April 23, 1999, reporting the
         expiration of the agreement in principle with Trinity Management
         Company, Inc., and the Company's additional discussions.



                                      51
<PAGE>   52

                                   SIGNATURES

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

                           WALL STREET DELI, INC.


                             /s/ Jeffrey V. Kaufman
                           --------------------------------
                           By: JEFFREY V. KAUFMAN
                               President

                                                             September 30, 1999

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<S>                                      <C>                                         <C>
  /s/ Jeffrey V. Kaufman                 President, Chief Executive                  September 30, 1999
--------------------------------         Officer and Director
JEFFREY V. KAUFMAN

  /s/ Robert G. Barrow                   Vice Chairman, Chief Financial              September 30, 1999
--------------------------------         Officer and Director
ROBERT G. BARROW

  /s/ Alan V. Kaufman                    Chairman of the Board                       September 30, 1999
--------------------------------
ALAN V. KAUFMAN

  /s/ Aaron Beam, Jr.                           Director                             September 30, 1999
--------------------------------
AARON BEAM, JR.

  /s/ William M. Byrne                          Director                             September 30, 1999
--------------------------------
WILLIAM M. BYRNE

  /s/ Jake L. Netterville                       Director                             September 30, 1999
--------------------------------
JAKE L. NETTERVILLE

  /s/ William S. Atherton                       Director                             September 30, 1999
--------------------------------
WILLIAM S. ATHERTON
</TABLE>



                                      52
<PAGE>   53

                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549


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

                                    EXHIBITS
                                      AND
                         FINANCIAL STATEMENT SCHEDULES
                                       TO

                                   FORM 10-K



                             WALL STREET DELI, INC.




For the fiscal year ended July 3, 1999              Commission File No. 0-11271



                                      53
<PAGE>   54

                               TABLE OF CONTENTS
                                  FOR EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number                             Description                                                                 Page
-------                            -----------                                                                 ----
<S>                 <C>                                                                                        <C>
21                  Subsidiaries of the Registrant                                                             55

27                  Financial Data Schedule, submitted to the Securities and Exchange
                    Commission in electronic format
</TABLE>



                                      54