Securities and Exchange Commission
              Washington, D.C.

                 FORM 10-K

(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Fiscal Year Ended September 28, 1996

[  ] Transition report pursuant to Section 10 or 15(d) of the Securities 
Exchange Act of 1934 [Fee Required] 
For the transition period from ______________ to _______________.         

      Commission File Number 000-22006

                   DavCo Restaurants, Inc.
(Exact name of registrant as specified in its charter)

Delaware                                                 52-1633813
(State or other jurisdiction of incorporation   (I.R.S. Employer Incorporation 
 or organization)                                   Identification Number)

          1657 Crofton Boulevard, Crofton Maryland          21114
               (Address of principal executive offices)   (Zip code)

      Registrant's telephone number, including area code (410) 721-3770

      Securities registered pursuant to Section 12(b) of the Act:
                         Common Stock $.001 par value
                              (Title of class)

      Securities registered pursuant to Section 12(g) of the Act:
                               None

Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during 
the preceding 12 months (or for such shorter period than the Registrant was 
required to file such reports), and (2) has been subject to such filing 
requirements for the past 90 days.

               Yes   X             No      

Indicate 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. [  ]

The aggregate market value of the voting stock held by non-affiliates of the  
Registrant on December 16, 1996 was $22,638,255 based on the closing price of 
the Common Stock as provided by the American Stock Exchange on December 16, 
1996.

As of December 16, 1996, there were outstanding 6,587,628 shares of the 
Registrant's Common Stock, par value $.001 per share.

    DOCUMENTS INCORPORATED BY REFERENCE

The proxy Statement to be filed with respect to the Annual Meeting of 
Shareholders to be held on January 29, 1997 is incorporated by 
reference in Part III.

PART I

ITEM 1: BUSINESS

GENERAL

DavCo Restaurants, Inc. a Delaware corporation, was
incorporated in December 1987.  DavCo Restaurants, Inc. and
its subsidiaries are collectively referred to herein as the
"Company."

As of September 28, 1996, the Company operated 228
"Wendy's Old Fashioned Hamburgers" restaurants ("Wendy's"),
making it the world's largest franchisee of Wendy's
International, Inc. ("Wendy's International").  

The Company maintains exclusive franchise territories in
metropolitan Baltimore and Washington, D.C., the eastern shore
of Maryland and portions of northern Virginia (collectively the
"Mid-Atlantic"), where it operated 134 restaurants as of
September 28, 1996.  In fiscal 1996, the Company opened ten
new Mid-Atlantic restaurants and closed one existing restaurant. 
The Mid-Atlantic restaurants had an average sales of $1,073,000
for the fiscal year ended September 28, 1996.  The average
restaurant operating profit margin for the Mid-Atlantic
restaurants was 21.4% for fiscal 1996.

As of September 28, 1996, the Company also operated 56
Wendy's restaurants in metropolitan St. Louis and central
Illinois (the "Midwest").  The Company does not maintain
exclusive franchise territories in the Midwest.  In fiscal 1996, the
Company opened two new Midwest restaurants.  Average sales
for the Midwest restaurants were $615,700 for the fiscal year
ended September 28, 1996.  The average restaurant operating
profit margin for the Midwest restaurants was 7.4% for fiscal
1996.

Effective September 24, 1994, the Company acquired 34
restaurants in the metropolitan Nashville, Tennessee area (the
"Southern Market") through the acquisition of all of the
outstanding common stock of Southern Hospitality Corporation
("Southern Hospitality").  The consideration paid to the
stockholders of Southern Hospitality was approximately
$14,225,000.  The Company also retired pre-existing debt and
satisfied certain other obligations of Southern Hospitality in the
amount of approximately $7,000,000.  The acquisition was
financed through an $18,250,000 loan from First National Bank
of Maryland and from working capital of the Company.  The
transaction was accounted for as a purchase for financial
reporting purposes (See Note 13 in Notes to Consolidated
Financial Statements).  During fiscal years 1995 and 1996, the
Company opened four additional restaurants, two in each year,
in Tennessee.  Average sales for the Southern restaurants for the
fiscal year ended September 28, 1996 were $922,700 and the
average restaurant operating profit margin was 17.6%.

STRATEGY

Opening New Restaurants.  The Company has implemented a
program designed to increase its number of restaurants,
primarily in its' Mid-Atlantic market.  In fiscal, 1996, the
Company opened ten new restaurants in its Mid-Atlantic market,
two in its Southern market and two in its Midwest market.  The
Company closed one restaurant, due to unprofitability.  The
company has also selected the sites for up to an additional ten
new restaurants that it intends to open in fiscal 1997.  The
number of restaurants opened may vary depending open general
economic conditions, variability in time required to obtain local
permits, the continued availability of financing, and the
Company's ability to locate additional suitable restaurants sites. 
The Company has agreed with Wendy's International to open or
have under construction a minimum of seven Mid-Atlantic
restaurants in each calendar year through 2001 and to operate a
total of 200 Mid-Atlantic restaurants by the end of the calendar
year 2005.  The Company has met or exceeded this committed
growth rate through September 28, 1996 and anticipates
exceeding this growth rate by opening at least an additional 70
restaurants in the Mid-Atlantic region by the end of the calendar
year 2005.  Any new restaurants opened by the Company must
be approved by Wendy's International.

Mid-Atlantic Renovation Program.  The Company, pursuant to
an agreement with Wendy's International, has instituted a
program to retrofit selected Mid-Atlantic restaurants, primarily
through the installation of an additional cash register, the
upgrading of the point of sale system, and certain other
structural modifications designed to increase service capacity
and operational efficiency.  The cost of retrofitting a restaurant
is typically $35,000 to $50,000.

RESTAURANT OPERATIONS

Menu.  Each Wendy's restaurant offers a diverse menu
containing a variety of food items, featuring hamburgers and
fillet of chicken breast sandwiches which are prepared to order
with the customer's choice of condiments.  The Wendy's menu
also typically includes chili, baked and french fried potatoes,
freshly prepared salads, and Frosty dessert.  The Mid-Atlantic
market continues to test fried chicken in some of its restaurants. 
In addition, the restaurants sell a variety of promotional
products, normally on a limited time basis.

Marketing and Promotions.  As required by its franchise
agreements, the Company must contribute at least 4.0% of its
restaurant sales to an advertising and marketing fund.  Two and
one half percent of restaurants sales is used to benefit all
restaurants owned and franchised by Wendy's International. 
The Wendy's National Advertising Program, Inc. uses this fund
to develop advertising and sales promotion materials and
concepts to be implemented nationally.  In fiscal 1996, The
Wendy's International Advertising Program, Inc. sponsored six
four-week and one three-week promotional campaigns which
featured speciality menu items.  The Company is required to
spend the remainder of the 4% of its restaurant sales on local
advertising.  See "Business-Franchise and Development
Agreements."  The Company typically spends its local
advertising dollars on local television and radio promotions.  

Site Selection.  Site selection for new restaurants is made by the
Company's real estate and development department subject to
acceptance by Wendy's International.   A typical market area
will have a population base of at least 50,000 people within a
three mile radius.  Within the potential market area, the
Company evaluates major retail and office concentrations and
major traffic arteries to determine focal points.  Site specific
factors which the Company considers include visibility,
convenience of access, proximity to direct competition
(including other Wendy's restaurants), access to utilities, local
zoning regulations and various other factors.  The Company's
current business strategy is to locate new restaurants, whenever
possible, in free-standing buildings located on the grounds of
shopping centers.

Restaurants Layout and Operations.  The Company's
restaurants typically range from 2,700 to 3,200 square feet with
a seating capacity of between 90 and 130 people, and are
typically open from 10:30 a.m. to 10:00 p.m., with many
restaurants open for extended evening hours.  Generally, the
dining areas are fully carpeted and informal in design, with tables
for two to four people.  Approximately 98% of the Company's
restaurants also feature drive-thru windows.  Average drive-thru
guest checks generally exceed in-restaurant guest checks.  In
fiscal 1996, drive-thru sales constituted approximately 52% of
the Company's sales.

Most Company restaurants opened since January 1992 are
designed to incorporate Wendy"s International's new high-capacity central 
grill/multiple register design ("High-Capacity
Restaurants").  High-Capacity Restaurants are typically larger in
size than traditional Wendy's restaurants and feature a central
grilling area and computerized ordering system designed to relay
customer orders to the grilling area more efficiently.  In addition,
High-Capacity Restaurants typically incorporate multiple cash
registers, instead of the earlier one register Wendy's design, and
a second drive-thru window.

The Company's reporting system provides restaurant and
operating data, including sales mix and labor cost information,
with respect to each restaurant to the Company's executive
offices.  Weekly management reports by Area Managers and
Regional Managers track food and labor costs and unit income. 
Physical inventories of all food items are taken weekly, and
inventories of critical food items are taken twice a day.

RAW MATERIALS

As a Wendy's franchisee, the Company complies with uniform
recipe and ingredient specifications provided by Wendy's
International, and purchase all food and beverage inventories
and restaurant supplies from independent vendors approved by
Wendy's International.  Except for The New Bakery Co. of
Ohio, Inc. (The "Bakery"), a wholly-owned subsidiary of
Wendy's International, Wendy's International does not sell food
or supplies to its franchisees.  The Company purchases its
sandwich buns from the Bakery for the majority of its
restaurants.  The Company purchases soft drink products from
the Coca-Cola Company and its affiliates.  Most other food
items and supplies purchased by the Company are warehoused
and distributed by independent distributors.  The Company and ,
in some instances Wendy's International, negotiate prices
directly with the vendors.

The Company has not experienced any significant shortages of
food, equipment, fixtures or other products which are necessary
to restaurant operations.  The Company anticipates no such
shortages and believes that alternate suppliers are available in the
event such shortages occur.

FRANCHISE AND DEVELOPMENT AGREEMENTS

General.  The Company's relationship with Wendy's
International is governed by (i) a development agreement (the
"Development Agreement"), which grants to the Company an
exclusive franchise territory, (ii) unit franchise and restaurant
franchise agreements (collectively, the "Franchise Agreements"),
one of which is executed in connection with the opening of each
of the Company's restaurants, and (iii) certain other agreements
between the Company and Wendy's International.  These
agreements provide Wendy's International with significant rights
regarding the business and operations of the Company and
impose restrictions regarding the ownership of the Company's
capital stock.

The Company is prohibited from engaging in any business other
than the development, operation and ownership of Wendy's
restaurants.  In addition, Ronald D. Kirstien, the President and
Chief Executive Officer of the Company, has been designated by
Wendy's International as the individual responsible for the
development and management of the Company's restaurants.  In
the event Mr. Kirstien (or any other successor approved by
Wendy's International) (I) is no longer employed by the
Company, or (ii) either owns less than a 5% interest in the
Company's capital stock or is not the beneficiary of an
employment incentive plan acceptable to Wendy's International,
the Company must employ a successor, who is required to be
approved by Wendy's International, within 180 days of such
condition.  The failure to obtain Wendy's International's
approval of a successor within such period would constitute an
event of default under each of the Development Agreements and
Franchise Agreements.

The Company's agreements with Wendy's International restrict
the ownership and transfer of the capital stock of the Company. 
These agreements provide, among other things: (I) that Citicorp
Venture Capital, Ltd. ("CVC"), World Equity Partners, L.P.
("WEP"), and Ronald D. Kirstien and Harvey Rothstein, the
Executive Vice President of the Company (collectively,
"Management") collectively, must own at least 51% of the
outstanding shares of Common Stock (assuming full exercise of
all presently outstanding warrants and options which are
exercisable within 60 days) (the "Designated Shares"); (ii) that
CVC must own least 33% of the outstanding shares of Common
Stock (assuming full exercise of all presently outstanding
warrants and all presently outstanding options which are
exercisable within 60 days); (iii) for the right of first refusal and
a right of approval on behalf of Wendy's International with
respect to any transfers of the Designated Shares; and (iv) that in
the event any person or entity (other than CVC, Management or
WEP) acquires 20% or more of the outstanding shares of
Common Stock (assuming full exercise of all presently
outstanding warrants and all presently outstanding options which
are exercisable within 60 days), Wendy's International may
terminate any or all of the Development Agreement and/or the
Franchise Agreements.  These agreements also provide that,
subject to the achievement of certain Company goals relating to
the opening of new restaurants and certain other matters, the
required minimum ownership of Designated Shares by CVC,
WEP and Management would be reduced to 33%, with CVC's
required ownership reduced from 33% to 19.9% of the
outstanding shares of Common Stock (assuming full exercise of
all presently outstanding warrants and all presently outstanding
options which are exercisable within 60 days).  In addition, the
Company  agreed with Wendy's International on an investment
plan for the Midwest restaurants (since completed) and a
renovation plan for the Mid-Atlantic restaurants as described
under "Business-Strategy-Midwest Investment Program and
Mid-Atlantic Renovation Program."

Any acquisition by the Company of an existing Wendy's
restaurant requires the consent of Wendy's International and is
also subject to Wendy's International's right of first refusal. 
Under the terms of the consent agreement entered into between
the Company and Wendy's International in connection with the
Company's acquisition of Southern Hospitality, the Company 
agreed that it will neither acquire nor seek to acquire any
additional Wendy's restaurants or entities controlling Wendy's
restaurants for a period of two years from September 24, 1994;
however, this prohibition did not apply to any acquisition by the
Company of Wendy's restaurants in Maryland or Virginia.

In order to secure the obligations of the Company to make
certain payments to Wendy's International pursuant to
Development Agreement and the Franchise Agreements, the
Company is required to maintain letters of credit in the face
amount of $2.0 million.  If the Company fails to make any
required payment to Wendy's International, upon five days prior
written notice by Wendy's International, Wendy's International
is entitled to draw down amounts under the letters of credit in
satisfaction of such obligations or to terminate the Development
Agreement and the Franchise Agreements, subject to applicable
cure periods.

Should the Company fail to comply with the Development
Agreement or the Franchise Agreements for restaurants within a
covered territory, Wendy's International could terminate the
exclusive nature of the Company's franchises in such covered
territory.  Any event of default under any Franchise Agreement
would give Wendy's International the right to terminate the
franchise rights of the Company's restaurant governed by such
Franchise Agreement.  The loss of the exclusive nature of a
territory or a significant portion of these franchise rights would
have a material adverse effect on the Company.

The Company is also required to operate each of its Wendy's
restaurants in accordance with certain standards contained in the
Wendy's International Operations Manual.  Wendy's
International periodically monitors the operations of the
Company's restaurants and notifies the Company of any failure
to comply with any of the Franchise Agreements, Development
Agreement or the Wendy's International Operations Manual.

Development Agreement.  The Company and Wendy's
International entered into a Development Agreement covering
the District of Columbia and certain counties in Virginia and
Maryland and a Development Agreement covering Baltimore
and certain counties in Maryland in 1978.  These two
Development Agreements were subsequently combined into a
single Development Agreement in 1980.  The Company entered
into another Development Agreement covering certain counties
on the eastern shore of Maryland in 1982, which was
substantially completed and  provided the Company a right of
first refusal for all new restaurants in this territory. This
Development Agreement was merged with the combined
Development Agreement in 1996.  The Company does not have
a development agreement with Wendy's International for either
its Midwest operations or Southern Market.  Accordingly,
Wendy's International (or a person or entity approved by
Wendy's International) could, subject to certain limitations, open
Wendy's restaurants in the Midwest or in the Southern Market
that would compete with the Company's restaurants.

Pursuant to the Development Agreement, the Company has been
granted exclusive rights to develop and operate a specific
number of Wendy's restaurants within the covered territories. 
The Company is required to develop and commence
construction of new Wendy's restaurants in accordance with
development and performance schedules.  The Company is
currently obligated to open or commence construction of a
minimum of seven restaurants in each calendar year through
2001 and to operate a total of 200 Mid-Atlantic restaurants by
the end of the calendar year 2005.  As of December 31, 1996,
the Company estimates 135 Mid-Atlantic restaurants will be
opened, compared to the 131 Mid-Atlantic restaurant
requirement.  The Company anticipates exceeding the agreement
by opening at least 70 additional restaurants in the Mid-Atlantic
region by the end of the calendar year 2005.  The Development
Agreement extends through the term of the development and
performance schedules. Thereafter, the Company retains a right
of first refusal regarding the development of new restaurants in
the relevant franchise territory for an additional 20 year period
unless the Company is in default under the terms of the
Development Agreement.

Pursuant to the Development Agreement, the Company is
required to submit to Wendy's International for its acceptance
each proposed restaurant site and the plans for each new
restaurant.  Wendy's International provides standard
construction plans, specifications and layouts for new restaurants
and provides training in the Wendy's International system,
including standards, methods, procedures and techniques for
operation of a Wendy's restaurant.  The Company is obligated to
pay Wendy's International a technical assistance fee upon the
opening of each new restaurant.

Unit Franchise Agreement and Restaurant Agreements.  The
Company operates each of its Wendy's restaurants under a
Franchise Agreement with Wendy's International.  Each
Franchise Agreement provides the Company the right to operate
a Wendy's restaurant for a period of 20 years.  The Franchise
Agreements are renewable by the Company, subject to certain
conditions, for varying periods of up to 20 years (the terms of
any renewal period may differ from those in effect during the
initial term).  Each unit franchise agreement gives the Company
the exclusive right to operate a Wendy's restaurant in a
particular geographic area, defined by either a radius of three
miles or a population of 20,000 persons, whichever is smaller. 
There are no exclusive territorial rights granted to the Company
under restaurant franchise agreements.

Pursuant to the Franchise Agreements, Wendy's International
prescribes the designs, color schemes, signs and equipment to be
utilized in each restaurant, and determines the menu items as
well as the formulas and ingredients for the preparation of food
and beverage products.  Each Franchise Agreement requires the
Company to pay to Wendy's International a technical assistance
fee upon the opening of each new restaurant and a monthly
royalty equal to 4% of the gross sales of that particular
restaurant.  Each new restaurant opened within an area covered
by a Development Agreement according to the applicable
development schedule will be governed by a unit franchise
agreement, with a technical assistance fee of $7,500.  All other
new restaurants will be governed by a restaurant franchise
agreement, with a technical assistance fee of $25,000.  In
addition, the Company must contribute to national advertising
and spend specified percentages of gross monthly sales for local
advertising.  See "Business-Restaurant Operations-Marketing
and Promotion." Any new restaurant not located within an area
covered by the Development Agreements, including any
restaurant opened in the Midwest or the Southern Market, has
been developed pursuant to a restaurant franchise agreement.

Wendy's International has proposed a New Unit Franchise
Agreement, which may have an adverse impact on the
Company's ability to expand in areas not covered by a
Development Agreement.  The Company is currently negotiating
modifications to this new agreement with Wendy's International
and  expects the negotiations to conclude favorably in the near
future.

        
GOVERNMENT REGULATIONS

The restaurant business is subject to extensive federal, state and
local government regulations relating to the development and
operation of restaurants, including regulations relating to
building, ingress and egress, zoning and the preparation and sale
of food.  The company is also subject to federal and state
environmental regulations, but these have not had a material
effect on the Company's operations.  The Company is also
subject to laws governing relationships with employees, such as
minimum wage requirements, health insurance coverage
requirements, and laws regulating overtime, working conditions
and employee citizenship.  During fiscal year 1996 Congress
passed the Minimum Wage Bill which revised the minimum
wage to $4.75 per hour as of October 1, 1996 and will again
increase on September 1, 1997 to $5.15 per hour.   In particular,
substantial increases in the minimum wage or mandatory health
care coverage could adversely affect the Company.

SEASONALITY AND QUARTERLY RESULTS

The restaurant sales of the Company, like the rest of the quick-service 
restaurant industry, are moderately seasonal.  The lowest
sales months are typically January and February, while the
highest sales months are June, July and August.  During the
initial six months of each fiscal year (October through March),
the Company has typically recorded 47% to 49% of its total
annual sales, operating margins have been slightly lower due to
lower sales providing a smaller spread over fixed costs.

TRADEMARKS AND SERVICE MARKS

The Franchise Agreements grant to the Company the right to use
certain registered trademarks and service marks, such as
"Wendy's", "Wendy", "Wendy's Old Fashioned Hamburgers",
and "Quality Is Our Recipe", which Wendy's International has
adopted to identify and promote Wendy's restaurants.  The
Company believes that these marks are of material importance to
the Company's business.

COMPETITION

The quick-service restaurant industry is intensely competitive
with respect to price, service, location and food quality.  The
industry is mature and competition can be expected to increase. 
There are several well-established competitors with substantially
greater financial and other resources than the Company, some of
which have been in existence for substantially longer than the
Company and may have substantially more units in the markets
where the Company's restaurants are or may be located. 
McDonald's, Burger King and Hardee's/Roy Rogers restaurants
are the Company's principal competitors as other quick-service
hamburger chains in the Company's franchise territories.  The
Company's major competitors have been engaged in an attempt
to draw customer traffic by a deep discounting strategy,
however, neither Wendy's International, Inc. nor DavCo
Restaurants, Inc. believe this is a profitable long-term strategy.

The Company and the quick-service restaurant industry
generally are significantly affected by factors such as changes in
local, regional or national economic conditions, changes in
consumer tastes, severe weather and consumer concerns about
the nutritional quality of quick-service food.  In addition, factors
such as increases in food, labor and energy costs, the availability
and cost of suitable restaurant sites, fluctuating insurance rates,
state and local regulations and the availability of an adequate
number of hourly-paid employees can also adversely affect the
quick-service restaurant industry.

EMPLOYEES

As of September 28, 1996, the Company employed
approximately 8,000 persons in five states and District of
Columbia.  Of those employees, 1,200 hold management or
administrative positions and the remainder are engaged in the
operation of the Company's restaurants.  None of the
Company's employees are covered by a collective bargaining
agreement.  The Company considers its employee relations to be
good.

ITEM 2:   PROPERTIES

As of September 28, 1996, the Company operated 228 Wendy's
restaurants in the locations listed below.  Of the 228 restaurants,
the Company owned the land and building for 19 restaurants,
owned the building and held long-term land leases for 57
restaurants, and held leases covering land and building for 152
restaurants.  The Company's land and building leases are most
commonly written for terms of 20 years, with one or more five
year renewal options.  Certain leases require the payment of
additional rent equal to a percentage (usually between 2% and
7%) of annual sales in excess of specified amounts.

The Company leases approximately 30,000 square feet of office
space in a building in Crofton, Maryland, which it uses as a
headquarters and operations center.

The Company also leases office space in Nashville, Tennessee
and St. Louis, Missouri for the local operations of MDF and
Southern Hospitality, respectively.

<TABLE>
<CAPTION>
The following lists the locations of the restaurants operated by
the Company (by market) as of September 28, 1996:

                  Location              No.
Restaurants
          <S>                           <C>
          Mid-Atlantic Market:
          Maryland                       90
          Virginia                       37
          District of Columbia            7
                                        -----
                                        134

          Midwest Market:
          Illinois                       27
          Missouri                       29
                                        -----
                                         56

          Southern Market:
          Tennessee                      38
                                        -----
          TOTAL ALL MARKETS              228
                                       =====
</TABLE>

ITEM 3:   LEGAL PROCEEDINGS   

From time to time, the Company is a party to routine litigation
incidental to its business.  The Company maintains commercial,
general liability, workers' compensation and directors and
officers insurance policies which cover most of the actions
brought against the Company.

ITEM 4:   SUBMISSION OF MATTERS TO VOTE OF
SECURITY HOLDERS

There were no matters submitted to a vote of the security
holders of the Company during the fourth quarter of the fiscal
year.

PART II

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



MARKET INFORMATION

The Company's Common Stock commenced trading on the
NASDAQ National Market System (ticker symbol DVCO) on
August 10, 1993, the date of the Initial Public Offering.  Prior to
August 10, 1993, there was no market for the Company's
Common Stock.  As of December 11, 1996 the Company's
Common Stock trades on The American Stock Exchange under
the symbol "DVC".

The following table sets forth, for the periods indicated, the
range of the high and low sales prices on the Nasdaq National
Market System.

<TABLE>
<CAPTION>

Fiscal Year                     1996                   1995
                           High        Low        High      Low
             
                        -----------------------------------------
<S>                      <C>         <C>       <C>       <C>
First Quarter            $ 13.50     $ 8.50    $  16.25  $ 12.25
Second Quarter              9.25       6.50       14.00    12.25
Third Quarter               9.75       6.50       14.00    13.00
Fourth Quarter              9.50       8.25       14.50    11.75
</TABLE>

NUMBER OF STOCKHOLDERS

The information available as of December 16, 1996 indicates
that there were 56 holders of record and approximately 1300
beneficial owners of the Company's Common Stock.

DIVIDENDS

The Company has not paid any cash dividends on its Common
Stock and does not intend to pay cash dividends on its' Common
Stock for the foreseeable future.  The Company intends to retain
future earnings to finance future development.

ITEM 6: SELECTED FINANCIAL INFORMATION 
The following table sets forth the selected financial information
of DavCo Restaurants, Inc. (The Company) and DavCo
Restaurants, Inc. (The Predecessor).  Effective February 10,
1993, the Predecessor underwent a recapitalization which was
accounted for using the "push down" method of accounting. 
The predecessor was then merged with DavCo Food, Inc. in
August 1993 to create the Company. 

<TABLE>
<CAPTION>
                                                           Fiscal Year Ended
                                         --------------------------------------------------------
                                                                         Predecessor
                                                                         and Company
                                           Company    Company    Company   Combined  Predecessor
                                         -------------------------------------------------------- 
                                          Sept. 28,   Sept. 30, Sept. 24,  Sept. 25,  Sept. 26,
                                            1996        1995      1994       1993       1992
  <S>                                               
  OPERATIONS (in 000's)(1):             <C>            <C>        <C>          <C>         <C>
   Restaurant sales                     $  206,903     $ 208,671  $ 163,355    $ 152,702   $ 138,483
   Operating income                          8,071 (2)    17,290     14,558        6,525       5,653
   Income (loss) before
      extraordinary item                     2,391 (2)     8,415      7,034       (1,813)     (4,454)
   Net income (loss)                         2,391 (2)     8,415      7,034       (4,197)     (4,454)

  PER SHARE DATA:
   Earnings per common share -
      assuming full dilution            $     0.34 (2) $    1.18  $    0.98

  PRO FORMA RESULTS (3):
   Operating income                                                            $  12,498   $   5,258
   Net income (loss)                                                               5,001      (4,560)
   Earnings (loss) per common share -
      assuming full dilution                                                   $     0.69     ($0.63)

  FINANCIAL POSITION AT END OF
   FISCAL YEAR (1)  (in 000's):
   Property and equipment, net             $49,521    $41,661  $  33,521       $  12,321   $  11,308
   Leased properties, net                   37,918     43,828     44,300          42,734      39,203
   Franchise rights, net                     3,551      4,095      4,154           3,025       3,228
   Total assets                            117,558    115,700    113,428          82,400      65,587
   Long-term debt, net of current portion
      and discount                          11,699     14,778     17,928 (4)       1,734       8,195
   Capital lease obligations, net of
      current portion                       28,404     31,083     32,838          30,722      30,980
   Stockholders' equity                     45,526     44,219     35,804          28,770      (4,285)

</TABLE>
   
   (1)  On September 24, 1994 the company acquired Southern Hospitality 
        Corporation for approximately $17.5 million cash (net of cash 
        acquired) and the assumpition of certain liabilities. The acquisition 
        was accounted for as a purchase.
   (2) Income for the fiscal year ended September 28, 1996 includes a pre-tax 
       charge of $5.5 million related to SFAS No. 121 (Accounting for the 
       Impairmant of Long-Lived Assets and Long-Lived Assets to be 
       Disposed Of.)
   (3)  Pro forma results assume that the recapitalization and subsequent 
        intitial public offering occurred on the first day of the period 
        presented and exclude certain one-time charges related to such.
   (4)  Increase in long-term debt relates to financing obtained in 
        conjunction with acquisition of Southern Hospitality Corporation.






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


COMPONENTS OF REVENUES AND EXPENSES

The Company's revenues consist entirely of restaurant sales. 
Any additional amounts of income are minor and are included in
other income, net.  

Restaurant operating profit is computed by subtracting cost of
restaurant sales and restaurant operating expenses from
restaurant sales. Cost of restaurant sales consists of the
Company's expenditures for food, supplies (primarily paper
goods) and direct labor.

Restaurant operating expenses include all other direct costs,
including occupancy costs, advertising expenses, expenditures
for repairs and maintenance, area and regional management
expenses, and workers compensation, casualty and general
liability insurance costs.  In addition to franchise royalty
payments, the Company is also required to contribute 4.0% of
its restaurant sales to an advertising fund, which consists of an
amount (2.5% of sales) for the Wendy's National Advertising
Program, Inc. and the remainder for local advertising. 

Franchise royalties, as required by the Company's franchise
agreement with Wendy's International Inc. have remained
constant at 4.0% of restaurant sales throughout the periods
presented.  General and administrative expenses consist of
corporate expenses, including executive and administrative
compensation, office expenses and professional fees.

RESULTS OF OPERATIONS

The following table expresses certain items in the Company's
Consolidated Statements of Operations as a percentage of
restaurant sales for each of the three most recent fiscal years.

<TABLE>
<CAPTION>
RESULTS OF OPERATIONS

                                       
                                                   For the fiscal year ended
                                                -------------------------------
                                                 Sept. 28,  Sept. 30, Sept. 24,
Statement of Operations Data:                      1996       1995      1994
                                                  
                                                  -------    --------  --------
 <S>                                               <C>        <C>      <C>
 Restaurant sales                                  100.0%     100.0%   100.0%
 Cost of restaurant sales                           61.0       60.0     59.3
 Restaurant operating expenses                      20.5       19.8     20.1
                                                  -----------------------------
 Restaurant operating profit                        18.5       20.2     20.6

 Franchise royalties                                 4.0        4.0      4.0
 General and administrative                          3.6        3.8      4.0
 Depreciation and amortization                       4.3        4.1      3.7
 Loss on write down of impaired long-lived assets    2.7          -        -
                                                  -----------------------------
 Operating income                                    3.9%       8.3%     8.9%
                                                  =============================
 </TABLE>



FISCAL 1996 COMPARED TO FISCAL 1995

Revenues.  Company restaurant sales decreased to $206.9
million in 1996 from $208.7 million in 1995, a decrease of 0.9%.
This decrease in sales is primarily attributed to an additional
week included in the fiscal 1995 period as a result of the
Company's 52/53 week reporting basis. Approximately $3.9
million in sales is related to the additional week in fiscal 1995. 
Also, sales were negatively impacted by the severe inclement
weather experienced during 1996 and the Federal Government
shutdown.  There was a 3.9% decrease in same store sales for
the fiscal year 1996 compared to fiscal year 1995.  Same store
sales for fiscal year 1996 for the Mid-Atlantic market decreased
by 3.7%, for the Midwest market decreased 4.0%, and for the
Southern market decreased by 4.3%.  To counteract this trend,
management identified and introduced new strategies for
building sales.  As these initiatives were combined with the
Company's other strategies, same store sales began improving
during the later part of fiscal 1996.  Same store sales for the
fourth quarter fiscal 1996 increased 3.2% from the fourth
quarter fiscal 1995.
 
The average sales per Company restaurant decreased to
$933,300 for the 52 weeks ended September 28, 1996 from
$984,800 for the 53 weeks ended September 30, 1995. The
weighted average number of restaurants open during the year
was 221.7 for 1996 and 211.9 for 1995. The weighted average
number of Mid-Atlantic restaurants was 128.5 for 1996 and
122.5 for 1995, and average sales per restaurant in the Mid-Atlantic 
region decreased to $1,073,000 from $1,131,000. The
weighted average number of Midwest restaurants open was 55.3
for 1996 and 54.3 for 1995, and average restaurant sales
decreased to $615,700 from $643,800. The weighted average
number of Southern restaurants open for 1996 was 37.9
compared to 35.1 for 1995,  and average restaurant sales for
1996 were $922,700 compared to $1,001,900 for 1995. 
Average guest count per Company restaurant decreased to
303,900 in 1996 from 330,300 in 1995. The overall decrease in
average sales and average guest count per Company restaurant,
for the 1996 period compared to 1995 period can be attributed
to the additional week in the 1995 period and the above
mentioned reasons for decreased revenue.   Average guest check
increased to $3.07 for fiscal 1996 from $2.98 for fiscal 1995. 
This increase is primarily the result of the $0.99 Chicken
Nuggets addition, which is a value added menu item.

Cost and Expenses.  Cost of restaurant sales increased to $126.3
million in 1996 from $125.2 million in 1995. As a percent of
sales, cost of restaurant sales increased to 61.0% in 1996 from
60.0% in 1995.  Cost of restaurant sales as a percent of sales for
the Mid-Atlantic restaurants increased to 59.1% in 1996 from
58.4% in 1995.  Comparing the components of cost of
restaurant sales for the Mid-Atlantic restaurants, the cost of food
and supplies increased to 33.2% of sales in 1996 from 32.7% of
sales in 1995. Payroll and benefits expense increased to 25.9% in
1996 from 25.7% in 1995. Cost of restaurant sales as a percent
of sales in the Midwest restaurants increased to 67.6% for the
1996 period from 66.9% for the 1995 period.  Comparing the
components of cost of restaurant sales for the Midwest
restaurants, the cost of food and supplies increased to 35.8% of
sales in 1996 from 35.5% of sales in 1995.  Payroll and benefits
expense increased to 31.8% of sales in 1996 from 31.4% of sales
in 1995.  The Southern restaurants' cost of sales for fiscal 1996
were 62.5% compared to 59.5% in 1995.  Comparing the
components of cost of restaurant sales for the Southern
restaurants, the cost of food and supplies increased to 33.3% for
the 1996 period from 31.6% in the 1995 period.  Payroll and
benefits expenses increased to 29.3% for the 1996 period from
27.9% in the 1995 period due to the very low unemployment
rate in the Southern market. The overall increase in the cost of
restaurant sales can be attributed to increased labor cost,
increased food cost, primarily related to product mix change,
and the cost leveraging effect of lower same store sales for fiscal
year 1996.  Labor cost is expected to increase due to the newly
enacted Federal Minimum Wage increase.

Restaurant operating expenses increased to $42.4 million in
1996 from $41.4 million in 1995. As a percent of sales, this
represents a increase to 20.5% in 1996 from 19.8% in 1995.
Restaurant operating expenses in the Mid-Atlantic restaurants
remained consistent at 19.5% of sales in 1996 and in 1995.
Restaurant operating expenses in the Midwest restaurants
increased to 25.0% of sales in 1996 from 22.9% of sales in
1995. Restaurant operating expenses in the Southern restaurants
increased to 19.9% of sales for 1996 from 18.3% of sales in
1995.  The  increase in restaurant operating expenses is related
to the cost leveraging effect of the additional week in the fiscal
1995 period and the additional expenses in the 1996 period
related to the severe weather, such as increased utilities, snow
removal and roof repairs.  The impact as a percentage of sales
was less in the Mid-Atlantic restaurants due to the larger sales
base.

General and administrative expenses decreased to $7.4 million in
fiscal year 1996 from $7.9 million in fiscal year 1995,
representing as a percent of sales, 3.6% for 1996 and 3.8% for
1995.
This decrease related to the implementation of curbs on
administrative costs and the impact of reduced expenses directly
related to sales and profit, such as bonuses.

Depreciation and amortization expense increased to $8.9 million
in 1996 from $8.5 million in 1995, representing an increase, as a
percent of sales, to 4.3% in 1996 from 4.1% in 1995.  
This increase is due to lower sales in the 1996 period and having
incurred additional depreciation expense on capital expenditures
for new store openings and existing store improvements.

The implementation of SFAS No. 121(Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of)  resulted in a pre-tax charge of $5,513,000 during
the 1996 period.

Non-Operating Charges.  Interest expense decreased to $5.0
million in 1996 from $5.8 million in 1995.  The decrease relates
to a decline in interest rates, additional capitalization of interest
relating to construction in progress and the reduction in the
principal amount of the Company's long term debt.  Interest
income decreased $169,000 between periods due to a reduction
in overnight investments.  Other income decreased slightly
between periods. 

The provision for income taxes decreased to $1.8 million for
fiscal 1996 from $4.5 million for fiscal 1995. The Company's
effective tax rate for fiscal 1996 was 42.6% and 34.6% for fiscal
1995.  The increase in the effective tax rate is due to the
reevaluation of the Company's deferred tax liability during the
1995 period and the impact of changes in certain states' tax
rates.   

FISCAL 1995 COMPARED TO FISCAL 1994

Revenues.  Company restaurant sales increased to $208.7 million
in 1995 from $163.4 million in 1994, an increase of 27.7%. This
increase is mainly due to the acquisition of Southern Hospitality
Corporation which contributed approximately $35.2 million of
total restaurant sales, and to the inclusion in 1995 of nine new
restaurants opened during the year. The increase in sales can
also be attributed to an additional week included in the fiscal
1995 period as a result of the Company's 52/53 week reporting
basis. Same store sales decreased by 0.8% for the fiscal year
1995 compared to fiscal year 1994. Same store sales for fiscal
year 1995 increased for the Southern market by 2.6% and for
the Midwest market by 1.2%, and decreased for the Mid-Atlantic
market by 2.2%.    

The average sales per Company restaurant increased to
$984,800 in 1995 from $971,600 in 1994, a 1.4% increase due
to the inclusion of SHC in 1995 and improvements in Midwest
average sales offset by a decrease in Mid-Atlantic sales. The
weighted average number of restaurants open during the year
was 211.9 for 1995 and 168.1 for 1994. The weighted average
number of Mid-Atlantic restaurants was 122.5 for 1995 and
114.1 for 1994, and average sales per restaurant in the Mid-Atlantic region 
decreased to $1,131,000 from $1,138,000, a
0.6% decrease. The weighted average number of Midwest
restaurants open was 54.3 for 1995 and 54.0 for 1994, and
average restaurant sales increased to $643,800 from $620,600, a
3.7% increase. The Southern restaurants which were acquired
on September 24, 1994 had 35.1 weighted average number of
restaurants open for 1995 and average restaurant sales of
$1,001,900. Average guest count per Company restaurant
increased to 330,300 in 1995 from 324,900 in 1994. Average
guest check decreased to $2.98 for fiscal 1995 from $2.99 for
fiscal 1994.  

Cost and Expenses.  Cost of restaurant sales increased to $125.2
million in 1995 from $96.9 million in 1994. As a percent of sales,
cost of restaurant sales increased to 60.0% in 1995 from 59.3%
in 1994.  Cost of restaurant sales as a percent of sales for the
Mid-Atlantic restaurants increased to 58.4% in 1995 from
57.7% in 1994. Comparing the components of cost of restaurant
sales for the Mid-Atlantic restaurants, the cost of food and
supplies decreased slightly to 32.7% of sales in 1995 from
32.8% of sales in 1994. Payroll and benefits expense increased
to 25.7% of sales in 1995 from 25.0% of sales in 1994. Cost of
restaurant sales as a percent of sales in the Midwest restaurants
increased to 66.9% for the 1995 period from 65.4% for the 1994
period.   Comparing the components of cost of restaurant sales
for the Midwest restaurants, the cost of food and supplies
increased to 35.5% of sales in 1995 from 35.2% of sales in
1994. Payroll and benefits expense increased to 31.4% of sales
in 1995 from 30.2% of sales in 1994. The Southern restaurants'
cost of sales for fiscal 1995 was 59.5% of revenue which
consists of food and supplies of 31.6% and payroll and benefit
expense of 27.9% of revenue. The overall increase in the cost of
restaurant sales can be attributed to increased labor cost offset
by overall favorable food costs, primarily beef and chicken, and
the cost leveraging effect of slightly lower same store sales for
fiscal year 1995.  

Restaurant operating expenses increased to $41.4 million in
1995 from $32.8 million in 1994, primarily due to the inclusion
of the Southern restaurants in 1995. As a percent of sales, this
represents a decrease to 19.8% in 1995 from 20.1% in 1994.
Restaurant operating expenses in the Mid-Atlantic restaurants
increased to 19.5% of sales in 1995 from 19.2% of sales in
1994. Restaurant operating expenses in the Midwest restaurants
decreased to 22.9% of sales in 1995 from 23.5% of sales in
1994. Restaurant operating expenses in the Southern restaurants
were 18.3% of sales for the year ended September 30, 1995. 
The lower restaurant operating expense as a percentage of sales
in the Southern region were primarily due to lower workers'
compensation and general liability expenses.

General and administrative expenses increased to $7.9 million in
fiscal year 1995 from $6.5 million in fiscal year 1994, primarily
due to the inclusion of the Southern restaurants in 1995. General
and administrative expenses decreased as a percent of sales to
3.8% for 1995 from 4.0% for 1994. This slight decrease in
percent of sales relates primarily to the leveraging effect of the
additional week included in the 1995 fiscal year.  

Depreciation and amortization expense increased to $8.5 million
in 1995 from $6.1 million in 1994, representing an increase, as a
percent of sales, to 4.1% in 1995 from 3.7% in 1994.  
This increase is due to additional amortization expenses related
to the goodwill and other assets which arose from the
acquisition of Southern Hospitality Corporation, and additional
depreciation expense incurred on capital expenditures for new
store openings and existing store improvements.

Non-Operating Charges.  Interest expense increased to $5.8
million in 1995 from $3.8 million in 1994. The increase is due to
the additional interest expense related to the borrowing of
approximately $18.3 million secured on September 24, 1994, to
fund the acquisition of Southern Hospitality Corporation, and
the inclusion of interest expense on capital leases for the
Southern restaurants.  Interest income decreased slightly
between periods. Other income increased $0.9 million mainly
due to the disposition of assets.

The provision for income taxes increased to $4.5 million for
fiscal 1995 from $4.2 million for fiscal 1994. The Company's
effective tax rate for fiscal 1995 was 34.6% and 37.6% for fiscal
1994. This decrease can be attributed to a reevaluation of the
Company's deferred tax liability requirements.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its business activities
primarily from cash generated from operating activities, long-term debt, 
"build-to-suit" leases, ground leases, and sale-leasebacks. The Company has 
reviewed its policy of leasing all of its new restaurants and has determined 
that it may be in the Company's best interest to own certain properties.  
Accordingly, during 1996 and 1995, the Company purchased the land and/or
buildings for certain of its new restaurants. 

Cash flow provided by operating activities was $16.7 million,
$13.9 million and $15.3 million  in 1996, 1995 and 1994,
respectively.  Net cash used in investing activities was $14.0
million in fiscal 1996, and $11.7 million in 1995, and $34.0
million (including $17.5 million for the purchase of Southern
Hospitality) in 1994. Excluding the unusual item above, cash
used in investing activities typically represents capital
expenditures for the building of new restaurants. These
expenditures also include franchise fees, deferred pre-opening
costs and leasehold improvements on existing restaurants.

Financing activities in fiscal 1996 used net cash of $1.1 million.
The $1.1 million consisted of debt and capital lease repayments
offset by short-term borrowings. Financing activities in fiscal
1995 used net cash of $4.9 million, which relates to debt and
capital lease repayments.  Financing activities in fiscal 1994
provided net cash of 15.3 million, which primarily relates to
borrowings of 18.3 million to finance the acquisition of Southern
Hospitality Corporation netted against the repayment of debt
and capital lease objectives.

The Company opened 14 new restaurants, ten in the Mid-Atlantic market, two in 
the Midwest market and two in the Southern Market and closed one restaurant in 
the Mid-Atlantic market, during the year ended September 28, 1996.

The Company anticipates that its future capital requirements will
be primarily for the development of new restaurants and the
upgrading of existing restaurants.  Management signed a
revolving line of credit facility for $13 million on January 5,
1996.  This agreement replaced the revolving line of credit
facility for $7.5 million and the real estate acquisition facility for
$2.5 million.  In July 1996, the Company obtained a separate
short-term $5 million credit facility which may only be used to
fund tax indemnification obligations to certain executives and to
repurchase common stock.  This credit facility will expire on
January 18, 1997.  Management anticipates that cash provided
by operating activities, cash on hand, the revolving line of credit
facility of $13 million, and the short-term $5 million credit
facility will enable the Company to meet its cash requirements
through fiscal year 1997, although the Company may take
advantage of opportunities to finance some of its new restaurant
development with more permanent debt or sale/leaseback
financing, if such financing is available at attractive rates and
terms. 

INFLATION

Certain of the Company's operating costs are subject to
inflationary pressures, of which the most significant are food and
labor costs. As of September 28, 1996, approximately 85% of
the Company's employees were paid wages equal to or based on
the federal minimum hourly wage rate. Recent changes in the
federal minimum hourly wage rate will serve to increase labor
costs in fiscal year 1997 and beyond.  Economic growth that
would reduce unemployment or make more jobs available in
higher paying industries, would directly affect the Company's
labor costs.

ITEM 8:   FINANCIAL STATEMENTS

          Index to Financial Statements and Schedules

                                                                 Page
     
Report of Independent Public Accountants

Consolidated Statements of operations of the Company for the
years ended September 28, 1996, September 30, 1995, and 
September 24,1994.

Consolidated Balance Sheet as of September 28, 1996 and
September 30, 1995.

Consolidated Statements of Stockholders' Equity of the
Company for the years ended September 28, 1996, September 30, 1995, 
and September 24, 1994.

Consolidated Statements of Cash Flows of the Company for the
years ended September 28, 1996, September 30, 1995 and September 24,
1994.

Notes to Consolidated Financial Statements  

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of DavCo Restaurants, Inc.:

We have audited the accompanying consolidated balance sheets
of DavCo Restaurants, Inc. (a Delaware corporation) and
subsidiaries (the Company) as of September 28, 1996 and
September 30, 1995, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for
the years ended September 28, 1996, September 30, 1995 and
September 24, 1994. 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 financial statements referred to above present
fairly, in all material respects, the financial position of DavCo
Restaurants, Inc. and subsidiaries as of September 28, 1996 and
September 30, 1995, and the results of their operations and their
cash flows for the years ended September 28, 1996,  September
30, 1995 and  September 24, 1994, in conformity with generally 
accepted accounting principles.

Arthur Andersen/s/


Baltimore, Maryland
November 6 , 1996

<TABLE>
<CAPTION>
DAVCO RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
( in 000's except per share data)
                                                                                   
                                                            Year Ended  Year Ended  Year Ended
                                                             Sept. 28,   Sept. 30,   Sept. 24, 
                                                               1996        1995        1994     
                                                            ----------------------------------
<S>                                                       <C>           <C>         <C>
Restaurant sales                                          $  206,903    $ 208,671   $ 163,355    

Costs and Expenses:
   Cost of restaurant sales  (Note 7)                        126,309      125,242      96,875    
   Restaurant operating expenses  (Note 7)                    42,408       41,373      32,771    
   Franchise royalties  (Note 5)                               8,277        8,346       6,535    
   General and administrative                                  7,407        7,881       6,524    
   Depreciation and amortization  (Note 2,3)                   8,918        8,539       6,092     
   Loss on write down of impaired long-lived assets (Note 4)   5,513            -           - 
                                                            ----------------------------------- 
                                                             198,832      191,381     148,797    
                                                            -----------------------------------
Operating income                                               8,071       17,290      14,558     

Interest expense  (Notes 9 and 10)                            (5,048)      (5,775)     (3,784)   
Interest income                                                   36          205         241     
Other income , net                                             1,105        1,146         250     
                                                            -----------------------------------
Income before income taxes                                     4,164       12,866      11,265     

Provision for income taxes  (Note 8)                          (1,773)      (4,451)     (4,231)   
                                                            -----------------------------------
Net income                                                     2,391        8,415       7,034    
                                                            ===================================
Earnings per common share  (Note 2) :
   Net income per common share                               $  0.34       $ 1.18     $  0.98        
                                                            ===================================
Weighted average number of shares
     outstanding - assuming full dilution                      7,052        7,157       7,204

The accompanying notes are an integral part of these consolidated statements.
</TABLE>




<TABLE>
<CAPTION>

DAVCO RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS

(in 000's except per share data)                          September 28,   September 30,
                                                             
                                                             1996            1995
                                                  -----------------------------
<S>                                                       <C>              <C>
Current Assets:                                                            
      Cash and cash equivalents (Note 2)                  $   1,948        $   331
      Receivables                                               652            572
      Refundable income taxes (Note 8)                            -          1,175
      Inventories  (Note 2)                                   1,421          1,307
      Prepaid expenses                                        1,034          1,593
      Deferred tax asset  (Note 8)                            1,004            786
                                                          -----------------------------
      Total Current Assets                                    6,059          5,764
                                                          -----------------------------
Property and equipment, net of accumulated depreciation
   of  $8,378 and $5,945, respectively (Notes 2 and 3)       49,521         41,661
                                                          -----------------------------
Leased properties, net of accumulated amortization of
   $8,044 and $9,362 respectively (Notes 2 and 10)           37,918         43,828
                                                          -----------------------------
Other Assets:
      Franchise rights, net(Notes 2 and 5)                    3,551          4,095
      Goodwill, net(Notes 2 and 13)                          18,730         19,639
      Deferred tax asset(Note 8)                              1,156              -
      Other                                                     623            713
                                                          -----------------------------
      Total Other Assets                                     24,060         24,447
                                                          -----------------------------
      Total Assets                                        $ 117,558    $   115,700
                                                          =============================
Current Liabilities:
      Accounts payable                                    $   5,615    $     6,397
      Accrued advertising and royalty fees(Note 5)            2,588          2,230
      Accrued salaries and wages                              2,732          2,583
      Accrued expenses                                        7,997          7,248
      Short-term borrowings (Note 9)                          6,768              -
      Current portion of long-term debt(Note 9)               3,055          3,685
      Current portion of capital lease obligations(Note 10)   3,174          3,094
                                                          ---------------------------- 
      Total Current Liabilities                              31,929         25,237

Long-term debt, less current portion(Note 9)                 11,699         14,778
Capital lease obligations, less current portion(Note 10)     28,404         31,083
Deferred taxes payable(Note 8)                                    -            383
                                                          ----------------------------
      Total Liabilities                                      72,032         71,481
                                                          ----------------------------
Commitments and Contingencies(Note 11)

Stockholders' Equity:
      Common stock, $.001 par value;  11,400,000 shares
         authorized and 6,587,628 issued(Note 12)                7               7
      Treasury stock, at cost,132,107 shares(Note12)        (1,084)              -
      Additional paid-in capital                            31,101          31,101
      Warrants outstanding  (Note 12)                        3,000           3,000
      Retained earnings                                     12,502          10,111
                                                          ----------------------------
      Total Stockholders' Equity                            45,526          44,219
                                                          ----------------------------
      Total  Liabilities and Stockholders' Equity        $ 117,558      $  115,700
                                                          ============================
The accompanying notes are an integral part of these consolidated statements.

</TABLE>

<TABLE>
DAVCO RESTAURANTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in 000's)
                                                         Additional                          Retained      Total
                                               Common     Paid-In    Warrants     Treasury   Earnings   Stockholders'
                                                Stock     Capital   Outstanding    Stock     (Deficit)     Equity
                                            ---------------------------------------------------------------------------

<S>                                          <C>        <C>         <C>         <C>         <C>          <C>
BALANCE, September 25, 1993                  $      7   $  31,101   $   3,000   $      -    $  (5,338)   $  28,770

  Net income                                        -           -           -          -        7,034        7,034
                                            ---------------------------------------------------------------------------
BALANCE, September 24, 1994                         7      31,101       3,000          -        1,696       35,804
  
  Net Income                                        -           -           -          -        8,415        8,415
                                            ---------------------------------------------------------------------------   
BALANCE, September 30, 1995                         7      31,101       3,000          -       10,111       44,219

  Purchase of Treasury Stock (132,107 shares)       -           -           -     (1,084)           -       (1,084)
  Net Income                                        -           -           -           -       2,391        2,391
                                            ---------------------------------------------------------------------------
BALANCE, September 28, 1996                  $      7   $  31,101   $   3,000   $ (1,084)   $  12,502    $  45,526
                                            ===========================================================================
</TABLE>


<TABLE>                                                   
<CAPTION>
    DAVCO RESTAURANTS, INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (IN 000'S)
                                                                  Year Ended   Year Ended   Year Ended
                                                                   Sept. 28,    Sept. 30,    Sept. 24,
                                                                     1996         1995         1994
                                                                ----------------------------------------
<S>                                                                  <C>         <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                           $2,391      $8,415       $7,034
Adjustments to reconcile net income to net
    cash flows provided by operating activities:
    Loss on write down of impaired long-lived asset                   5,513           -            -
    Depreciation and amortization                                     8,918       8,539        6,092
    Net (gain) loss on disposition of assets                           (356)       (420)          52
    Deferred tax (benefit) provision                                 (1,757)     (1,204)         460
    Amortization of debt discount                                         -           36          18
    Net change in operating assets and liabilities:
      Increase in receivables                                           (80)       (240)         (58)
      Decrease (increase) in refundable income taxes                  1,175        (806)       1,176
      (Increase) decrease in inventories                               (114)        (30)           1
      Decrease (increase) in prepaid expenses                           559        (520)          68
      Increase  (decrease) in accounts payable and accrued expenses     (33)        771         (451)
      Increase in accrued advertising and royalty fees                  358          33          229
      Increase (decrease) in accrued salaries and wages                 149          (9)          19
      Increase (decrease) in income taxes payable                         -        (626)         640
                                                                ----------------------------------------
       Net Cash Flows Provided By Operating Activities               16,723      13,939       15,280
                                                                ----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Increase in other assets                                           (272)       (100)        (103)
    Property and equipment acquired and constructed                 (14,243)    (13,384)     (15,144)
    Proceeds from disposition of assets                                 528         500            -
    Payment for acquisition of company, net of cash acquired              -           -      (17,497)
    Purchases of restricted asset, net of sales                           -           -       (1,236)
    Proceeds from redemption of restricted asset                          -       1,236            -
                                                                ---------------------------------------
       Net Cash Flows Used In Investing Activities                  (13,987)    (11,748)     (33,980)
                                                                ----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Repayments of capital lease obligations                          (3,094)     (2,608)      (2,143)
    Purchase of treasury stock                                       (1,084)          -            -
    Repayments of long-term obligations                              (3,709)     (2,317)        (764)
    Proceeds from long-term debt                                          -           -       18,250
    Short-term borrowings                                             6,768           -            -
                                                                ----------------------------------------
       Net Cash Flows (Used In) Provided By Financing Activities     (1,119)     (4,925)      15,343
                                                                ----------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  1,617      (2,734)      (3,357)

CASH AND CASH EQUIVALENTS, beginning of period                          331       3,065        6,422
                                                                ----------------------------------------
CASH AND CASH EQUIVALENTS, end of period                             $1,948        $331       $3,065
                                                                ========================================
Supplemental Cash Flow Information:
    Cash paid for interest                                         $  5,419    $  5,885     $  4,085     
                                                                ----------------------------------------
    Cash paid for income taxes, net of refunds                     $  2,358    $  7,433     $  1,911  
                                                                ----------------------------------------
</TABLE>




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.   DESCRIPTION OF BUSINESS:

As of September 28, 1996, DavCo Restaurants, Inc., a Delaware
corporation (the "Company"), operated 228 "Wendy's Old
Fashioned Hamburgers" restaurants, making it the world's
largest franchisee of Wendy's International, Inc. ("Wendy's").
The Company maintains exclusive franchise territories in
metropolitan Baltimore and Washington, D.C., the eastern shore
of Maryland and portions of northern Virginia (the
"Mid-Atlantic"), where it operates 134 Wendy's restaurants. The
Company also operates 56 Wendy's restaurants in metropolitan
St. Louis and central Illinois (the "Midwest") and 38 Wendy's
restaurants in the metropolitan Nashville, Tennessee area
(the"Southern Market") (see Note 13 - Acquisition of Southern
Hospitality Corporation). The Company does not maintain
exclusive franchise territories in the Midwest or the Southern
Market. 

The Company was incorporated in December 1987, at which
time certain members of  management ("Management"), Citicorp
Venture Capital ("CVC") and one of its affiliates sponsored a
leveraged buyout pursuant to which Management acquired
100% of the Company's outstanding common equity of the
Company, then consisting only of the Mid-Atlantic restaurants
and CVC acquired convertible preferred stock representing 70%
of the Company's common equity on a fully diluted basis. 

In January 1991, the Company acquired most of the St. Louis
restaurants and certain other Wendy's restaurants in central
Illinois. This acquisition, which was accounted for as a purchase,
was effected through MDF, Inc. ("MDF"), a wholly-owned
subsidiary of the Company.

In February 1993, the Company consummated a recapitalization 
(the "Recapitalization") to effectuate certain agreements
executed in May 1992 (the "1992 Settlement") to settle
outstanding litigation between the Company, CVC and certain
affiliates of CVC. Pursuant to the Recapitalization, the Company
(I) repurchased all of its common equity from Management; (ii)
made payments to Management for covenants not to compete
with the Company in the amount of $6,186,000; (iii) repaid its
indebtedness to a CVC affiliate, which was incurred to finance
the leveraged buyout; and (iv)  issued 500,000 shares of
Common Stock to Management at the Initial Public Offering
price of $12, which was recorded by the Company as
management stock expense of $6,000,000 at the date of
issuance.

As a result of the Recapitalization, CVC and its affiliates
acquired substantially all of the outstanding common stock of
the Company. Accordingly, the Recapitalization was accounted
for using the push-down method of accounting whereby the
purchase price was allocated to the assets and liabilities of the
Company based on their estimated fair values at the date of the
Recapitalization.

In August 1993, the Company consummated an initial public
offering (the "Initial Public Offering") of 2,600,000 shares of its
Common Stock, par value $.001. The net proceeds from the
Initial Public Offering, which aggregated approximately $27.6
million, along with certain Company cash, were used to repay
the $15,000,000 in senior debt and $10,000,000 in subordinated
debt, redeem the Class A preferred stock, and repay deferred
royalties. 

2.   BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT            
ACCOUNTING POLICIES:

Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries,
MDF, Inc. and Southern Hospitality Corporation, which was
acquired at the close of business on September 24, 1994 (see
Note 13).  All significant intercompany balances and transactions
have been eliminated in consolidation.

Fiscal Year
The Company maintains its accounts on a 52/53 week fiscal year
ending the last Saturday of September. The fiscal years ended
September 28, 1996 (fiscal 1996) and September 24, 1994
(fiscal 1994) each contained 52 weeks, while the fiscal year
ended September 30, 1995 (fiscal 1995) contained 53 weeks.

Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less when purchased to be
cash equivalents.

Inventories
Inventories consist primarily of food and supplies and are stated
at the lower of cost or market.  Cost is determined using the
first-in, first-out (FIFO) method.


Property and Equipment
Property and equipment is stated at cost.  Normal repairs and
maintenance costs are expensed as incurred. Depreciation is
being recorded using the straight-line method over the estimated
useful lives of the property and equipment, as follows:

<TABLE>
<CAPTION>                         
                         Useful Lives   

     <S>                                                <C>
     Buildings                                          25    years       
     Building equipment                                 10-20 years  
     Furniture, fixtures and restaurant equipment       5-10  years    
</TABLE>

Leased Properties
Leased properties consist of capitalized building and leasehold
improvements. Amortization is recorded using the straight-line
method over the lives of the leases.

Franchise Rights
The franchise agreements with Wendy s International, Inc.
require the Company to pay a fee for technical assistance to be
provided over the term of the franchise agreement for each unit
opened. Amortization is recorded on the straight-line method
over the terms of the franchise agreements. The franchise
agreements generally provide for a term of 20 years and renewal
options upon expiration. Accumulated amortization as of
September 28, 1996 and September 30, 1995, was
approximately $1,053,000 and $758,000, respectively (see Note
5).

Goodwill
The Company has classified the cost in excess of fair value of the
net assets (including tax attributes) of companies acquired in
purchase transactions as goodwill. Goodwill is being amortized
on a straight line method over 30 years.  Accumulated
amortization was approximately $2,054,000 and $1,368,000 as
of September 28, 1996 and September 30, 1995, respectively.

Income Taxes
Deferred income taxes are computed using the liability method,
which provides that deferred tax assets and liabilities are
recorded based on the differences between the tax bases of
assets and liabilities and their carrying amounts for financial
reporting purposes. (see Note 8)

Earnings Per Common Share
Earnings per common share is computed based on the weighted
average number of common and common equivalent shares
outstanding during the periods. Common stock equivalents
include options and warrants to purchase common stock which
are assumed to be exercised using the treasury stock method. 
The weighted average number of shares reflected includes
treasury stock acquired pursuant to the Stock Repurchase
Program through the date of acquisition (see Note 12).

Preopening Costs
Direct costs incurred in connection with opening new restaurants
are deferred and amortized on a straight-line basis over a
12-month period following the opening of a new restaurant.

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, liabilities, revenues and expenses in the
financial statements and in the disclosure of contingent assets
and liabilities.  While actual results could differ from those
estimates, management believes that actual results will not be
materially different from amounts provided in the accompanying
consolidated financial statements.

New Authoritative Standards Not Yet Implemented

In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123 - "Accounting for Stock Based
Compensation." This statement defines a fair value based
method of accounting for an employee stock option or similar
equity instrument and encourages, but does not require, all
entities to adopt that method of accounting for all of their
employee stock option plans.  Entities electing not to make the
change in accounting method must make pro forma disclosures
of net income and earnings per share as if the fair value based
method of accounting had been applied.  The accounting and
disclosure requirements of this statement are effective for fiscal
years that began after December 15, 1995.  The Company has
not yet determined whether or not it will adopt the fair value
based method of accounting defined in this statement.

Prior Year Reclassifications
Certain reclassifications have been made to the prior years'
balances in order to conform to fiscal 1996 presentation.

3.   PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
Property and equipment consisted of the following (amounts in
000's):


                                      Sept. 28,    Sept. 30,
                                        1996         1995
                                  ---------------------------
<S>                               <C>          <C>
Buildings                         $    14,708  $    10,150 
Land                                   10,339        8,445 
Furniture, fixtures and equipment      26,992       24,432 
Construction in progress                5,860        4,579 
                                   --------------------------      
                                       57,899       47,606 
Less:  Accumulated depreciation        (8,378)      (5,945)
                                  ---------------------------
Property and equipment, net       $     49,521 $    41,661 
                                  ===========================
</TABLE>

4.  ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
     AND LONG-LIVED ASSETS TO BE DISPOSED OF

During the fourth quarter of fiscal 1996, the Company elected
early adoption of Statement of Financial Accounting Standard
No. 121, "Accounting for the Impairment of Long-Lived Assets
and  Long-Lived Assets to be Disposed Of "(SFAS No. 121).
SFAS No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when events or
circumstances indicate that the assets may be impaired based
upon the undiscounted cash flows estimated to be generated by
those assets.  The Company determined that due to recent
operating and cash flow changes and due to the overall decline
in the Quick Service Restaurant market, that indicators were
present.  Accordingly, the Company evaluated the ongoing value
of the property and equipment (and intangibles) associated with
its restaurants. Based on this evaluation, the Company
determined that assets with a net book value of $89.9 million
were impaired and reduced their carrying value by $5.5 million
to their estimated fair value.  Fair value was determined based on
the most appropriate of the following -  the market value of
restaurants in an arms length transaction, the recoverability of
rents (and other assets) through a sublease arrangement or the
estimated future cash flows to be generated by the restaurants.  

    
5.   FRANCHISE RIGHTS:

The franchise agreements for Washington, D.C., Baltimore,
Maryland, and the surrounding areas contain certain
requirements regarding the number of units to be opened in the
future. Should the Company fail to comply with the required
development schedule or with the requirements of the
agreements for restaurants within areas covered by the
development agreements, Wendy's International, Inc. could
terminate the exclusive nature of the Company's franchise. The
franchise agreements also provide Wendy's International, Inc.
significant rights regarding the business and operations of the
Company and impose restrictions regarding the ownership of the
Company's capital stock.

The Company is also required to pay royalty and advertising fees
amounting to 4% each of annual restaurant sales, as defined in
the franchise agreements.  The 4% advertising fee is a
combination of  2.5% to Wendy's National Advertising
Program, Inc. for national advertising, with the remainder paid
for local advertising.  

6.   RETIREMENT PLANS:

Substantially all full-time employees of the Company are eligible
to participate in a defined contribution 401(k) plan. Employees
may make contributions to the plan through salary deferral. The
Company makes annual contributions to the plan based on a
percentage of the employee's contribution, up to certain
limitations. The Company's contributions were approximately
$107,000, $94,000 and  $76,000 for the years ended September
28, 1996, September 30, 1995 and September 24, 1994,
respectively.

7.   COST OF RESTAURANT SALES AND
RESTAURANT OPERATING EXPENSES:

<TABLE>
<CAPTION>
Cost of restaurant sales and restaurant operating expenses
consisted of the following (amounts in 000's):


                                Year Ended     Year Ended     Year Ended
                               September 28,  September 30,  September 24,
                                   1996           1995           1994
                             ---------------------------------------------
<S>                          <C>              <C>           <C>
Cost of restaurant sales - 
Food and supplies            $     69,603     $    68,856   $     54,344 
Labor                              56,706          56,386         42,531
                             ---------------------------------------------
                             $    126,309     $   125,242   $     96,875 
                             ---------------------------------------------
Restaurant operating expenses -

Advertising                  $      8,869     $     9,448   $      7,310 
Rent                                7,675           7,261          6,397
Utilities                           7,915           7,620          6,151
Maintenance and repairs             5,301           4,676          3,551 
Other                              102,648          12,368          9,362 
                             ---------------------------------------------
                             $     42,408     $    41,373   $     32,771 
                             =============================================
</TABLE>

8.   INCOME TAXES:

<TABLE>
<CAPTION>
The provision (benefit) for income taxes was comprised of the
following (amount in 000's):

                           Year Ended     Year Ended     Year Ended
                          September 28,  September 30,  September 24,
                             1996           1995             1994
                          -------------------------------------------
<S>                        <C>         <C>              <C>
Federal:
Current                    $  2,927    $    4,621       $   3,360 
Deferred                     (1,457)       (1,023)           (125)

State:
Current                         603          1,034            411
Deferred                       (300)          (181)           585 
                          -------------------------------------------
Provision for income taxes $  1,773    $     4,451      $   4,231
                          ===========================================
</TABLE>

<TABLE>
<CAPTION>
The difference between the recorded income tax provision and the "expected" tax provision based on the statutory
federal income tax rate is as follows (amounts in 000's):
                           
                                        Year Ended     Year Ended     Year Ended
                                       September 28,  September 30,  September 24,
                                           1996           1995            1994
                                      --------------------------------------------

<S>                                      <C>         <C>             <C>
Computed federal tax provision (benefit) 
   at statutory rate:                    $  1,416    $     4,374     $     3,830 
State income taxes (net of federal income
   tax effect)                                329            563             297 
Nondeductible expenses                         15              -               3 
Targeted jobs tax credit                      (10)          (382)           (399)
Goodwill amortization                         238            238             160 
Reevaluation of deferred tax liability
                                             (200)          (383)              -
Other, net                                    (15)            41             340 
                                       -------------------------------------------
Provision for income taxes               $   1,773   $     4,451     $     4,231
                                       ===========================================
</TABLE>

As of September 28, 1996 and September 30, 1995, the
Company had federal net operating loss carry forwards for
income tax purposes of approximately $3,023,000 and
$4,244,000, respectively, to offset against future taxable income.
Approximately $1,200,000 of net operating loss carryforwards
are utilizable per year. If not utilized, these carryforwards will
expire through 2003. In addition the Company had state net
operating loss carryforwards of approximately $3,500,000 as of
September 28, 1996.

<TABLE>
<CAPTION>
Total deferred tax liabilities and deferred tax assets as of 
September 28, 1996 and September 30, 1995, and the sources of
the differences between financial accounting and tax bases of the
Company's assets and liabilities which give rise to the deferred
tax liabilities and deferred tax assets and the tax effects of each,
are as follows (amounts in 000's):
                             
                                        September 28,     September 30,
                                            1996              1995  
                                       ---------------------------------
<S>                                        <C>              <C>
Deferred tax liabilities:
Property and equipment                     $  1,958         $   2,250 
Leased properties                               546             1,845
Franchise rights                                628               770
Other                                           141               392
                                       ---------------------------------
 Total                                     $  3,273         $   5,257
                                       =================================
Deferred tax assets:
Accrued expenses and reserves              $  1,169         $   1,197
Covenants not to compete                      2,396             2,411
Operating loss carryforwards and credits      1,343             1,787
Capitalized development costs                   278               201
Other                                           247                64
                                       ---------------------------------
Total                                      $  5,433         $   5,660
                                       =================================
</TABLE>

9.  LONG-TERM DEBT AND FINANCING
ARRANGEMENTS:

<TABLE>
<CAPTION>
Long-term debt consisted of the following (amounts in 000's):
                                                                  Sept. 28,   Sept. 30,
                                                                    1996        1995
                                                              ---------------------------
<S>                                                              <C>           <C>
Installment promissory notes, interest ranging from 1% to 2%
  over the bank's prime rate, due in monthly principal
  installments plus interest through September 1999;  secured
  by restaurant equipment, furniture and fixtures, leasehold      
  improvements and inventory.                                    $   714       $  1,245
Installment promissory note, interest at 6%, due in quarterly
  installments through January 1996 and a lump-sum payment for
  equipment due January 1996, both secured by restaurant point
  of sale equipment.                                                   -            618
Term loan from a bank,
  (as described below)                                            14,040         16,600
                                                              ---------------------------
                                                                  14,754         18,463
Less: Current portion                                             (3,055)        (3,685)
                                                              ---------------------------
Long-term debt                                                  $ 11,699      $  14,778
                                                              ===========================
</TABLE>

<TABLE>
<CAPTION>
Aggregate maturities of the Company's long-term debt as of September 28, 1996 
are as follows:

Maturing fiscal year:
                    <S>     <C>
                    1997    $ 3,055
                    1998      2,747
                    1999      8,952
                            --------
                           $ 14,754
                            ========
</TABLE>

Financing Arrangements
In September 1994, the Company modified its existing bank
credit facilities and created a new financing agreement. Under
the new financing agreement, the Company borrowed
$18,250,000 (the "Term Loan") from a bank. The proceeds from
the Term Loan were used to consummate the acquisition of
Southern Hospitality Corporation  (See Note 13). The Term
Loan is secured by the common stock of Southern Hospitality
Corporation.  The Term Loan provides for fixed principal
payments of approximately $152,000 per month plus interest
beginning in November 1994 and ending with a balloon payment
in September 1999. In addition, each year the agreement
requires the Company to repay against the Term Loan, a certain
percentage of excess cash flow, as defined, within 120 days of its
fiscal year end through 1998. Beginning with the first such
additional payment, the Company's monthly principal payment
drops to approximately $146,000 for 12 months.  After that
period of time, the monthly payment reverts back to $152,000
unless there has been an additional excess cash flow payment. 
During 1995, the bank adjusted the Term Loan's interest rate to
either (1) a floating rate per annum equal to 0.25% in excess of
the higher of the prime rate or the average rate for 90 day
commercial paper or (2) a fixed rate equal to 1.25% per annum
in excess of an adjusted LIBOR rate in effect for periods up to
180 days.  In August 1995, the Company fixed the interest rate
at 7.47% on approximately half of the Term Loan principal
amount, through an interest rate swap arrangement with the
bank.  In January 1996, the Company fixed the interest rate at
6.75% on the remainder of the Term Loan principal amount, for
the duration of the loan, through an additional interest rate swap
arrangement with the bank.  As of  September 28, 1996, the
estimated fair market value of interest rate swap arrangements
was $93,000 based on a dealer quote.

During fiscal 1996, the Company established a $13,000,000
Revolving Credit Facility, which replaced the $7,500,000
revolving and $2,500,000 fixed asset facilities.  The Revolving
Credit Facility increased the sub-limit for letters of credit from
$5,000,000 to $7,000,000 and increased the amount available
for advances under an automated principal funding mechanism.

The Company's funding needs, up to $5,000,000, may be
automatically advanced into its commercial checking account. 
Advances under the automated system bear interest at the
aforementioned floating interest rate or a daily adjusting rate
equal to 1.5% per annum in excess of the one month LIBOR
rate. 

The interest rate on the Revolving Line of Credit is either (1) a
floating rate per annum equal to the bank's prime rate or the
floating rate per annum equal to an adjusted LIBOR rate for a
30 day interest period, determined and adjusted daily, plus up to
155 basis points per annum or (2) a fixed rate equal to an
adjusted LIBOR rate for the period corresponding to the term of
the interest period selected, plus up to 155 basis points per
annum.  The weighted average balance outstanding under the
Revolving Line of Credit for the year ended September 28, 1996
was $4,353,000.  The weighted average interest rate under the
Revolving Line of Credit for the year ended September 28, 1996
was 7.03%.  The balance outstanding at September 28, 1996
was $6,768,000.  The weighted average balances outstanding for
the year ended September 30, 1995 were $208,000 and $0 for
the working capital line and the acquisition line, respectively. 
 
In July 1996, the Company obtained a separate short-term
$5,000,000 credit facility.  This facility may only be used to fund
tax indemnifications obligations and to repurchase common
stock and will expire on January 18, 1997.  Any borrowings
would bear interest at the same rates as the Revolving Credit
Facility.  There have not been any borrowings under this facility
to date.

The terms of the financing arrangements contain, among other
provisions, certain covenants for maintaining defined levels of
tangible net worth and various financial ratios, including cash
flow coverage and total liabilities to tangible net worth.  As of
September 28, 1996, the Company was in compliance with all
applicable covenants.

10.   LEASES:

The Company leases a substantial portion of the land and
buildings used in the operation of its restaurants. These leases
generally provide for a noncancellable term of 20 years and
provide for additional renewal terms at the Company's option. 
Certain leases contain provisions for percentage rentals on sales
above specified minimums. Expenses incurred under these
provisions aggregated approximately $579,000, $764,000 and
$609,000 for the years ended September 28, 1996, September
30, 1995, and September 24, 1994, respectively.


<TABLE>
<CAPTION>
As of September 28, 1996, future minimum lease payments related to 
leases were as follows:
(amounts in 000's)
                                                Capital       Operating 
Fiscal Year                                      Leases         Leases
-------------                                 --------------------------

<S>                                           <C>            <C>
1997                                          $   6,786      $   7,398 
1998                                              6,227          6,936 
1999                                              5,614          6,569 
2000                                              5,348          6,506 
2001                                              5,103          6,361 
2002 and thereafter                              24,869         47,662 
                                              --------------------------   
                                                 53,947        $81,432 
Less:  Amount representing interest             (22,369)     ===========
                                              -----------
Present value of future minimum lease payments $ 31,578 
                                              ===========
</TABLE>

Rent expense under operating leases, including percentage
rentals based on sales, was approximately $8,313,000,
$7,895,000 and $6,319,000 for the years ended September 28,
1996, September 30, 1995 and September 24, 1994,
respectively. 

11.   COMMITMENTS AND CONTINGENCIES:

Litigation

The Company is party to several legal proceedings which are
considered by management to be customary and incidental to its
business. In the opinion of management, after consulting with
legal counsel, the ultimate disposition of these lawsuits will not
have a material adverse effect on the Company's financial
position or results of operations.

Letters of Credit
At September 28, 1996, the Company was contingently liable for
outstanding letters of credit relating to liability insurance and
Wendy s International, Inc. current royalty requirements,
aggregating approximately $4,070,000.

Other
During fiscal year 1997 and 1998, the Company will be required
to pledge additional collateral in the amount of approximately
$600,000 and $1,000,000, respectively, in connection with the
Company's worker compensation insurance policy. 

12.   CAPITAL STOCK, WARRANTS AND OPTIONS:

Effective with the Initial Public Offering, the Company's
authorized capital stock consisted of 8,200,000 shares of voting
Common Stock and 3,200,000 shares of non-voting Common
Stock.  As of September 28, 1996 and September 30, 1995,
there were 6,587,628 shares of voting Common Stock
outstanding and no shares of  non-voting Common Stock
outstanding.

In connection with the Recapitalization, warrants to purchase
441,026 shares of Common Stock at $.01 each, were issued and
recorded at their estimated fair value of $3,000,000 at date of
issuance. These warrants expire February 10, 2003.

In fiscal 1993, the company granted stock options in conjunction
with the Recapitalization to management stockholders and
certain affiliates of CVC. Approximately 515,000 of these
options vest over a five-year period.  Of the remaining 41,000
options, approximately 37,000 vest pro rata over a three-year
period and 4,000 vested upon grant.

In fiscal 1994, the Company adopted the 1994 Director Stock
Option Plan and the 1994 Employee Stock Option Plan whereby
certain named directors and officers received options to
purchase Common Stock.  The option price equals the fair
market value of the Common Stock at the date of grant.  The
options expire ten years from the date and vest 20% per year
beginning with the first anniversary of the date of grant.

During fiscal year 1996, the Company adopted the 1996
Director Stock Option Plan and the 1996 Employee Stock
Option Plan whereby certain named directors and officers
received options to purchase Common Stock. The option price
equals the fair market value of the Common Stock at the date of
grant. The options expire ten years from date of grant and vest
20% per year beginning with the first anniversary of the date of
grant.

Effective May 1,1996, the Company adopted a stock repurchase
plan where up to 1,000,000 shares of the Company's common
stock will be purchased over a two year period, depending on
price and market conditions.  As of September 28, 1996, the
Company had repurchased 132,107 shares at an aggregate cost
of $1,083,874.

<TABLE>
<CAPTION>
The following table summarizes stock option activity:

                                            Number      Exercise Price
                                           of Shares      Per Share
                                      ----------------------------------
<S>                                         <C>         <C>
Outstanding,September 25, 1993                          
(235,000 Exercisable)                       555,618     $6.80 - $12.00
Activity during fiscal 1994:
Granted                                      45,000     $16.13 - $17.50
Exercised                                         -            -
Canceled                                     (5,000)        $16.13 
                                      ----------------------------------
Outstanding, September 24, 1994
(247,000 Exercisable)                       595,618     $6.80 - $17.50
Activity during fiscal 1995:
Granted                                       5,000         $13.81 
Exercised                                         -            -
Canceled                                     (5,000)        $16.13 
                                      ----------------------------------
Outstanding, September 30, 1995
(267,000 Exercisable)                       595,618     $6.80 - $17.50
Activity during fiscal 1996:
Granted                                      48,000         $8.50 
Exercised                                         -           -
Canceled                                    (10,000)    $8.50 - $16.13
                                      ----------------------------------
Outstanding, September 28, 1996
(287,000 Exercisable)                       633,618     $6.80 - $17.50
                                      ==================================
</TABLE>

13.   ACQUISITION OF SOUTHERN HOSPITALITY CORPORATION

As of the close of business on September 24, 1994, the
Company acquired Southern Hospitality Corporation for
approximately $17.5 million cash (net of cash acquired) and the
assumption of certain liabilities. The acquisition was accounted
for as a purchase. The excess of the purchase price over the net
assets acquired was allocated in accordance with "push-down"
accounting to the assets and liabilities based on their estimated
fair values. This allocation resulted in a $8.6 million increase to
goodwill, a $435,000 increase to leased properties and a
$165,000 increase to deferred tax payable. The goodwill is being
amortized using the straight-line basis over 30 years. 

The following unaudited pro forma summary consolidated
results of operations assumes the acquisition had occurred at the
beginning of each of the fiscal years presented. The pro forma
results are based on historical information and do not necessarily
reflect the actual results that would have occurred, nor is it
necessarily indicative of future results of operations of the
combined entities (in 000's except per share data).

<TABLE>
<CAPTION>                                
                                Fiscal Year Ended
                                    Sept. 24,
                                      1994
                                  (Unaudited) 
                              -------------------
<S>                           <C>
Restaurant sales              $     195,281 
                              -------------------
Net income before
   extraordinary item         $       7,481 
                              -------------------
Net income                    $       7,481 
                              -------------------
Per share data:
Net income  before
   extraordinary item         $        1.04 
                              -------------------
Net income                    $        1.04 
                              -------------------
</TABLE>

The significant pro forma adjustments reflected above relate to
increases in interest expense had the financing been obtained at
the beginning of the year and increases in amortization expense
due to the creation of goodwill.

ITEM 9: CHANGE IN AND DISAGREEMENT WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT

For information with respect to Directors as required by this
item, see "Information Regarding Nominees for Election of
Directors" in the Company's Proxy Statement to be filed with
respect to the Annual Meeting of Shareholders to be held on
January 29, 1996, which information is incorporated herein by
reference.

<TABLE>
<CAPTION>

Name                         Age         Position
-------                    -------     --------------
<S>                          <C>       <C>
Ronald D. Kirstien           51        Chairman of the Board, Chief
                                       Executive Officer and President

Harvey Rothstein             53        Executive Vice President of Real  
                                       Estate and Development, Director 
                                       and Secretary

Joseph F. Cunnane, III       47       Senior Vice President of Operations

Richard H. Borchers          41       Senior Vice President of Human
                                      Resources

Charles C. McGuire, III      40       Vice President of Finance

</TABLE>

Ronald D. Kirstien has served as Chairman of the Board and
Chief Executive Officer of the Company since 1987 and
President of DavCo since 1983.  Mr. Kirstien joined DavCo in
1979, and became Vice President of Operations.  He began his
career in 1961 with Gino's Restaurants, Inc. and transferred to
the Rustler division of Gino's Restaurants, Inc. in 1973.

Harvey Rothstein has served as Executive Vice President of Real
Estate and Development of DavCo and Secretary of the
Company since 1987.  Mr. Rothstein joined DavCo in 1979, and
became Vice President of Real Estate and Development in 1980. 
From 1978 to 1979, Mr. Rothstein was the manager of franchise
development for Arthur Treacher's, Inc.

Joseph C. Cunnane, III has served as Senior Vice President of
Operations of DavCo since 1994.  Prior to that time, he served
as Vice President of Operations of DavCo from 1984 to 1994. 
From 1980 to 1984, he served as Regional Manager for the
Company's Washington, D.C. region.

Richard H. Borchers has served as Senior Vice President of
Human Resources of DavCo since 1994.  Prior to that time, he
served as Vice President of Human Resources of DavCo from
1991 to 1994, Director of Human Resources of DavCo from
1988 to 1991 and as Regional Manager of DavCo's Washington,
D.C. northern region from 1985 to 1988.

Charles C. McGuire, III , CPA, CFP has served as Vice
President of Finance since September 1996.  Prior to that time,
he served as Controller since joining the Company in  February
1994.  Prior to joining the Company, he served as Director of
Finance for Crop Genetics International from 1991 to 1994 and
as Controller of E.I. Kane from 1987 to 1990.  He began his
career in the Baltimore office of Ernst and Young in 1980 last
serving in the position of audit manager.   

ITEM 11:  EXECUTIVE COMPENSATION

For information concerning this item, see the information under "Management
Compensation" in the Company's Proxy Statement to be filed with respect to
the Annual Meeting of Shareholders to be held January 29, 1997, which
information is incorporated herein by reference.





ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

For information concerning this item, see the information under "Management
Compensation" in the Company's Proxy Statement to be filed with respect to
the Annual Meeting of Shareholders to be held on January 29, 1997, which
information is incorporated herein be reference.

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

For information concerning this item, see the information under "Management
Compensation" in the Company's Proxy Statement to be filed with respect to
the Annual Meeting of Shareholders to be held on January 29, 1997, which
information is incorporated herein be reference.

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

    a.  Documents filed as part of this Form 10-K:

     1 and 2.  Financial Statements - see Index to Financial Statements and
               Schedules on page __.

     3.  Exhibits

          10.52 Short-Term Loan Agreement between DavCo Restaurants,
                Inc. and The First National Bank of Maryland
          
          25.3   Power of Attorney
          
          27.1   Article 5 of Regulation S-X Financial Data Schedule for FY
                 1996 Form 10-K
                 (For SEC use only)
     
    b.  Reports on Form 8-K:

     There were no reports on Form 8-K filed during the 3 months ended
     September 28, 1996.

    c.  Exhibits filed with this report are listed in Item (a) 3. above.

    d.  Financial Statement Schedules are listed in Item (a) 2. above.

                 SIGNATURES

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

          DAVCO RESTAURANTS, INC.

         By: /s/ Ronald D. Kirstien
                 -------------------
                 Ronald D. Kirstien
                 President and Director

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.

/s/ Ronald D. Kirstien             /s/ Bryon L. Knief     
----------------------             -------------------   
Ronald D. Kirstien                 Bryon L. Knief
President and Director             Director
(Principal Executive Officer)

/s/ Harvey Rothstein               /s/ Gino Marchetti    
--------------------               ------------------ 
Harvey Rothstein                   Gino Marchetti
Secretary and Director             Director

/s/ Charles C. McGuire             /s/ Barton J. Winokur   
----------------------             ---------------------
Charles C. McGuire                 Barton J. Winokur
Vice President of Finance          Director

/s/ Harold O. Rosser               /s/ Charles Corpening    
--------------------               ---------------------
Harold O. Rosser                   Charles Corpening
Director                           Director

/s/ James D. Farley                /s/ Edward H. Chambers   
-------------------                ----------------------
James D. Farley                    Edward H. Chambers
Director                           Director

/s/ Ronald D. Kirstien              
----------------------
Ronald D. Kirstien
Attorney-in-Fact