SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K/A

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  For the fiscal year ended December 29, 1996
                           Commission File No. 0-19542


                                APPLE SOUTH, INC.
             (Exact name of registrant as specified in its charter)

                  Georgia                  59-2778983
          (State of Incorporation)         (I.R.S. Employer
                                            Identification No.)

          Hancock at Washington
             Madison, Georgia                30650
           (Address of Principal           (Zip Code)
            Executive Offices)

       Registrant's telephone number, including area code: (706) 342-4552

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

                                      None

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

                     Common Stock, par value $.01 per share
                                 Title of Class

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

     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 the definitive proxy statement incorporated
by reference  in Part III of this Form 10-K or any  amendment to this Form 10-K.
[X] -----------------------------

         As of February 18, 1997, the aggregate market value of the common stock
of registrant held by  non-affiliates  of the  registrant,  as determined by the
last sales price, was $516,776,720.

         As of  February  18,  1997,  the  number  of  shares  of  common  stock
outstanding was 38,279,757.




<PAGE>




                                     PART I

         Unless  otherwise noted, the information in this Annual Report reflects
stock  dividends  of  four-tenths  of a share  for  each  share  outstanding  on
September 10, 1991,  one-half  share for each share  outstanding  on November 2,
1992,  one-half share for each share  outstanding on January 29, 1993,  one-half
share for each share outstanding on August 30, 1993, and one-half share for each
share  outstanding on June 1, 1994. In November 1995, the Company  acquired DF&R
Restaurants,  Inc.  ("DF&R")  in a  transaction  accounted  for as a pooling  of
interests,  and accordingly all financial and other  information  concerning the
Company set forth in this Annual  Report  includes  DF&R for all periods  unless
otherwise indicated. References in this Annual Report to the "Company" or "Apple
South"  include  Apple  South,  Inc.,  and  its  operating  subsidiaries  unless
otherwise indicated.

Item 1.  Business

General

         Apple South is a rapidly growing,  multi-concept  restaurant  operating
company.   Since  its   inception  in  1986,   Apple  South  has  increased  its
profitability and size through the efficient management of restaurant operations
and through a series of strategic restaurant openings and acquisitions. Over the
last five fiscal years,  restaurant  sales have  increased at a compound  annual
growth rate of 37%, and restaurant  margins have increased from 12.2% in 1991 to
15.7% in 1996.

         At  December  29,  1996,   Apple  South   operated  306  casual  dining
restaurants, consisting of 231 casual dining restaurants operated under the name
"Applebee's  Neighborhood Grill & Bar"; 63 "Don Pablo's"  restaurants  featuring
traditional  Mexican and Tex-Mex dishes and 12  "Harrigan's"  restaurants  which
offer traditional  classics such as mesquite-smoked  prime rib,  hickory-grilled
steaks and chicken.  In addition,  Apple South operates ten franchised  Hardee's
fast-food hamburger restaurants which Apple South has a signed contract to sell.
For the year ended December 29, 1996,  Apple South's  restaurant sales were $546
million.

         As a franchisee of Applebee's  International,  Inc. (the "Franchisor"),
the Company holds the exclusive development rights for Applebee's restaurants in
all or part of 22 states in the South,  Mid-Atlantic  and Midwest regions of the
United States. The Company opened its first Applebee's restaurant in Greenville,
South  Carolina in 1986 and is currently  the largest  Applebee's  operator.  In
November 1995, the Company merged with DF&R Restaurants,  Inc.  ("DF&R"),  which
operates Don Pablo's and Harrigan's  restaurants on a proprietary basis. The Don
Pablo's  restaurants are  concentrated  in Texas and the Midwest  region,  while
Harrigan's restaurants are located in Texas, Oklahoma and New Mexico.

         Apple South's growth strategy includes  expanding  existing  restaurant
concepts;   acquiring  new  restaurant  concepts;  and  leveraging  Company-wide
expertise and resources across concepts to improve the effectiveness of existing
restaurants  while  maintaining   concept  integrity  and  individuality.   This
multi-concept strategy allows the Company to reach a broad customer base through
specialized  restaurant  market segments.  By operating  restaurant  concepts as
separate  divisions,  the Company  protects each  concept's  individuality,  but
allows each  division to leverage the best  practices of other  divisions.  Each
Apple South restaurant  concept is established as an  entrepreneurial  operating
division and  functions on a  decentralized  basis with  individual  recruiting,
training,  marketing,  accounting,  and restaurant operations.  Each division is
supported by various  centralized  functions such as human  resources,  finance,
treasury and capital formation.

     Apple South expects to open a total of 60 restaurants in 1997, including at
least  34 in  the  Applebee's  division  and  25 in the  Don  Pablo's  division.
Expansion  efforts during the next few years will be focused on the  development
of  additional  Applebee's  restaurants  in the Company's  existing  development
territories and Don Pablo's restaurants in the Midwest, Mid-Atlantic,  Southeast
and Northeast.  In 1996,  the Company closed its Tomato Rumba's  division and is
holding those assets for redeployment. The Company has a signed contract for the
sale of its  Hardee's  restaurants  which it  expects to  complete  in the first
quarter of 1997.

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APPLE SOUTH'S RESTAURANT CONCEPTS

Applebee's

         The  Applebee's  concept was  initiated in 1980 with the opening of the
first  Applebee's  restaurant  in  Atlanta,  Georgia,  by a  predecessor  of the
Franchisor.  The Franchisor is a publicly held company headquartered in Overland
Park,  Kansas.  As of  December  29,  1996,  the  Applebee's  restaurant  system
consisted of 819 restaurants in 45 states,  Puerto Rico,  Canada,  the Caribbean
and  Europe.  Approximately  18%  of  these  restaurants  are  operated  by  the
Franchisor,  28% by Apple South and the remainder by other  franchisees.  During
1996, a total of 163 new Applebee's  restaurants were opened system-wide;  45 of
these were opened by the Company's Applebee's division.

         The  Company is an active  participant  in the  Franchisor's  Franchise
Business  Council,  which  consists of seven  representatives  of the Applebee's
franchisees  and  three   representatives   of  the   Franchisor.   The  council
participates in regular meetings with management of the Franchisor and serves as
a  mechanism  for  franchisees  to obtain  and  exchange  information  regarding
operations,  marketing, facilities and product development, and provides a forum
to discuss  franchisee  issues  and  concerns.  Due to the number of  Applebee's
restaurants operated by the Company's  Applebee's division,  the Company has the
right to continued representation on the council.

        Concept. Applebee's restaurants are designed to appeal to a market niche
between the full-service and fast-food segments of the restaurant industry.  The
restaurant's customer base consists primarily of the 21 to 54 year old age group
that grew up on  fast-food,  but now  prefers  a more  sophisticated  menu,  the
availability  of alcoholic  beverages and a comfortable  ambiance in addition to
the  traditional  qualities of fast-food  restaurants,  namely speed,  value and
convenience.  Each Applebee's  restaurant is designed and marketed as a friendly
"neighborhood   establishment"  appealing  to  both  families  and  adults,  and
featuring   table  service   dining  and  a  selection  of  moderately   priced,
high-quality food and beverage items.

        Menu.  Each Applebee's  restaurant  offers a diverse menu of traditional
and innovative dishes. Entrees include various international dishes,  hamburgers
and sandwiches. Also included are a full range of appetizers, such as nachos and
Buffalo chicken wings, and soups, salads and desserts.  Pursuant to requirements
of the Franchisor,  approximately  60% of the selections on each Applebee's menu
consist of required  national core items and approximately 40% of the selections
are  chosen  by the  Company's  Applebee's  division  from an  approved  list of
optional  items.  While the available  menu items are revised by the  Franchisor
every six months to reflect  changes in customer  tastes,  these  revisions  are
typically limited.  The Applebee's division actively  participates in the search
for new menu items to replace  slower-selling  items.  Alcoholic  beverages  are
available at each restaurant and represented approximately 14% of total sales in
1996.  The  cost of a  typical  meal at the  Company's  Applebee's  restaurants,
including  beverages,  currently ranges from $5.75 to $7.25 per person for lunch
and $7.25 to $8.75 for  dinner.  Applebee's  restaurants  also  offer a separate
lower priced children's menu.

        Restaurant  Layout.  Restaurants  in  the  Applebee's  division  usually
contain  between 4,400 and 5,000 square feet of space in a  free-standing  brick
and glass building. Existing restaurants generally have 38 dining tables seating
approximately 150 customers,  with a centrally located bar seating 18 additional
customers.

        Unit Economics.  During 1996, the average cost of developing and opening
an  Applebee's  restaurant  was  approximately  $1.6  million,  including  land,
construction or improvement costs,  fixtures and equipment,  franchise fees, and
excluding  approximately  $45,000 to $80,000 in preopening expenses.  Preopening
expenses  consist  principally of  nonrecurring  costs,  such as hourly employee
recruiting,  license fees,  meals and lodging and travel.  Preopening  costs are
incurred in connection  with opening each restaurant and are expensed during the
restaurant's  first  full  month  of  operations.  The  cost of land  for  these
restaurants ranged from approximately $215,000 to $825,000.


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<PAGE>

       Expansion   Strategy.   In  addition  to   development  of  its  existing
territories,  Apple  South has  expanded  in  recent  years by  acquiring  other
Applebee's franchisees, thereby obtaining new development territories as well as
additional restaurants.  Apple South intends to expand its Applebee's operations
during the next few years through the  development of additional  restaurants in
existing  development   territories.   Under  development  agreements  with  the
Franchisor,  the Company is required  to open a specified  number of  Applebee's
restaurants in each development territory over specified intervals.  Apple South
management  believes  that  the  Applebee's   division's  existing   development
territory  will support over 400  Applebee's  restaurants  and will  accommodate
planned restaurant  development for approximately four to six years. Apple South
does not expect to acquire any additional Applebee's development territory.

       Management and Employees.  A typical restaurant has a general manager and
three associate managers and employs  approximately 65 people,  approximately 45
of whom are part-time.  Responsibility for the Applebee's  division is organized
geographically  with 21 regional  directors of operations  that report to one of
five regional vice  presidents of operations,  each of whom reports  directly to
the Applebee's division president.  Restaurant managers are eligible for monthly
bonuses  based  on the  performance  of  their  restaurants.  Area  supervisors,
regional directors, vice presidents and the president of operations are eligible
for quarterly bonuses based on the performance of their assigned restaurants and
Apple South.

     Quality  Control.  General  and  associate  managers  are  responsible  for
assuring  compliance  with the  operating  procedures  of the  division  and the
Franchisor.  Compliance with these  procedures is monitored by periodic  on-site
visits and quarterly  inspections by area  supervisors,  directors of operations
and  representatives of the Franchisor.  Additional  inspections are made by the
divisional  management and the Franchisor from time to time.  Monthly ratings of
each restaurant are published internally to all management personnel.

       Training.  The Applebee's  division  places  significant  emphasis on the
proper training and continued  development of its employees.  Training  programs
are provided for all hourly and management  employees.  The management  training
program typically lasts 12 weeks, incorporates Franchisor training standards and
includes on-site instruction at geographically  dispursed training  restaurants.
When the Applebee's  division opens a new restaurant,  management  positions are
usually staffed with personnel who have had previous  experience in a management
position at another  Applebee's  restaurant.  In addition,  a highly experienced
opening  team  assists in opening the  restaurant.  Prior to opening,  all staff
personnel  undergo a week of  intensive  training  conducted  by the  restaurant
opening team.

       Purchasing.  Apple South  strives to obtain  consistent  quality items at
competitive  prices  from  reliable  sources  for  all  of  its  divisions.  The
Applebee's   division  must  comply  with  the  uniform  recipe  and  ingredient
specifications  provided by the Franchisor.  However,  the division can purchase
the  necessary  food and  beverage  inventories  and  restaurant  supplies  from
independent vendors approved by the Franchisor.  Although the division currently
uses one distributor for  substantially  all of its food products,  all food and
beverage  products  necessary to operate the  restaurants are available on short
notice from alternative  qualified  suppliers.  The Applebee's  division has not
experienced any significant delays in receiving food and beverage inventories or
restaurant supplies.

       Advertising   and   Marketing.   Pursuant  to  the  Company's   franchise
agreements,  each  Applebee's  restaurant  contributes  1% of gross sales to the
Franchisor  for a  national  advertising  and  marketing  fund  to  benefit  all
franchisees.  The  Franchisor  uses this fund to develop  advertising  and sales
promotion materials and concepts. Each restaurant also contributes an additional
0.5% of gross sales  primarily  for the  purchase of media in its  markets.  The
Applebee's  division  also is  required  to spend 1.5% of gross  sales from each
restaurant on local advertising. The Company's franchise agreements provide that
the Franchisor may increase the required  contribution  to the national fund and
the required  expenditure for local advertising;  however,  the increase may not
result in total  required  expenditures  for  advertising  exceeding 5% of gross
sales. The Applebee's division's marketing personnel develop their own marketing
strategies  and  the  division  typically  spends  its  advertising  dollars  on
television and radio.


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<PAGE>

       Restaurant  Reporting.   Financial  controls  are  maintained  through  a
centralized,  computerized  accounting  system.  The  Applebee's  division has a
point-of-sale reporting system in each restaurant.  The restaurant managers also
submit  weekly  sales  reports,  customer  counts,  and payroll  data.  Physical
inventories  of all food,  beverage,  and supply  items are taken at least twice
monthly.  Operating  results  compared to prior  periods and budgets are closely
monitored by both divisional and corporate  personnel.  Management believes that
its current systems are adequate to support planned expansion.

       Franchise and Development  Agreements.  The Company's Applebee's division
operates its restaurants under individual  franchise agreements that are part of
broader  exclusive  development  agreements  with the  Franchisor.  The separate
franchise  agreements  each  provide the right to operate a specific  Applebee's
restaurant for a period of twenty years, with an additional  twenty-year renewal
option.  Each  development  agreement  grants  exclusive  rights to develop  and
operate Applebee's restaurants within a defined geographic area, provided that a
certain number of restaurants are opened over scheduled  intervals.  At December
29,  1996,  the  Company  was  obligated  to  open  129  additional   Applebee's
restaurants by the end of 2000, including 34 required to be opened by the end of
1997.

       The development  agreements prohibit the Company from owning or operating
other  restaurants  whose  menus and  methods of  operation  are similar to that
employed by Applebee's  restaurants  and which are located within the geographic
area covered by the development  agreement  during the term of, and for a period
of two years following the termination of, the development agreement.  Under the
development   agreements,   the  Franchisor   must  approve  the  site  and  the
architectural  and  engineering  plans for each new Applebee's  restaurant.  The
Franchisor may terminate each  development  agreement if Apple South defaults in
its  performance  under  such  development  agreement  or  under  any  franchise
agreement.  Each franchise  agreement  prohibits Apple South from transferring a
franchise  without the prior  approval of the  Franchisor.  Generally,  each new
franchise agreement requires an initial $30,000 franchise fee, a monthly royalty
fee of 4% of gross sales and a monthly  advertising  fee of 1.5% of gross sales,
in each case payable to the Franchisor. The Franchisor has the right to increase
the  advertising  fee up to an amount  that  would  equal,  when  added to other
required expenditures for advertising, 5% of gross sales.

        As the result of an agreement between Apple South and the Franchisor, it
is highly unlikely that the Franchisor will approve any transfers of development
territory to Apple South from another  franchisee or directly  grant Apple South
any  new  development  territory.  Apple  South  management  believes  that  the
Applebee's division's existing development  territories will accommodate planned
Applebee's restaurant development for approximately four to six years.

Don Pablo's

       Apple South acquired 44 Don Pablo's restaurants as a result of its merger
with DF&R in November 1995. In 1996, the Company's Don Pablo's  division  opened
19  additional  restaurants.  Average  weekly  volumes  for 1996 at Don  Pablo's
restaurants open for all of 1995 and 1996 increased 8% over the prior year, with
significant  gains  resulting from  television  advertising  instituted by Apple
South.

       Concept.  The first Don Pablo's was opened in  Arlington,  Texas in 1987.
Don Pablo's restaurants feature traditional Mexican and Tex-Mex dishes served in
a distinctive, festive dining atmosphere reminiscent of a Mexican village plaza.
Each  restaurant is staffed with a highly  experienced  management  team that is
visible in the dining area and  interacts  with both  customers and the staff to
ensure  attentive  customer  service and  consistent  food quality.  Don Pablo's
offers items prepared fresh on-site using high-quality ingredients at relatively
low prices.  The diverse  menu,  generous  portions and  attractive  price/value
relationship appeal to a broad customer base.

       Menu.  Don  Pablo's  menu  offers a wide  variety of  entrees,  including
enchiladas  and  tacos  served  with  various  sauces  and  homemade  salsa  and
mesquite-grilled  items such as fajitas,  carne asada and chicken. The menu also
includes tortilla soup, a selection of salads,  Mexican-style appetizers such as
quesadillas  and  unique  desserts.  During  1996,  the cost of a typical  meal,
including beverages, at Don Pablo's was $7.25 to $8.35 for lunch and

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$7.80 to $9.35 for dinner.  In addition to its regular menu,  Don Pablo's offers
13 lunch specials  priced from $4.85 to $6.45 each. Don Pablo's also has a lower
priced children's menu. While Don Pablo's emphasizes its dining  experience,  it
also  provides  full  bar  service.   Alcoholic  beverage  sales  accounted  for
approximately 20% of Don Pablo's total sales during 1996.

       Restaurant  Layout.  Don Pablo's  distinctive  Mexican  architecture  and
interior decor provide a casual, fun dining atmosphere.  The restaurants have an
open,  spacious feel,  created with the use of sky-lights and a Mexican  village
plaza  design,  and are  enhanced by an indoor  fountain  and the use of stucco,
brick and tile, as well as plants, signs and art work. Homemade tortillas cooked
in the dining area underscore Don Pablo's commitment to fresh, authentic Mexican
food.  Don  Pablo's  utilizes  both  one and  two-story  building  designs.  The
two-story  design features a balcony which provides  seating for bar patrons and
dining  customers  waiting to be seated.  The one-story  design  incorporates  a
smaller  bar  adjacent  to the  dining  area.  Both  designs  use  high  ceiling
architecture and have similar dining capacities.  Don Pablo's  restaurants range
in size from 6,000 square feet to 9,900 square feet, with the average restaurant
containing  approximately  8,000 square feet. Don Pablo's  generally have dining
room seating for  approximately  230 customers and bar seating for approximately
70 additional customers.

       Unit Economics. During 1996, Apple South's average cost of developing and
opening a Don Pablo's restaurant was approximately $1.7 million,  excluding land
costs and preopening  expenses.  The cost of land for these  restaurants  ranged
from   approximately   $860,000  to   $1,550,000;   preopening   expenses   were
approximately $55,000 to $115,000.

       Expansion Strategy.  The Company's Don Pablo's division believes that the
growing  popularity of Mexican and Tex-Mex food and the  relatively  few Mexican
food  restaurants  in certain  regions of the United  States,  combined with the
success of its  Midwest and  Mid-Atlantic  restaurants,  support the  division's
commitment to continue  developing Don Pablo's  restaurants in targeted markets.
In  1997,  new  restaurants  will  be  located  principally  in the  Midwestern,
Mid-Atlantic and Southeastern regions of the United States. Where feasible,  the
Don Pablo's  division  intends to cluster its  restaurants in various markets to
achieve  operating  and  advertising  efficiencies.  The  number of  restaurants
actually  opened will vary depending  upon,  among other things,  the division's
ability to locate  suitable  sites,  the  availability  of financing and general
economic conditions.

       Management  and  Employees.   Management  of  the  Don  Pablo's  division
currently  is shared by 18  district  and area  managers  who report to both the
Regional Vice President of Operations and the Vice President of Food Operations.
The division's  current strategy is to have each area manager  responsible for a
limited number of Don Pablo's restaurants,  thus facilitating a focus on quality
of  operations  and  unit  profitability.  The  management  staff  of a  typical
restaurant  consists  of one  general  manager,  one  kitchen  manager and three
assistant managers. The Don Pablo's division spends considerable effort training
and  developing  its employees and  encourages  promotion  from within.  General
managers  and  kitchen  managers  are  eligible  to receive  bonuses  equal to a
percentage of their  restaurant's  sales,  subject to operating  within budgeted
costs.

       Quality  Control.  All levels of management are  responsible for ensuring
that Apple South's  restaurants  are operated in accordance  with strict quality
standards.   The  Don  Pablo's  division  employs  a  kitchen  manager  in  each
restaurant,  which allows each  restaurant  general manager to spend most of his
time in the dining area of the  restaurant  supervising  his staff and providing
service to  customers.  Compliance  with the  division's  quality  standards  is
monitored by periodic on-site visits and formal periodic inspections by the area
managers.

       Training.  The Don Pablo's division requires each employee to participate
in a formal  training  program.  Management  training  generally lasts ten to 16
weeks and encompasses three general areas,  including (i) all service positions;
(ii)  management  accounting,  personnel  management,  and  dining  room and bar
operations;  and  (iii)  kitchen  management.  When  the  division  opens  a new
restaurant,  management  positions are almost always  staffed with personnel who
have had previous experience in a management position at another Don Pablo's

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restaurant.  In addition,  a highly experienced  opening team assists in opening
the  restaurant.  Prior  to  opening,  all  staff  personnel  undergo  a week of
intensive training conducted by the restaurant opening team.

       Purchasing.  Apple South  strives to obtain  consistent  quality items at
competitive  prices from reliable sources for all of its divisions.  Apple South
continually  researches and tests various  products in an effort to maintain the
highest  quality  products and to be  responsive  to changing  customer  tastes.
Substantially  all of the Don Pablo's  division's  purchasing  needs are handled
through its divisional  headquarters.  Although the division  currently uses one
distributor for substantially all of its food products other than produce, which
is purchased  locally,  all food and beverage products  necessary to operate the
restaurants are available on short notice from alternative  qualified suppliers.
The Don Pablo's division has not experienced any significant delays in receiving
its food and beverage inventories, restaurant supplies or equipment.

       Advertising  and  Marketing.  Don  Pablo's  historical  success  has been
achieved  with  minimal  expenditures  on  advertising  and  marketing,  relying
primarily on the curb appeal of its  buildings  and customer  word-of-mouth.  In
1996, the Don Pablo's division  devoted more resources to marketing  efforts for
its restaurants, including first-time television campaigns and radio advertising
in certain core markets, which contributed to an 8% increase in annual sales for
those  restaurants  open for all of 1995  and  1996.  Apple  South  expects  the
increased marketing efforts in the Don Pablo's division to continue in 1997.

       Restaurant  Reporting.   Financial  controls  are  maintained  through  a
centralized  accounting  system.  The Don  Pablo's  division  has a  proprietary
point-of-sale reporting system in each of its locations. The restaurant managers
prepare  daily  reports of cash,  deposits,  sales,  sales mix,  labor costs and
customer counts for Don Pablo's management.  The restaurant managers also submit
weekly sales reports,  customer counts and payroll data. Physical inventories of
all food,  beverage  and  supply  items are  taken at least  monthly.  Operating
results  compared to prior  periods and  budgets are closely  monitored  by both
divisional and corporate personnel. Management believes that its current systems
are adequate to support planned expansion.

Harrigan's

       The Company strives to achieve a relaxed,  informal  atmosphere in its 12
Harrigan's  restaurants  with  a  warm,  cozy  dining  environment.   Harrigan's
restaurants  range in size from 6,400 square feet to 9,000 square feet,  and the
average restaurant is approximately 7,250 square feet.  Harrigan's menu features
a variety of  American  food,  including  hickory-grilled  steaks,  chicken  and
half-pound hamburgers. Harrigan's also offers mesquite-smoked prime rib and baby
back ribs, pasta dishes,  soups, salads and seafood, as well as brunch and lunch
specials.  Various  signature  items  such  as  New  Orleans  potato  casserole,
paper-thin  french  fried  zucchini,  distinctive  cheese  bread  and  specialty
desserts  are  also  offered.  During  1996,  the  cost  of a  typical  meal  at
Harrigan's,  including  beverages,  was $8.00 to $8.75  for lunch and  $10.70 to
$12.40 for dinner.  Although  Harrigan's offers full bar service,  it emphasizes
its dining  experience.  Alcoholic  beverage  sales  during 1996  accounted  for
approximately 16% of Harrigan's total sales.

       Harrigan's   restaurants   generally   have  dining   room   seating  for
approximately  175 to  200  customers  and  bar  seating  for  approximately  75
additional  customers.  Apple  South plans to open one new  Harrigan's  in 1997.
Operationally,  the Company's Harrigan's division is structured similarly to the
Don Pablo's division, with a district director of operations, area managers, and
one general  manager,  one  kitchen  manager and three  assistant  managers  per
restaurant.  Financial  procedures and controls,  training  methods,  purchasing
processes and various other aspects of operations  previously developed by Apple
South for its Don Pablo's division are also applied to the Harrigan's division.








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PENDING ACQUISITIONS

McCormick & Schmick

       In keeping with its multi-concept strategy,  Apple South has entered into
an  agreement  to acquire  McCormick  &  Schmick,  one of the  nation's  largest
upper-end casual seafood restaurant groups. As of February 7, 1997,  McCormick &
Schmick had 16 restaurants in Oregon, Washington,  California,  Colorado and the
District of Columbia. Apple South will pay $53 million for this acquisition,  of
which  approximately  $50 million will be paid in cash and the remainder will be
paid in Apple South  Common  Stock.  Apple South will assume  approximately  $15
million in debt in  connection  with the  acquisition.  Apple  South  expects to
complete this acquisition in the first quarter of 1997.

       The  first  McCormick  &  Schmick  restaurant  was  acquired  in  1972 by
co-founders William McCormick and Doug Schmick. Both founders continue to manage
the  restaurant  group  and will  remain  as  senior  management  following  the
acquisition by Apple South.

       McCormick & Schmick restaurants offer fine, fresh seafood and outstanding
service in an elegant  yet  informal  setting.  The  restaurants'  master  chefs
develop menu  offerings  which  emphasize  distinctive  seafood and also feature
meat,  poultry,  salads and  pasta.  Menus  vary  daily  based on fresh  product
availability and price, and usually feature over 85 items. The restaurants serve
both lunch and dinner, with the cost of a typical meal, including beverages,  of
$10.00 to $15.00  for lunch and  $25.00 to $30.00  for  dinner.  The bar at each
restaurant  features  selections of premium  liquors and an extensive wine list.
Sales of alcoholic  beverages  accounted  for  approximately  30% of McCormick &
Schmick's total sales during the year ended January 4, 1997.

       The design of a McCormick & Schmick  restaurant varies from a traditional
fish house design in a historic setting to a more contemporary  dinner house and
brew pub concept.  The restaurants  have an elegant ambiance created through the
use of brass,  rich wood,  stained glass,  linens and  candlelight.  McCormick &
Schmick  restaurants  range in size from 6,000 to 14,000 square feet with dining
capacities for 130 to 290 customers.

       McCormick & Schmick restaurants are operated under the names "McCormick &
Schmick's,"  "McCormick,"  "McCormick's,"  "Jake's,"  "McCormick & Kuleto's" and
"Harborside." McCormick & Schmick intends to open two new restaurants in 1997.

Hops Grill & Bar

       Apple South also has entered  into an  agreement  to acquire Hops Grill &
Bar,  which,  as of February 7, 1997,  operated 19  full-service,  casual dining
restaurants  featuring an on-premise  microbrewery.  The purchase price for Hops
Grill & Bar will be $31.5 million,  which will be paid equally in cash and Apple
South Common Stock.  In addition,  Apple South will assume  approximately  $26.5
million of debt.  Apple South expects to complete this  acquisition in the first
quarter of 1997.

       The first Hops Grill & Bar restaurant  was opened in Clearwater,  Florida
in 1989.  Each  restaurant  offers a  diverse  menu of  popular  foods,  freshly
prepared  in a  display  kitchen  with  a  strict  commitment  to  quality.  The
restaurants  seek to heighten  customers'  sense of value by  offering  generous
portions  at  moderate  prices.   Hops  Grill  &  Bar  restaurants   feature  an
American-style  menu that includes top choice steaks and prime rib,  smoked baby
back ribs, fresh fish, chicken and pasta dishes,  deluxe burgers and sandwiches,
hand-tossed salads with homemade dressings,  appetizers, soups and desserts. The
menu  offers  separate  selections  for  children.  The cost of a typical  meal,
including  beverages,  currently ranges from $6.00 to $9.00 per person for lunch
and $13.00 to $15.00 per person for dinner.

       As a  complement  to its menu,  each Hops Grill & Bar  restaurant  offers
lager-style beers and ales that are brewed on-premises.  The restaurants utilize
their  original  recipes to brew four  distinctive  lager-style  beers and ales:
Clearwater  Light,   Lightning  Bold  Gold,  Hammerhead  Red  and  A-1  Ale.  An
observation  microbrewery at each restaurant allows customers to view the entire
brewing process. The brewed beers are served in a frozen

                                        8

<PAGE>

glass mug and,  except for one  non-alcoholic  beer,  are the only beers served.
Full bar  service  is also  available  at each  restaurant.  Sales of  alcoholic
beverages  accounted  for  approximately  18%  of the  total  sales  (with  beer
constituting 10% of total sales) during 1996.

       Hops Grill & Bar restaurants  range in size from  approximately  5,000 to
7,300 square feet. The on-premise brewing equipment is an integral aspect of the
design,  enhancing the ambiance of the restaurant and creating a dramatic visual
effect. The observation microbreweries in the restaurants occupy from 450 to 750
square feet. The restaurant dining and bar areas seat from 160 to 240 customers.
The cost of  developing  and  opening  a Hops  Grill & Bar  restaurant  averaged
approximately  $1.4  million  in  1996,   excluding  land  costs  and  including
approximately $160,000 in microbrewery equipment.

       An  operating  partner  program is a key  element of the Hops Grill & Bar
development strategy.  Under this program, each operating partner acquires a 10%
interest in the restaurants  developed within a specified  geographic area. Each
operating  partner is an experienced  restaurant  operator who can provide local
market  knowledge  and  management.  Five of the  Hops  Grill & Bar  restaurants
currently  have an operating  partner whose  interest will remain in place after
the  acquisition by Apple South.  Apple South expects that Hops Grill & Bar will
continue  this program  following the  acquisition.  Hops Grill & Bar intends to
open nine restaurants in 1997.

Other Concepts

       Apple South operates ten Hardee's  fast-food  restaurants in northern and
central Florida as a franchisee of Hardee's Food Systems. In January 1997, Apple
South signed a contract for the sale of its  Hardee's  restaurants,  which Apple
South expects to complete by the end of the first quarter of 1997.  The Hardee's
division contributed less than 2% of sales in 1996.

       In April 1995,  Apple South changed the name of the Gianni's Little Italy
concept to Tomato Rumba's Pastaria Grill to avoid trademark conflicts in certain
markets. During 1995, all but three restaurants in this division were opened as,
or converted, to Tomato Rumba's. However, during 1996, the division did not meet
Apple  South's  expectations  and all 21  restaurants  were closed.  Apple South
expects to redeploy those assets.  The Tomato Rumba's division  contributed less
than 1% of sales in 1996.

Governmental Regulation

       Each of Apple South's  restaurants is subject to licensing and regulation
by a number  of  governmental  authorities,  which  include  alcoholic  beverage
control,  and health,  safety and fire agencies in the state or  municipality in
which the  restaurant  is located.  Difficulties  or failures in  obtaining  the
required  licenses  or  approvals  could  delay or prevent  the opening of a new
restaurant  in a particular  area. If Apple South fails to maintain all required
state and local  licenses  permitting the sale of liquor by the drink at each of
it's Applebee's restaurant, then the Franchisor may terminate both the franchise
agreement pertaining to such restaurant and the development agreement pertaining
to the territory in which the restaurant is located.

       In 1996,  approximately 14% of Apple South's Applebee's sales, 20% of Don
Pablo's  sales and 16% of  Harrigan's  sales  were  attributable  to the sale of
alcoholic  beverages.  Alcoholic  beverage control  regulations  require each of
Apple  South's  restaurants  to  apply  to a state  authority  and,  in  certain
locations,  county or  municipal  authorities  for a  license  or permit to sell
alcoholic  beverages on the premises and to provide  service for extended  hours
and on  Sundays.  Some of the  counties  in which  Apple  South has  restaurants
prohibit the sale of  alcoholic  beverages  on Sundays.  Typically,  licenses or
permits must be renewed  annually  and may be revoked or suspended  for cause at
any time.  Alcoholic beverage control  regulations relate to numerous aspects of
the daily  operations of Apple  South's  restaurants,  including  minimum age of
patrons and employees,  hours of operation,  advertising,  wholesale purchasing,
inventory control and handling, storage and dispensing of alcoholic beverages.

       Apple  South may be subject in certain  states to  "dram-shop"  statutes,
which generally  provide a person injured by an intoxicated  patron the right to
recover damages from an establishment that wrongfully served

                                        9

<PAGE>



alcoholic  beverages  to the  intoxicated  person.  Apple South  carries  liquor
liability  coverage  as part of its  existing  comprehensive  general  liability
insurance.

       Apple South's restaurant operations are also subject to Federal and state
laws governing such matters as minimum wage,  working  conditions,  overtime and
tip  credits.  Apple  South does not expect a  significant  increase  in payroll
expenses as a result of the  recently-enacted  minimum wage legislation,  but is
uncertain of the repercussion, if any, on other expenses as vendors are impacted
by higher minimum wage standards.

Competition

       The  restaurant  industry is highly  competitive  with  respect to price,
service,  location,  and food type and quality,  and  competition is expected to
intensify. There are a few, well-established  competitors with greater financial
and other  resources than Apple South.  Some of Apple South's  competitors  have
been in existence for a substantially  longer period than Apple South and may be
better established in the markets where Apple South's  restaurants are or may be
located.  The  restaurant  business  is often  affected  by changes in  consumer
tastes,  national,  regional or local economic  conditions,  demographic trends,
traffic patterns, the availability and cost of suitable locations, and the type,
number and location of competing restaurants.  Apple South experienced increased
competition in attracting and retaining  qualified  management  level  operating
personnel.  In addition,  factors such as inflation,  increased food,  labor and
benefits  costs,  and  difficulty in attracting  hourly  employees may adversely
affect the  restaurant  industry in general  and Apple  South's  restaurants  in
particular.

Employees

       As of December  29,  1996,  Apple  South  employed  approximately  22,000
persons in 22 states.  Of those employees,  approximately 350 held management or
administrative positions,  1,600 were involved in restaurant management, and the
remainder were engaged in the operation of Apple South's restaurants. Management
believes that Apple South's  continued  success will depend to a large degree on
its ability to attract and retain good management  employees.  While Apple South
will have to continually address a level of employee attrition normally expected
in the  food-service  industry,  Apple South has taken steps to attract and keep
qualified  management  personnel  through  the  implementation  of a variety  of
employee  benefit plans,  including an Employee Stock  Ownership  Plan, a 401(k)
Plan, and an incentive  stock option plan for its key  employees.  None of Apple
South's employees is covered by a collective bargaining  agreement.  Apple South
considers its employee relations to be good.




                                       10

<PAGE>



Item 2.  Properties

       The Company  owns a  renovated  historic  building  in Madison,  Georgia,
containing approximately 19,000 square feet of office space which is used as its
corporate  headquarters and an adjoining new building  containing  approximately
41,000  square feet of office  space  which  serves as its  Applebee's  division
operations  center.  The office for the Don Pablo's and Harrigan's  divisions is
currently  located  in  approximately  16,000  square  feet of  leased  space in
Bedford,  Texas,  under a lease  which  terminates  in May 1999,  subject to the
Company's right to terminate the lease in 1997 by paying a specified termination
fee.  The Company is currently  building a new  divisional  facility  which will
house the Don Pablo's and Harrigan's  division operations center and is expected
to be  complete by the third  quarter of 1997.  The  Company  believes  that its
corporate  headquarters  is sufficient for its present needs. As of February 17,
1997, the Company owned 152 restaurant sites and buildings,  owned 79 restaurant
buildings subject to ground leases, and leased 84 of its restaurant  facilities.
Thirty of these leases contain purchase options.

       In selecting sites, the Applebee's and Don Pablo's  divisions  attempt to
acquire prime locations in the market area to maximize both short- and long-term
revenues.  Site  selection is made by each  division's  development  department,
subject  to  executive  officer  approval  and  the  Franchisor's  approval  for
Applebee's  restaurants.  The  Applebee's  and Don Pablo's  divisions  primarily
target customers who are 21 to 54 years old and have a family annual income over
$25,000.  A target market area should have a population base of at least 50,000.
Within the target market area the current  divisions  evaluate  major retail and
office concentrations and major traffic arteries to determine focal points. Site
specific  factors  considered  include  visibility,  ease of ingress and egress,
proximity  to direct  competition,  accessibility  to  utilities,  local  zoning
regulations,  laws regulating the sale of alcoholic beverages, and various other
factors. The restaurants are generally located in stand-alone buildings on major
arteries in an effort to provide high visibility and convenient access from both
residential and business areas.


                                       11

<PAGE>

       As of February 17, 1997,  the Company  operated  320  restaurants  in the
following locations:



                    Applebee's  Don Pablo's  Harrigan's  Hardee's  Total


Florida                  29        7                      10        46
Virginia                 38        6                                44
Tennessee                39                                         39
South Carolina           34                                         34
Illinois                 25                                         25
Texas                             13            7                   20
Wisconsin                19                                         19
Ohio                      2       11                                13
Kentucky                  8        3                                11
Mississippi              10                                         10
Indiana                   1        9                                10
Iowa                     10                                         10
Maryland                  8        1                                 9
Oklahoma                           4            3                    7
Georgia                   5                                          5
Pennsylvania              1        3                                 4
West Virginia             4                                          4
North Carolina            3                                          3
Michigan                           3                                 3
Minnesota                          2                                 2
New Mexico                                      1                    1
Arizona                            1                                 1
--------------------------------------------------------------------------------
Totals                  236       63           11         10       320
================================================================================



Item 3.  Legal Proceedings

       The  Company is not  currently a party to, and no property of the Company
is the subject of, any material  pending legal  proceeding,  other than ordinary
routine litigation incidental to its business.


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

       The Company did not submit any matter to a vote of its  security  holders
during the fourth quarter of calendar year 1996.




                                       12

<PAGE>


PART II
Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

Market Information

       The Company's common stock is traded on the Nasdaq Stock Market (National
Market)  under the symbol  "APSO".  A summary of the range of high and low sales
prices per share for the Company's common stock is presented below.

Stock Price Performance

                   Low         High
1995
1st quarter        $11.75      16.13
2nd quarter        $14.50      19.50
3rd quarter        $19.13      25.88
4th quarter        $17.75      24.63

1996
1st quarter        $17.13      24.50
2nd quarter        $22.13      28.25
3rd quarter        $13.00      27.25
4th quarter        $11.38      15.00

As of February 17, 1997, there were approximately 20,000 shareholders of the
Company's common stock,  based on the number of record holders and the estimated
number of individual participants represented by security position listings.

Dividends

       The following  table  indicates cash dividends  declared per share on the
Company's  common  stock  for  the  following  fiscal  years,  adjusted  to give
retroactive  effect to the Company's  1994 stock  dividends  (see Note 11 to the
consolidated financial statements):

       Quarter Ended          1996           1995           1994
-------------------------------------------------------------------------------

       March                 0.0060        0.0040          0.0027
       June                  0.0080        0.0060          0.0040
       September             0.0080        0.0060          0.0040
       December              0.0080        0.0060          0.0040
-------------------------------------------------------------------------------

           Total             0.0300        0.0220          0.0147




                                       13

<PAGE>
Item 6.  Selected Financial Data
<TABLE>
Five-year Summary of Selected Financial Data
Apple South, Inc.
(Dollars in thousands, except per share data)
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                          5-year Compound
                                        Annual Growth Rate    1996           1995            1994            1993            1992
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>              <C>             <C>             <C>            <C>
Restaurant sales:
    Applebee's                                 39.8%        $379,042         300,928         201,359         150,921        102,464
    Don Pablo's                                59.0%         133,261          88,820          57,192          31,132         17,039
    Harrigan's                                 -0.7%          21,991          22,781          23,021          23,044         23,183
    Tomato Rumba's                               -             3,526          19,399           9,973           2,718             10
    Hardee's                                    1.1%           8,202           8,262           9,014           9,940          8,663
-----------------------------------------------------------------------------------------------------------------------------------
         Total restaurant sales                36.6%         546,022         440,190         300,559         217,755        151,359
-----------------------------------------------------------------------------------------------------------------------------------

Restaurant operating expenses:
    Food and beverage                          34.1%         150,090         120,630          84,910          63,329         44,756
    Payroll and benefits                       37.2%         162,017         129,424          87,236          62,425         43,589
    Depreciation and amortization              40.5%          22,509          17,662          11,119           7,483          4,932
    Other operating expenses                   34.5%         125,781          98,850          69,483          51,636         37,663
-----------------------------------------------------------------------------------------------------------------------------------
          Total restaurant operating expenses  35.5%         460,397         366,566         252,748         184,873        130,940
-----------------------------------------------------------------------------------------------------------------------------------

General and administrative expenses            36.3%          26,329          22,298          15,359          11,584          7,917
Merger and asset revaluation charges             -            27,700           9,997               -               -              -
-----------------------------------------------------------------------------------------------------------------------------------
Operating income                               30.4%          31,596          41,329          32,452          21,298         12,502
-----------------------------------------------------------------------------------------------------------------------------------
                                                                5.8%            9.4%           10.8%            9.8%           8.3%
Other income (expense):
    Interest expense                           32.2%         (11,417)         (6,189)         (3,131)         (2,205)        (2,193)
    Interest income                           -12.2%              69             638             789             590            184
    Other, net                                    -           (2,024)         (1,349)           (150)           (490)          (606)
------------------------------------------------------------------------------------------------------------------------------------
          Total other income (expense)         39.5%         (13,372)         (6,900)         (2,492)         (2,105)        (2,615)
------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                   25.5%          18,224          34,429          29,960          19,193          9,887
                                                                3.3%            7.8%           10.0%            8.8%            6.5%

Income taxes                                   25.8%           6,550          14,150          10,900           7,250           3,725
------------------------------------------------------------------------------------------------------------------------------------

Net earnings                                   25.4%         $11,674          20,279          19,060          11,943           6,162
====================================================================================================================================
                                                                2.1%            4.6%            6.3%            5.5%            4.1%
Earnings per common and
    common equivalent share                    11.9%           $0.30            0.52            0.54            0.36            0.22
====================================================================================================================================
Weighted average common and common
    equivalent shares outstanding              12.0%          39,369          38,880          35,444          33,395          27,806
====================================================================================================================================

Restaurants open at end of period:
    Applebee's                                 36.9%             231             187             120              90             68
    Don Pablo's                                55.2%              63              44              33              17              9
    Harrigan's                                    -               12              12              12              12             12
    Tomato Rumba's                                -                0              21              13               4              2
    Hardee's                                      -               10              10              10              10             10
          Total                                32.6%             316             274             188             133            101
Annual sales growth                            36.6%            24.0%           46.5%           38.0%           43.9%          32.0%
Net earnings growth                            25.4%           -42.4%            6.4%           59.6%           93.8%          63.4%
Earnings per share growth                      11.9%           -43.1%           -3.7%           50.0%           63.6%          29.4%
Working capital                                   -         ($15,494)        (17,778)          2,200           6,175        (17,801)
Total assets                                   54.2%        $457,827         369,138         226,087         137,201         74,337
Long-term obligations                          68.4%        $215,891         118,726          70,190          32,227         18,225
Shareholders' equity                           54.0%        $191,429         203,221         120,341          79,899         28,859
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       14
<PAGE>

     Item 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations


     For an  understanding  of the  significant  factors that  influenced  Apple
South's performance during the past three fiscal years, the following discussion
should  be  read in  conjunction  with  the  consolidated  financial  statements
appearing elsewhere in this annual report.

Results of Operations

The following table sets forth, for the periods indicated, the percentages which
certain items of income and expense bear to total restaurant sales.


<TABLE>
<CAPTION>

                                                                                                  Year Ended
                                                                  ------------------------------------------------------------------
                                                                                       Dec. 29,          Dec. 31,           Dec. 31,
                                                                                          1996              1995               1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                <C>                <C> 
Restaurant sales:
    Applebee's                                                                            69.%               68.%               67.%
    Don Pablo's                                                                           24.4               20.2               19.0
    Harrigan's                                                                             4.0                5.2                7.7
    Tomato Rumba's                                                                         0.7                4.4                3.3
    Hardee's                                                                               1.5                1.9                3.0
------------------------------------------------------------------------------------------------------------------------------------
          Total restaurant sales                                                         100.0              100.0              100.0
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        
Restaurant operating expenses:
    Food and beverage                                                                     27.5               27.4               28.3
    Payroll and benefits                                                                  29.7               29.4               29.0
    Depreciation and amortization                                                          4.1                4.0                3.7
    Other operating expenses                                                              23.0               22.5               23.1
------------------------------------------------------------------------------------------------------------------------------------
          Total restaurant operating expenses                                             84.3               83.3               84.1
------------------------------------------------------------------------------------------------------------------------------------

General and administrative expenses                                                        4.8                5.1                5.1
Merger and asset revaluation charges                                                       5.1                2.2                --
------------------------------------------------------------------------------------------------------------------------------------
Operating income                                                                           5.8                9.4               10.8
------------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
    Interest expense                                                                     (2.1)              (1.4)              (1.0)
    Interest income                                                                       0.0                0.1                0.2
    Other, net                                                                           (0.4)              (0.3)               --
------------------------------------------------------------------------------------------------------------------------------------
          Total other income (expense)                                                   (2.5)              (1.6)              (0.8)
------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                                               3.3                7.8               10.0
Income taxes                                                                               1.2                3.2                3.7
------------------------------------------------------------------------------------------------------------------------------------
Net earnings                                                                              2.1%                4.6%              6.3%
====================================================================================================================================

</TABLE>

                                       15

<PAGE>

Comparison of Historical Results - Fiscal Years 1996, 1995 and 1994

Sales

     Restaurant  sales for 1996  increased 24% to $546 million from $440 million
in 1995  primarily  due to a  full-year's  sales from 67  Applebee's  and 11 Don
Pablo's  restaurants opened or acquired in 1995 and a partial-year's  sales from
45 Applebee's and 19 Don Pablo's restaurants opened in 1996. This sales increase
was  partially  offset by the closure of 21  restaurants  in the Tomato  Rumba's
division and one Applebee's  restaurant in 1996. For restaurants  that were open
during all of 1995 and 1996,  average weekly volumes from 1995 to 1996 decreased
3% at  Applebee's  and  increased 8% at Don Pablo's.  For that base group of 120
Applebee's  restaurants,  the comparison  improved each quarter,  ranging from a
decrease of 4% in the first quarter to a decrease of 1% in the fourth quarter.

     Management  believes that the sales increase at Don Pablo's  restaurants is
primarily the result of television advertising, which was initiated during 1996.
Sales,  primarily  at the  Applebee's  division,  were  negatively  impacted  by
unseasonably  severe  weather in the first  quarter  and by  hurricanes  and the
Summer  Olympics in the third quarter.  Sales in the fourth quarter of 1996 were
negatively  impacted by a shortened  Christmas season and the December 29 period
cut-off which excluded New Year's Eve. Responding to lower average unit volumes,
higher management turnover and other factors precipitated by a cultural clash in
a Midwest acquisition completed in 1995 in the Applebee's division,  the Company
increased staffing levels and added experienced  multi-unit  managers to enhance
operational  leadership and to improve guest service in the Applebee's  division
beginning  in the third  quarter of 1996.  Sales  trends for the  division  have
improved in late 1996 and early 1997.

     Restaurant  sales for 1995  increased 46% to $440 million from $301 million
in 1994 primarily due to a full-year's sales from 30 Applebee's, 16 Don Pablo's,
and ten Gianni's  restaurants opened in 1994 and a partial-year's  sales from 67
Applebee's,  11 Don Pablo's and nine Tomato  Rumba's opened or acquired in 1995.
One Gianni's  restaurant  was closed in each of 1995 and 1994.  For  restaurants
that were open during all of 1994 and 1995,  average weekly volumes from 1994 to
1995 remained constant at Applebee's and increased 1% at Don Pablo's.

   
     In 1995, the Company increased  restaurant sales and income from restaurant
operations (total restaurant sales less total restaurant  operating expenses) by
accelerating  its  restaurant  acquisition  program.  In March 1995, the Company
acquired certain assets including eight operating Applebee's restaurants and the
exclusive Applebee's development rights for most of Iowa, northwestern Illinois,
and contiguous areas in Wisconsin and Missouri for  approximately $17 million in
cash (the "Iowa acquisition"). In June 1995, the Company acquired certain assets
including 18  operating  Applebee's  restaurants  and the  exclusive  Applebee's
development  rights for the Chicago  metropolitan  area,  most of Wisconsin  and
contiguous  areas in Minnesota  and Michigan from Marcus  Restaurants,  Inc. for
approximately $48 million (the "Marcus acquisition").  The results of operations
from the acquired  restaurants  are included in consolidated  operating  results
from the time of  acquisition.  In November  1995,  Apple South merged with DF&R
Restaurants,  Inc. ("DF&R") in a pooling- of- interests transaction.  The merger
was effected  through the exchange of 1.5 shares of Apple South common stock for
each share of DF&R common stock, which resulted in the issuance of approximately
9.3 million shares of Apple South common stock. 16
<PAGE>
    


Operating Expenses

     Restaurant  operating  expenses as a percentage of sales increased to 84.3%
in 1996 from 83.3% in 1995 and 84.1% in 1994.  The  resulting  1996  decrease in
restaurant  operating margins is principally due to (i) higher food and beverage
costs as a percentage of sales at Applebee's, (ii) lower average unit volumes in
the  Applebee's  division  which reduced  operating  leverage on fixed costs and
(iii)  an  increase  in  labor  costs  in  Applebee's  related  to the  staffing
initiatives  begun in the last half of the year.  The increased  labor costs are
expected to  continue  into 1997,  although  management  anticipates  that these
higher  costs will be offset  with  average  unit volume  increases.  These 1996
margin  reductions were partially offset by (i) lower food and beverage costs as
a  percentage  of sales at Don  Pablo's  and  Harrigan's,  (ii) an  increase  in
operating  leverage  at Don  Pablo's  on fixed  costs as a result of the  higher
average  unit  volumes  and  (iii)  lower  preopening  and  training  costs as a
percentage of sales.

     Pursuant to the terms of a revised  agreement  with the  Company's  primary
food  distributor  for the  Applebee's  division,  effective  in July 1994,  the
Company took advantage of early payment  discounts and reduced days payable from
30 to 0 by January, 1995, which lowered food and beverage costs in that division
by 1.1% in 1995.  Effective in April,  1996, new  distribution  supply contracts
were implemented for the Don Pablo's and Harrigan's  divisions which resulted in
a decrease of food and  beverage  costs,  as a  percentage  of sales,  for those
divisions.  These efforts were offset in 1996 by rising  cheese,  dairy and pork
prices, which affected all divisions. The combined effect of these factors was a
0.1%  increase in food and beverage  costs for the Company for 1996  compared to
1995.  Management does not expect significant  fluctuations in food and beverage
costs in 1997.

     Preopening and training expenses as a percentage of sales decreased to 2.2%
in 1996 from 2.3% in 1995 and 2.7% in 1994 due to the  expenses for the openings
being compared to a larger sales base. The number of openings as a percentage of
the number of restaurants open at the beginning of the year was 23%, 32% and 42%
for 1996, 1995 and 1994, respectively. The decrease from 2.7% in 1994 to 2.3% in
1995 primarily resulted from incremental sales increases from the 26 restaurants
acquired  in 1995  which  did not  incur  preopening  and  training  costs  that
generally arise from a new restaurant opening.

General and Administrative Expenses

     General and administrative expenses as a percent of sales decreased to 4.8%
in 1996 as compared with 5.1% 1995 and 1994, primarily due to a reduced level of
management bonuses paid in 1996 and the allocation of relatively fixed corporate
management costs to a growing number of restaurants.

Merger and Asset Revaluation Charges

     Merger and asset revaluation  charges are non-recurring  charges related to
organizational changes made in 1996 and 1995. In April 1995, the Company changed
the name of the Gianni's  Little Italy concept to Tomato Rumba's  Pastaria Grill
to avoid  trademark  conflicts in certain  markets.  During 1995,  all but three
restaurants  in this division  were opened as, or converted to, Tomato  Rumba's.
However,  during 1996,  the division was not meeting the Company's  expectations
and

                                       17
<PAGE>

all 21  restaurants  were closed.  Apple South expects to redeploy these assets.
Also during  1996,  the  Company  accelerated  its efforts to sell the  Hardee's
division and these  restaurants  currently are under contract to be sold.  Apple
South's decision regarding the Tomato Rumba's and Hardee's divisions prompted an
evaluation of the fair value of the assets in these divisions. Fair value of the
assets was  determined  in  accordance  with  Statement of Financial  Accounting
Standards No. 121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and
Long-Lived Assets to be Disposed of", by comparing expected future cash flows to
the carrying  value of these assets.  The resulting  impairment,  along with the
write-off  of other  specific  assets  and  certain  operating  losses  of these
divisions, totaled $27.7 million and is included in merger and asset revaluation
charges. In 1995, merger and revaluation charges included  professional fees and
other costs related to the DF&R merger.  Also in 1995,  these expenses  included
conversion  costs such as decor and menu  changes,  the  write-off  of  specific
assets and  certain  operating  losses  related  to the  Gianni's  Little  Italy
restaurants prior to conversion to Tomato Rumba's Pastaria Grill.

Interest and Other Expenses

     Interest  expense  increased to $11.4  million in 1996 from $6.1 million in
1995 due to higher  average  borrowings  combined with higher  average  interest
rates for the  year.  The  average  rate  increase  was  principally  due to the
issuance of $125 million of 9.75% senior notes.  Interest  expense was higher in
1995 than in 1994 due to higher average debt balances  partially offset by lower
borrowing rates. The Company's  weighted average interest rate on borrowings was
approximately  8.1% in 1996,  7.3% in 1995 and 8.0% in  1994.  The  higher  debt
balances in all three years reflect the  financing of the  Company's  restaurant
construction and acquisition program.  Other expenses increased in 1996 compared
to 1995  primarily  due to the full year of  amortization  of goodwill and other
intangible assets recorded as a part of the allocation of purchase price for the
Marcus and Iowa  acquisitions in 1996 compared to a partial year in 1995.  Other
expenses  increased  in 1995  compared  with  1994  due to the  partial  year of
amortization of goodwill and other intangible assets related to the acquisitions
during 1995.

Income Tax Expense

     Income tax expense as a percent of earnings  before  income taxes was 35.9%
in 1996,  41.1% in 1995,  and 36.4% in 1994.  The decrease in the  effective tax
rate for 1996 compared with 1995 and the increase for 1995 compared with 1994 is
due to certain  non-deductible  costs  associated  with the DF&R merger in 1995.
Management  does not expect any material  change in the  effective  tax rate for
1997.

Net Earnings

     Net earnings as a percentage  of sales  decreased to 2.1% in 1996 from 4.6%
in 1995 primarily as a result of asset  revaluation  charges (3.2% of sales, net
of  tax),  higher  interest  expense  and  goodwill   amortization,   and  lower
restaurant-level  margins in the Applebee's division,  which were only partially
offset by improved margins in the Don Pablo's division and a decrease in general
and administrative  expenses as a percentage of sales. Net earnings as a percent
of sales  decreased  to 4.6% in 1995 from 6.3% in 1994  primarily as a result of
merger and conversion  expenses  (1.9% of sales,  net of tax),  higher  interest
expense and goodwill  amortization  which were only partially offset by improved
restaurant-level margins.


                                       18
<PAGE>

Liquidity and Capital Resources

     The Company's  historical and projected  future growth cause it to be a net
user of  cash,  even  after a  significant  amount  of  expansion  financing  is
generated from operations.  Principal financing sources in 1996 consisted of (i)
the issuance of senior notes ($125  million) and (ii) cash flow from  operations
($65 million).  The primary uses of funds consisted of (i) costs associated with
expansion,   principally  land,  building  and  equipment  associated  with  the
construction of new Applebee's and Don Pablo's restaurants ($125 million),  (ii)
the  purchase  of  1,447,800  shares of  treasury  stock  ($30  million),  (iii)
repayment of long-term  debt ($20 million),  (iv) repayment of revolving  credit
agreements ($11 million) and (v) additions to other assets ($7 million).

     Since substantially all sales in the Company's restaurants are for cash and
accounts  payable  are  generally  due in 15 to 45 days,  the Company is able to
operate with negative working capital.

     The increases in accounts  receivable,  inventory,  premises and equipment,
franchise costs, accounts payable and accrued liabilities are principally due to
the 64  restaurants  opened  during 1996.  The increase in prepaid  expenses and
other is primarily  related to selected  Tomato  Rumba's  sites and the Hardee's
restaurants that are currently being held for sale. The increase in other assets
is principally  due to acquisition of property held for future  expansion of the
Company's corporate  facilities,  deferred loan costs related to the issuance of
senior  notes and the annual  increase in cash  surrender  value on an officer's
life insurance policy. Further increases in current asset and liability accounts
are expected as the Company continues its restaurant development program.

     The Company's 1996 capital  expenditure program provided for the opening of
45  Applebee's  and  19  Don  Pablo's,  as  well  as  significant  technological
improvements  in  the   restaurants   and  the  corporate   office  and  ongoing
refurbishments of existing restaurants.

     The  Company  expects to open 60  restaurants  in 1997 and 84 in 1998.  The
associated  capital  requirements  will depend  upon the mix  between  owned and
leased units. In the last three years,  the Company has purchased 72% of its new
restaurant  sites.  The  annual  capital  requirement  for new  construction  is
expected to approximate $105 million to $115 million in 1997 and $145 million to
$155 million in 1998.  In  addition,  purchase  options on six of the  Company's
existing  operating leases become  exercisable over the next two years. In order
to eliminate these high-cost  leases and to continue to reduce  occupancy costs,
the Company expects to exercise these options. The capital costs associated with
these purchase options,  along with capital expenditures on existing restaurants
and new office facilities for the Don Pablo's and Harrigan's divisions in Texas,
bring the total capital  requirements to approximately  $130 million in 1997 and
$175 million in 1998.

     At December 29,  1996,  Apple South was  obligated  to open 129  additional
Applebee's  restaurants by the end of the year 2000, including 34 required to be
opened in 1997. As of February 7, 1997, the Applebee's  division had opened five
new restaurants and had another five under  construction,  while the Don Pablo's
division had another six under construction.

                                       19
<PAGE>

     In  February,  1997,  the  Company  entered  into an  agreement  to acquire
McCormick & Schmick's,a  restaurant  company based in Oregon, for $53 million in
cash and stock and the  assumption of  approximately  $15 million in debt.  This
transaction,  which will be accounted for as a purchase business combination, is
expected to close  before the end of the first  quarter of 1997.  McCormick  and
Schmick's is among the nation's  largest  upper-end  casual  seafood  restaurant
chains, operating 16 restaurants in Oregon, Washington, California, Colorado and
Washington, D.C.

     Also in February,  1997,  the Company  entered into an agreement to acquire
Hops Grill & Bar, a restaurant  company  based in Florida,  for $31.5 million in
common stock and cash,  and the  assumption  of  approximately  $26.5 million in
debt.  This  transaction,  which will be  accounted  for as a purchase  business
combination,  is expected to close before the end of the first  quarter of 1997.
Hops  Grill  & Bar  consists  of 19  restaurants  that  feature  an  on-premises
microbrewery. All but three of the Hops restaurants are located in Florida.


     In 1996, the Company  issued $125 million of registered  9.75% senior notes
due March, 2006, a portion of which was used to pay down the Company's unsecured
revolving bank credit  facilities and to repay the $18 million remaining private
placement at par.  Also, in 1996, the Company  expanded its unsecured  revolving
bank credit  agreements from $120 million to $190 million with interest  payable
at a margin above LIBOR or at prime.  Approximately  $90 million was outstanding
under these revolving bank credit agreements on December 29, 1996.

     In  February,  1997,  the Company  announced  its  intention  to issue $100
million of term convertible securities, at a rate to be determined. Net proceeds
to the Company from the offering are expected to be approximately $96.5 million.
Management  believes  that the net  proceeds  of this  offering,  cash flow from
operations  and  remaining   borrowings  available  under  the  existing  credit
facilities will provide funding sufficient to enable Apple South to complete the
two pending  acquisitions  and to carry out  expansion  plans  through the third
quarter of 1998.

     The terms of the Company's  revolving  credit  agreements  include  various
covenants,  which among other things require the Company to maintain an adjusted
debt to total  adjusted  capital  ratio of less  than  65%.  The  Company  is in
compliance with all provisions of these  agreements.  In 1996, the Company's net
financing,  operating  and  investing  activities  increased  the  debt to total
capital ratio to 53% in 1996 from 38% in 1995.

     During 1996, the Company announced that it may from time to time, depending
on market  conditions,  purchase  up to two million  shares of its common  stock
through open market  transactions to satisfy  obligations under stock option and
employee  stock  ownership  plans.  As of  December  29,  1996,  the company had
purchased  an  aggregate  1,447,800  shares of its common stock for an aggregate
purchase price of $30 million  (average price of $20.76 per share).  The Company
does not intend to repurchase additional shares at this time.

Forward Looking Information

     Management  believes  that  inflation  has not  had a  material  effect  on
earnings  during the past several years.  Inflationary  increases in the cost of
labor, food and other operating costs could

                                       20
<PAGE>


adversely  affect  the  Company's  restaurant  operating  margins.  In the past,
however,  the Company generally has been able to modify its operations to offset
increases in its operating costs.

     The  information   contained   herein  includes   certain  forward  looking
information   regarding   restaurant   openings,   operating  margins,   capital
requirements,   cash  flow  from  operations  and   assumptions   regarding  the
availability of new credit facilities. This forward looking information could be
affected by changes in monetary and fiscal policies,  laws and regulations,  and
social and economic  conditions,  such as  inflation  or a recession,  increased
competition in the restaurant  industry,  the current trend towards "dining out"
and the amount, type and cost of financing available to the Company.

                                       21
<PAGE>


Item 8.  Financial Statements and Supplementary Data


                   Index to Consolidated Financial Statements

Independent Auditors' Report......................................   23

Consolidated Statement of Earnings................................   24

Consolidated Balance Sheets.......................................   25

Consolidated Statements of Shareholders' Equity...................   26

Consolidated Statements of Cash Flows.............................   27

Notes to Consolidated Financial Statements........................   28



















                                       22
<PAGE>





Independent Auditors' Report

The Board of Directors
Apple South, Inc.

We have audited the  accompanying  consolidated  balance  sheets of Apple South,
Inc. as of December 29, 1996 and December 31, 1995, and the related consolidated
statements  of  earnings,  shareholders'  equity  and cash flows for each of the
years  in the  three-year  period  ended  December  29,  1996.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Apple
South,  Inc. at December 29, 1996 and December  31, 1995,  and the  consolidated
results of its operations and cash flows for each of the years in the three-year
period ended December 29, 1996 in conformity with generally accepted  accounting
principles.

As discussed in Note 2 to the  consolidated  financial  statements,  in 1996 the
Company  adopted the  provisions  of Statement of Financial  Standards  No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of."


                               KPMG Peat Marwick LLP

Atlanta, Georgia
January 24, 1997
(Except for Note 15, as to which
the date is February 7, 1997)













                                       23
<PAGE>
<TABLE>

                       Consolidated Statements of Earnings
                                Apple South, Inc.
                      (In thousands, except per share data)

<CAPTION>
                                                                                                    Year Ended
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  
                                                                                Dec. 29,             Dec. 31,               Dec. 31,
                                                                                   1996                 1995                   1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                     <C>                   <C>  
Restaurant sales:
    Applebee's ...................................................            $ 379,042               300,928               201,359
    Don Pablo's ..................................................              133,261                88,820                57,192
    Harrigan's ...................................................               21,991                22,781                23,021
    Tomato Rumba's ...............................................                3,526                19,399                 9,973
    Hardee's .....................................................                8,202                 8,262                 9,014
------------------------------------------------------------------------------------------------------------------------------------
                                                                     
          Total restaurant sales .................................              546,022               440,190               300,559
------------------------------------------------------------------------------------------------------------------------------------
Restaurant operating expenses:                                                                                      
    Food and beverage ............................................              150,090               120,630                84,910
    Payroll and benefits .........................................              162,017               129,424                87,236
    Depreciation and amortization ................................               22,509                17,662                11,119
    Other operating expenses .....................................              125,781                98,850                69,483
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  
          Total restaurant operating expenses ....................              460,397               366,566               252,748
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          
General and administrative expenses ..............................               26,329                22,298                15,359
Merger and asset revaluation charges .............................               27,700                 9,997                  --
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          
Operating income .................................................               31,596                41,329                32,452
------------------------------------------------------------------------------------------------------------------------------------

Other income (expense):
    Interest expense .............................................              (11,417)               (6,189)               (3,131)
    Interest income ..............................................                   69                   638                   789
    Other, net ...................................................               (2,024)               (1,349)                 (150)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          
          Total other income (expense) ...........................              (13,372)               (6,900)               (2,492)
------------------------------------------------------------------------------------------------------------------------------------

Earnings before income taxes .....................................               18,224                34,429                29,960

Income taxes .....................................................                6,550                14,150                10,900
------------------------------------------------------------------------------------------------------------------------------------
Net earnings .....................................................            $  11,674                20,279                19,060
====================================================================================================================================
                                                                                                                          
Earnings per common and
    common equivalent share ......................................            $    0.30                  0.52                  0.54
====================================================================================================================================

Weighted average common and common
    equivalent shares outstanding ................................               39,369                38,880                35,444
====================================================================================================================================
</TABLE>
                                                                               
See accompanying notes to consolidated financial statements.


                                       24
<PAGE>
<TABLE>
                           Consolidated Balance Sheets
                                Apple South, Inc.
                        (In thousands, except share data)
<CAPTION>
                                                                                             
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Dec. 29,            Dec. 31,
                                                                                                          1996                1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                       <C>                <C>    
Assets
Current assets:
      Cash and cash equivalents                                                               $           3,923              4,806
      Short-term investments                                                                                 52                377
      Accounts receivable                                                                                 4,568              3,506
      Inventories                                                                                         6,364              5,416
      Prepaid expenses and other                                                                          9,780              5,282
-----------------------------------------------------------------------------------------------------------------------------------
           Total current assets                                                                          24,687             19,387

Premises and equipment, net                                                                             380,523            303,077
Franchise costs, net                                                                                      5,880              4,920
Goodwill, net                                                                                            36,351             38,375
Other assets                                                                                             10,386              3,379
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                              $         457,827            369,138
===================================================================================================================================

Liabilities and Shareholders' Equity
Current liabilities:
      Accounts payable                                                                        $          16,688             13,489
      Accrued liabilities                                                                                22,887             20,282
      Current installments of long-term debt                                                                286              3,207
      Income taxes                                                                                          320                187
-----------------------------------------------------------------------------------------------------------------------------------
           Total current liabilities                                                                     40,181             37,165

Long-term debt                                                                                          215,891            118,726
Deferred income taxes                                                                                    10,326             10,026
-----------------------------------------------------------------------------------------------------------------------------------
           Total liabilities                                                                            266,398            165,917
-----------------------------------------------------------------------------------------------------------------------------------


Shareholders' equity:
      Preferred stock, $0.01 par value. Authorized 10,000,000 shares;
          none issued                                                                                        -                  -
      Common stock, $0.01 par value. Authorized 75,000,000 shares;
           39,124,925 issued in 1996 and 39,079,261 issued in 1995                                          391                391
      Additional paid-in capital                                                                        132,976            142,355
      Retained earnings                                                                                  70,981             60,475
      Treasury stock, at cost;  677,508 shares  in 1996                                                 (12,919)                -
-----------------------------------------------------------------------------------------------------------------------------------
           Total shareholders' equity                                                                   191,429            203,221
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                              $         457,827            369,138
===================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       25
<PAGE>



<TABLE>

                                           Consolidated Statements of Shareholders' Equity
                                                          Apple South, Inc.
                                               (In thousands, except per share amounts)

<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                            Additional                                     Total
                                                       Common Stock           Paid-in        Retained      Treasury    Shareholders'
                                                   Shares        Amount       Capital        Earnings        Stock        Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>         <C>             <C>          <C>           <C>


Balance at December 31, 1993                       32,768          $327       $57,287         $22,285            -      $79,899
Net earnings                                           -             -              -          19,060            -       19,060
Sale of common stock                                1,133            11        19,084               -            -       19,095
Common stock issued to ESOP                            23             1           394               -            -          395
Exercise of options                                   376             4           770               -            -          774
Tax effect of exercise of options by employees           -             -         1,637               -            -       1,637
Cash dividends ($0.015 per share)                       -             -             -            (364)           -         (364)
Distributions made by acquired
  companies prior to merger                             -             -             -            (223)           -         (223)
Pro forma income tax adjustment                         -             -             -              68            -           68
-----------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1994                       34,300           343        79,172          40,826            -      120,341
Net earnings                                            -             -           -            20,279            -       20,279
Sale of common stock                                4,076            41        57,307               -            -       57,348
Common stock issued to ESOP                            56             -           665               -            -          665
Exercise of options                                   647             7         1,798               -            -        1,805
Tax effect of exercise of options by employees          -             -         3,413               -            -        3,413
Cash dividends ($0.022 per share)                       -             -           -              (630)           -         (630)
-----------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1995                       39,079           391       142,355          60,475            -      203,221
Net earnings                                            -             -           -            11,674            -       11,674
Purchase of common stock                                -             -           -                 -      ($30,048)    (30,048)
Common stock issued to ESOP                             -             -           (21)              -           271         250
Exercise of options                                    46             -       (13,893)              -        16,858       2,965
Tax effect of exercise of options by employees          -             -         4,535               -             -       4,535
Cash dividends ($0.030 per share)                       -             -           -            (1,168)            -      (1,168)
-----------------------------------------------------------------------------------------------------------------------------------

Balance at December 29, 1996                       39,125          $391      $132,976         $70,981      ($12,919)   $191,429
===================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       26
<PAGE>

<TABLE>
                                                     Consolidated Statements of Cash Flows
                                                               Apple South, Inc.
                                                                (In thousands)
<CAPTION>

                                                                                                        Year Ended
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                1996           1995           1994
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>               <C>           <C>    
                                                                                     
Cash flows from operating activities:
      Net earnings                                                                           $  11,674         20,279        19,060
      Adjustments to reconcile net earnings to net cash
           provided by operating activities:
               Depreciation and amortization                                                    26,250         19,946        11,119
               Pro forma income tax adjustment                                                    --             --              68
               Deferred income taxes                                                               300          5,050         2,907
               Loss on disposal of premises and equipment                                          107             97           185
               Asset revaluation charges                                                        27,700           --            --
               (Increase) in assets:
                    Accounts receivable                                                         (1,062)        (1,601)       (1,119)
                    Inventories                                                                 (1,488)        (1,435)       (1,030)
                    Prepaid expenses and other                                                  (1,837)        (1,403)       (2,035)
               Increase (decrease) in  liabilities:
                    Accounts payable                                                             3,199          2,394         3,694
                    Accrued liabilities                                                         (4,958)         7,527         2,933
                    Income taxes                                                                 4,668          2,241         1,709
-----------------------------------------------------------------------------------------------------------------------------------
                               Net cash provided by operating activities                        64,553         53,095        37,491
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
      Capital expenditures                                                                    (124,623)      (124,066)      (99,391)
      Assets acquired for cash in business combinations                                           --          (52,059)         --
      Proceeds from sale of land and equipment                                                     429          2,209         3,930
      Decrease in short-term investments, net                                                      325          2,480         5,299
      Additions to franchise costs                                                              (1,302)        (1,205)         (909)
      Additions to other assets                                                                 (6,508)        (1,795)         --
-----------------------------------------------------------------------------------------------------------------------------------
                               Net cash used in investing activities                          (131,679)      (174,436)      (91,071)
-----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
      Net proceeds from (repayment of) revolving credit agreements                             (11,000)        56,000        44,500
      Proceeds from issuance of long-term debt                                                 125,000           --            --
      Principal payments on long-term debt                                                     (19,756)        (9,628)       (5,668)
      Proceeds from issuance of common stock                                                     3,215         59,818        20,264
      Dividends declared and paid                                                               (1,168)          (630)         (364)
      Distributions of acquired companies prior to merger                                         --             --            (223)
      Purchase of treasury stock                                                               (30,048)          --            --
-----------------------------------------------------------------------------------------------------------------------------------
                               Net cash provided by financing activities                        66,243        105,560        58,509
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
     cash equivalents during the period                                                           (883)       (15,781)        4,929
Cash and cash equivalents at the beginning of the period                                         4,806         20,587        15,658
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period                                           $   3,923          4,806        20,587
===================================================================================================================================
Supplemental disclosures:
       Interest paid                                                                         $  10,728          6,878         3,139
       Income taxes paid                                                                         1,415          6,859         6,180
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       27
<PAGE>

Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

     Apple South, Inc., including its wholly owned subsidiaries (the "Company"),
is a multi-concept  restaurant company and is the largest operator of Applebee's
Neighborhood  Grill and Bar  restaurants.  At  December  29,  1996,  the Company
operated 231  Applebee's,  63 Don Pablo's  Mexican  restaurants,  12  Harrigan's
restaurants,  and 10 Hardee's.  The Company operates its Applebee's and Hardee's
restaurants under franchise  agreements,  whereas the Don Pablo's and Harrigan's
are proprietary concepts of the Company.

     Basis  of  Presentation  - The  consolidated  financial  statements,  which
contain certain  amounts based upon  management's  best  estimates,  include the
accounts  of  Apple  South,  Inc.  and  its  wholly  owned   subsidiaries.   All
intercompany accounts and transactions have been eliminated in consolidation.

     Fiscal Year -  Effective  January 1, 1995,  the Company  changed its fiscal
year from  December 31 to a 52 or 53-week  year ending on the Sunday  closest to
December 31. Accordingly,  the financial  statements presented ended on December
29, 1996,  December 31, 1995 and December 31, 1994.  All general  references  to
years relate to fiscal years unless otherwise noted.

     Cash Equivalents - Cash equivalents  include all highly liquid investments,
which have original maturities of three months or less.

     Short-term  Investments  -  Short-term  investments,  which  have  original
maturities  of  greater  than  three  months,  are  stated at cost plus  accrued
interest, which approximates market value.

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

     Premises  and  Equipment  -  Premises  and  equipment  are  stated at cost.
Depreciation  of premises and  equipment is calculated  using the  straight-line
method over the estimated useful lives of the related assets, which approximates
25 years for buildings and seven years for equipment. Leasehold improvements are
depreciated using the straight-line method over the shorter of the lease term or
the estimated useful life of the asset.

     Franchise  Costs - The costs related to the  acquisition  of franchises are
amortized over their  estimated  useful lives,  principally 20 years,  using the
straight-line  method.  Accumulated  amortization of franchise costs amounted to
$1.6 million at December  29, 1996 and $1.2  million at December  31, 1995.  The
franchise  agreements for the Applebee's  restaurants  also require royalty fees
equal  to 4% of  sales  and  advertising  fees  equal  to 1 1/2% of  sales.  The
franchise agreements for the Hardee's restaurants require royalty fees of 3 1/2%
of sales and an advertising fee which  approximates 1/2% of sales. Such fees are
expensed as incurred.  Total royalty and  advertising  fees paid under franchise
agreements were $21.4 million in 1996, $16.9


                                       28
<PAGE>

million in 1995, and $11.4 million in 1994.

     Development  Costs - Certain direct and indirect  costs are  capitalized in
conjunction  with acquiring and developing new  restaurants  sites and amortized
over the life of the related  building.  Development  costs were  capitalized as
follows: $4.0 million in 1996, $3.0 million in 1995 and $1.8 million in 1994.

     Preopening  Costs - Preopening  costs are incurred  before a restaurant  is
opened and consist primarily of wages and salaries,  hourly employee recruiting,
license fees, meals, lodging and travel plus the cost of hiring and training the
management  teams.  Preopening  costs are  expensed in the first full month of a
restaurant's operations.

     Advertising - The Company  generally  expenses  advertising over the period
covered by the related  promotions.  Total advertising expense included in other
operating  expenses  was $13.2  million in 1996,  $9.1  million in 1995 and $5.7
million in 1994, in addition to amounts paid to franchisors.

     Goodwill - Goodwill represents the excess of cost over fair value of assets
acquired and is being  amortized over 20 years using the  straight-line  method.
The Company assesses the  recoverability of this intangible asset by determining
whether the  amortization of the goodwill balance over its remaining life can be
recovered  through  undiscounted  future  operating  cash flows of the  acquired
operations.  The amount of goodwill  impairment,  if any,  is measured  based on
projected   discounted  future  operating  cash  flows  using  a  discount  rate
reflecting  the Company's  average cost of funds.  Accumulated  amortization  of
goodwill  amounted  to $3.5  million at  December  29, 1996 and $ 1.5 million at
December 31, 1995.

     Stock-Based Compensation - Stock-based compensation is determined using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting  for  Stock  Issued  to  Employees",  and  related  Interpretations.
Accordingly,  compensation  cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's  stock at the date of the grant
over the amount an employee must pay to acquire the stock (Note 9).

     Earnings Per Share - Earnings per share are computed  based on the weighted
average number of common and common equivalent shares outstanding.  The weighted
average number of shares and per share data have been retroactively  adjusted to
give effect to various stock splits,  effected as stock dividends (Note 11). The
difference  between  primary  and  fully  diluted  earnings  per  share  was not
significant in any period presented.

     Interest  Rate  Contracts - Interest  rate hedge  transactions  are used to
manage interest rate exposure.  The  differentials  to be paid or received under
these contracts, designated as hedges, are recognized in income over the life of
the contract as adjustments to interest expense.

     Income Taxes - Apple Tenn-Flo,  L.P. ("ATF") was acquired by the Company in
April 1994 (Note 2) in a  transaction  accounted  for as a pooling of interests.
Prior to the merger,  ATF was a limited  partnership and as such, the individual
partners of ATF and not the partnership  were  responsible for Federal and state
income taxes.

                                       29
<PAGE>

     The accompanying consolidated statements of earnings reflect provisions for
income taxes on a pro forma basis for the period prior to the ATF acquisition as
if the Company were liable for Federal and state income taxes on ATF's  earnings
at a 38% statutory rate. The  consolidated  statements of  shareholders'  equity
reflect  adjustments to eliminate the pro forma income taxes attributed to ATF's
earnings since such taxes were the direct responsibility of ATF's partners.

     Deferred  income  taxes  reflect the tax  consequences  on future  years of
differences  between the tax bases of assets and liabilities and their financial
reporting amounts.

     Reclassifications - Certain accounts have been reclassified in the 1995 and
1994 financial statements to conform with the 1996 classifications.

Note 2 - Business Combinations and Conversions

     In  July,  1996,  the  Company  closed  its six  remaining  Tomato  Rumba's
restaurants and dissolved the operating division,  after having closed 12 Tomato
Rumba's and 3 Gianni's restaurants in March, 1996. During 1996, the Company also
accelerated  efforts  to sell its ten  Hardee's  restaurants,  which  are  under
contract and expected to be sold in early 1997. These  decisions,  combined with
the implementation of Statement of Financial Standards No. 121,  "Accounting for
the Impairment of Long-Lived  Assets and  Long-Lived  Assets to be Disposed of",
resulted  in an asset  revaluation  charge  of  $27.7  million  which  consisted
primarily of the asset  impairment loss and included  certain  operating  losses
related to those  divisions.  Fair value of the assets in the Tomato Rumba's and
Hardee's divisions was determined by comparing expected future cash flows to the
carrying  amount of these assets.  Assets related to Hardee's and certain Tomato
Rumba's  locations  held for sale  totaling  $6.0  million are in other  current
assets at December 29, 1996.

     On November 17, 1995, the Company exchanged 9.3 million newly issued shares
of its common stock for all of the outstanding shares of DF&R Restaurants,  Inc.
(DF&R). DF&R operated 56 full-service,  casual dining restaurants,  including 44
Mexican  restaurants  operating  under the name Don  Pablo's  and 12  Harrigan's
restaurants  specializing  in  mesquite-smoked  prime  rib  and  hickory-grilled
steaks.

     The exchange of shares was  accounted  for as a pooling of  interests,  and
accordingly,  the  accompanying  consolidated  financial  statements  have  been
restated to include the accounts and  operations of the acquired  entity for all
periods  presented.  Adjustments  have been  made to  conform  DF&R's  reporting
periods  and  accounting  policies.   The  only  conforming   accounting  policy
adjustment  made to DF&R's  financial  statements  was to  expense  rather  than
capitalize  and amortize  preopening  expenses.  As a result of this  accounting
policy  adjustment,  DF&R's net earnings  for the years ending  December 31 were
reduced as follows: $29,000 in 1995 and $236,000 in 1994.

     Merger and conversion  expenses in 1995 are non-recurring  costs related to
the merger with DF&R  Restaurants,  Inc. and the  conversion of Gianni's  Little
Italy  restaurants  to Tomato  Rumba's  Pastaria  Grill in 1995.  These expenses
primarily include investment banking fees,


                                       30
<PAGE>

accounting  and legal fees,  printing  costs and other costs related to the DF&R
merger, as well as conversion costs which include decor and menu changes and the
write-off  of  specific  assets  and  certain  operating  losses  related to the
Gianni's Little Italy restaurants prior to conversion.

     In June 1995, the Company  acquired  certain assets of Marcus  Restaurants,
Inc., another operator of Applebee's restaurants, in a transaction accounted for
under the  purchase  method for  approximately  $48 million.  Approximately  $16
million  of the  purchase  price  was  funded by the  proceeds  from the sale of
900,000 shares of common stock,  approximately $13 million of the purchase price
was  financed as an  operating  lease  through  the  Company's  leveraged  lease
agreement  (Note 5) and the remaining  $19 million was financed from  borrowings
under the Company's revolving credit agreements. The assets acquired included 18
operating Applebee's restaurants,  two Applebee's restaurants under construction
and the exclusive  development  rights to Applebee's  territories in the Chicago
metropolitan  area,  most of  Wisconsin,  and  certain  contiguous  counties  in
Minnesota  and Michigan.  The excess of cost over fair value of assets  acquired
was $27 million in this acquisition.

     In March 1995, the Company  acquired  certain assets of another operator of
Applebee's  restaurants,  TUG,  Inc., in a  transaction  accounted for under the
purchase  method for  approximately  $17 million in cash.  These assets included
eight  operating  Applebee's  restaurants,  the  buildings  in which  two of the
restaurants are located, subject to ground leases, and the exclusive development
rights to  Applebee's  territory  for most of Iowa,  northwestern  Illinois  and
contiguous  counties in  Wisconsin  and  Missouri.  The excess of cost over fair
value of assets acquired was $12 million in this acquisition.

     In April 1994, the Company  exchanged  approximately 1 million newly issued
shares  of its  common  stock  for all the  partnership  interests  in ATF.  ATF
operated nine Applebee's  restaurants,  had one additional Applebee's restaurant
under  construction  and  held  exclusive   development  rights  for  additional
Applebee's  restaurants in eastern Tennessee and a number of contiguous counties
in adjoining  states.  The exchange of shares was  accounted for as a pooling of
interests, and accordingly,  the accompanying  consolidated financial statements
have been  restated to include  the  accounts  and  operations  of the  acquired
entities  for  all  periods  presented.   Results  of  operations  for  the  ATF
restaurants   prior  to  acquisition  were  not  significant  to  the  Company's
consolidated results of operations for the year ended December 31, 1994.

Note 3 - Premises and Equipment

     A summary of premises  and  equipment at December 29, 1996 and December 31,
1995 follows (amounts in thousands):

                                                           1996             1995

Land .........................................         $ 80,912           53,314
Buildings ....................................          212,477          160,196
Equipment ....................................          123,391          101,819
Leasehold improvements .......................           24,092           19,622
Construction in progress .....................           16,639           21,376
Total premises and equipment .................          457,511          356,327
Less accumulated depreciation
   and amortization ..........................           76,988           53,250
Premises and equipment, net ..................         $380,523          303,077

Note 4 - Long-Term Debt

     Long-term  debt at December 29, 1996 and December 31, 1995  consists of the
following (amounts in thousands):
                                                               1996         1995

Senior notes, unsecured, with interest at
    9.75%, payable semi-annually; due in 2006 ........     $125,000         --
Revolving credit agreements, unsecured, with
    variable rate interest (6.6% at December 29);
    due in 1998 ......................................       89,500      100,500
Term loan, unsecured, with interest at 7.3%;
    paid in 1996 .....................................         --         18,000
Other ................................................        1,677        3,433
Total long-term debt .................................      216,177      121,933
Less current installments ............................          286        3,207
Long-term debt, excluding
  current installments ...............................     $215,891      118,726

                                       31
<PAGE>

     Based on the borrowing rates  currently  available to the Company for loans
with similar  terms and average  maturities,  the fair value of  long-term  debt
approximates the book value recorded.

     The aggregate annual  maturities of long-term debt for the years subsequent
to December 29, 1996 are as follows:  1997 - $.3 million;  1998 - $89.7 million;
1999 - $.2 million;  2000 - $.2 million;  2001 - $.2  million;  and  thereafter-
$125.6 million.

     Terms of the Company's senior notes and revolving credit agreements include
various  provisions  which,  among  other  things,  require  the  Company to (I)
maintain  defined net worth and coverage  ratios,  (ii) limit the  incurrence of
certain liens or  encumbrances  in excess of defined  amounts and (iii) maintain
defined  leverage  ratios.  The Company was in compliance with the provisions of
these agreements at December 29, 1996.

     The  Company  has  an  interest  rate  swap  agreement  outstanding  with a
commercial bank with a $75 million  contract amount under which the Company pays
an average of certain foreign LIBOR-based variable rates of 6.5% at December 29,
1996 and receives a U.S. LIBOR-based variable rate of 7.0% at December 29, 1996.
This swap,  which is  accounted  for as a hedge,  is to reduce  exposure  to the
effects of changes in U.S. interest rates through June, 1999.

     At  December  29,  1996,  the  Company  had  revolving  credit   agreements
aggregating $190 million, of which $100.5 million was unused and available.

Note 5 - Leases

     The Company has various leases for restaurant  land,  buildings,  equipment
and office facilities.  Land and building lease terms range from 10 to 20 years,
with  renewal  options  ranging  from five to 20 years.  Equipment  lease  terms
generally range from four to eight years. In the normal course of business, some
leases are expected to be renewed or replaced by leases on other properties.  In
other  instances,  the Company expects to exercise  purchase options as and when
available in accordance  with lease terms.  Future minimum lease payments do not
include amounts payable by the Company for maintenance costs, real estate taxes,
insurance, etc., or contingent rentals payable based on a percentage of sales in
excess of stipulated amounts for restaurant facilities.

     In 1995, the Company entered into a $30 million  leveraged lease agreement.
This lease  financing is structured as a series of individual  operating  leases
for financial reporting purposes, with lease rates approximately the same as the
borrowing  rates  available  under the Company's  revolving  credit  agreements.
During 1995, the entire $30 million  commitment was utilized for the development
and acquisition of restaurants. These properties can later be purchased at their
original cost,  renewed in three year increments,  or sold to an unrelated party
with a Company guarantee of the $30 million residual value.

     Future  minimum lease  payments  under  noncancelable  operating  leases at
December 29, 1996 are as follows (amounts in thousands):


               1997                            $ 15,594
               1998                              15,478
               1999                              15,178
               2000                              14,450
               2001                              13,719
          Later years                            73,235
          Total minimum lease payments         $147,654

     Total rental  expense  related to cancelable  and  noncancelable  operating
leases was $15.6  million in 1996,  $13.6  million in 1995 and $10.3  million in
1994  including  contingent  rentals of $.9  million in 1996 and 1995,  and $1.0
million in 1994.

                                       32
<PAGE>

Note 6 - Accrued Liabilities

     A summary of accrued liabilities at December 29, 1996 and December 31, 1995
follows (amounts in thousands):                            
                                                           1996            1995

Payroll and related benefits ...................         $ 8,624         $ 9,776
Insurance ......................................           3,110           2,442
Property taxes .................................           3,039           1,674
Franchisor fees ................................           2,115           1,852
Other ..........................................           5,999           4,538
                                                         $22,887         $20,282

Note 7 - Income Taxes

     The  components  of the  provision  for  income  taxes for the years  ended
December  29, 1996 and  December  31,  1995 and 1994 are as follows  (amounts in
thousands):
     
                                           Current       Deferred         Total 
1996:
   Federal                                 $5,200            250           5,450
   State                                    1,050             50           1,100
--------------------------------------------------------------------------------
        Total                              $6,250            300           6,550
================================================================================
1995:
   Federal                                 $7,300          4,450          11,750
   State                                    1,800            600           2,400
--------------------------------------------------------------------------------
        Total                              $9,100          5,050          14,150
================================================================================
1994:
   Federal                                 $6,835          2,165           9,000
   State                                    1,500            400           1,900
--------------------------------------------------------------------------------
        Total                              $8,335          2,565          10,900
================================================================================

     A reconciliation  of the Federal statutory income tax rate to the effective
income  tax rate (both  historical  and pro forma)  applied to  earnings  before
income taxes in the  accompanying  consolidated  statements  of earnings for the
years ended December 29, 1996 and December 31, 1995 and 1994 follows:

                                                    1996       1995       1994

Tax at Federal statutory rate .................     35.0%      35.0%      35.0%
Increase (decrease)in taxes due to:
      Rate differential .......................     (0.7)         -       (0.3)
      State income tax, net of
         Federal benefit ......................      4.0        4.0        4.0
      FICA tip and targeted
         jobs tax credits .....................     (2.2)      (3.3)      (3.0)
Nondeductible merger and conversion expenses ..        -        5.1          -
Other, net ....................................     (0.2)       0.3        0.7
Effective tax rate ............................     35.9%      41.1%      36.4%

     Temporary  differences between the financial statement carrying amounts and
tax  bases  of  assets  and  liabilities   give  rise  to  deferred  income  tax
liabilities.  At  December  29,  1996,  $17.2  million  of  deferred  income tax
liability relates to building and equipment  depreciation,  offset by a deferred
tax asset of $6.5  million  related to the asset  revaluation.  Other  temporary
differences are not significant.  At December 31, 1995, substantially all of the
deferred income tax liability relates to building and equipment depreciation.

     The  provision  for  income  taxes  reflects  pro  forma  amounts  for  the
additional  tax expense  attributable  to ATF's  earnings as if the Company were
liable for Federal and state income taxes rather than individual  partners.  Pro
forma taxes of $68,000 for the period prior to the ATF acquisition  date in 1994
have been calculated as currently payable using a 38% statutory rate.

                                       33

<PAGE>

Note 8 - Interest Expense

     The  following is a summary of interest  cost  incurred  and interest  cost
capitalized as a component of the cost of construction in progress for the years
ended December 29, 1996 and December 31, 1995 and 1994 (amounts in thousands):

                                                1996          1995          1994

Interest cost capitalized ............       $ 1,572         1,074           673
Interest cost expensed ...............        11,417         6,189         3,131
Total ................................       $12,989         7,263         3,804

Note 9 - Stock Option Plans

     The Company's 1988 stock option plan (the "Stock Option Plan") and the 1993
and 1995 Stock  Incentive  Plans (the "Stock  Incentive  Plans") provide for the
granting of  nonqualified  and  incentive  options for up to  1,974,375  shares,
450,000  shares  and  1,200,000  shares,  respectively,  of common  stock of the
Company to key officers,  directors and employees.  Generally,  options  awarded
under the Company's  Stock Option Plan and Stock  Incentive Plans are granted at
prices  which  equate  to  fair  market  value  on the  date of the  grant,  are
exercisable over three to 10 years, and expire 10 years subsequent to award.

     The 1992 DF&R Stock Option Plan (the "DF&R Option  Plan")  provides for the
granting of 1,000,000  shares of the  Company's  common  stock to key  officers,
directors and employees. Options awarded under the DF&R Option Plan prior to the
merger were  adjusted  based on the exchange  ratio of 1.5 shares of DF&R common
stock for each share of the Company's  common stock.  Options  awarded under the
DF&R Option Plan are  generally  granted at prices  which  equate to fair market
value on the date of grant. With limited  exceptions,  all options are generally
exercisable  beginning  one year  from the date of  grant  with  annual  vesting
periods  and  terminate  not  later  than  five  years  from the date of  grant.
Management  does not anticipate  granting any additional  options under the DF&R
Option Plan.

     The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees,"  and related  Interpretations  in accounting for
its stock option plans. Accordingly, no compensation expense has been recognized
for its stock-based  compensation plans. Had compensation cost for the Company's
stock  option  plans  been  determined  based  upon the fair  value  methodology
prescribed  under  Statement of Financial  Accounting  Standards  No. 123 ("SFAS
123"),  "Accounting  for  Stock-Based  Compensation,"  the  Company's  1996  net
earnings and earnings  per share would have been reduced by  approximately  $2.1
million,  or approximately  $.05 per share. The effects of either recognizing or
disclosing  compensation  cost under SFAS 123 may not be  representative  of the
effects on reported net earnings for future years. The fair value of the options
granted  during  1996 is  estimated  as  $10.01  on the date of grant  using the
Black-Scholes  option-pricing  model with the  following  assumptions:  dividend
yield .25%,  volatility of 41%, risk-free interest rate of 6.0%, and an expected
life of 6.7 years.

                                       34
<PAGE>

     As  of  December  29,  1996,   options  to  purchase  470,135  shares  were
exercisable at a weighted average exercise price of $9.85.  Further  information
relating to total options is as follows:
                                                                         Average
                                                       Shares             Price

Outstanding at December 31, 1993                     2,012,137         $    2.27
Granted in 1994                                        348,787             15.73
Exercised in 1994                                     (376,088)             2.06
Canceled in 1994                                        (1,500)            15.17
Outstanding at December 31, 1994                     1,983,336              5.13
Granted in 1995                                      1,479,382             19.90
Exercised in 1995                                     (646,184)             2.80
Canceled in 1995                                       (25,861)            15.51
Outstanding at December 31, 1995                     2,790,673             13.44
Granted in 1996                                        726,587             19.72
Exercised in 1996                                     (779,198)             3.25
Canceled in 1996                                      (243,870)            21.48
Outstanding at December 29, 1996                     2,494,192         $   17.66

     The following table summarizes information concerning currently outstanding
and exercisable options:                  

<TABLE>
<CAPTION>

                                                Options Outstanding                             Options Exercisable

                                                      Weighted          Weighted                              Weighted
         Range of                                      Average           Average                               Average
         Exercise                  Number             Remaining         Exercise            Number            Exercise
          Prices                Outstanding             Life              Price          Exercisable            Price
--------------------------  -------------------- ------------------- --------------- --------------------  ---------------
<S>                                    <C>               <C>                <C>                   <C>             <C>  

   $  1.00  - $ 5.00                     197,718         1.0                $   2.28              162,534         $   2.23
     $ 5.01 - $10.00                      43,663         0.6                    7.60               36,875             7.50
     $10.01 - $15.00                     406,119         8.2                   12.89              109,723            13.15
     $15.01 - $20.00                     923,138         6.9                   18.68              161,003            15.83
     $20.01 - $25.00                     678,486         8.9                   21.39                    -                -
     $25.01 - $30.00                     245,068         9.1                   25.57                    -                -
                            --------------------                                     --------------------

                                       2,494,192                                                  470,135
                            ====================                                     ====================
</TABLE>

Note 10 - Employee Benefit Plans

     The  Company  has a  noncontributory  Employee  Stock  Ownership  Plan (the
"Plan") covering  substantially all full-time employees.  In accordance with the
terms of the Plan, the Company may make  contributions to the Plan in amounts as
determined by the Board of Directors.

     Participants  become  20% vested in their  accounts  after  three  years of
service,  escalating  20% each year  thereafter  until  they are  fully  vested.
Contributions  expense was approximately  $300,000 in 1996, $250,000 in 1995 and
$650,000 in 1994.

                                       35
<PAGE>

     The Company has established  the Apple South,  Inc. Profit Sharing Plan and
Trust in accordance  with Section  401(k) of the Internal  Revenue  Code,  which
allows eligible  participating  employees to defer receipt of a portion of their
compensation  and  contribute  such  amount  to one or  more  investment  funds.
Employee  contributions  are  matched by the  Company  dollar for dollar for the
first 2% of the employee's  income deferred.  Company matching funds vest at the
rate  of 20%  each  year,  beginning  after  three  years  of  service.  Company
contributions were $422,000 in 1996, $300,000 in 1995 and $200,000 in 1994.

Note 11 - Shareholders' Equity

     In 1996,  the  Board of  Directors  authorized  the  purchase  of up to two
million shares of its common stock through open market  transactions  to satisfy
obligations  under  stock  option and  employee  stock  ownership  plans.  As of
December 29, 1996,  the Company had purchased an aggregate  1,447,800  shares of
its common stock under these programs at an average price of $20.76 per share.

     Pursuant  to a direct  placement  of  common  stock on June 30,  1995,  the
Company sold 900,000 shares at $18.50.  Pursuant to a registered public offering
on March 3, 1995, the Company sold  3,162,500  shares of common stock at $13.75.
After deducting expenses of these offerings, proceeds to the Company amounted to
approximately  $16  million in the June  offering  and $41  million in the March
offering.

     On May 19, 1994, the Company's Board of Directors  declared a three-for-two
common stock split,  effected in the form of a stock dividend to shareholders of
record on June 1, 1994. Accordingly,  shareholders' equity, the weighted average
common and common equivalent shares outstanding,  and earnings and dividends per
share have been retroactively adjusted.

Note 12 - Commitments

     In connection with obtaining the consent of Applebee's International, Inc.,
the franchisor of Applebee's restaurants (the "Franchisor"),  to the transfer of
the  Marcus  Applebee's  restaurants  and the  exclusive  development  rights to
Applebee's  territories in Wisconsin and the Chicago area, the Company agreed to
establish  new  annual  development  schedules  through  the year  2000 with the
Franchisor for the acquired  Wisconsin and Chicago area  territories and for the
Company's other existing Applebee's territories.

     At December 29,  1996,  the Company was  obligated  to open 129  additional
Applebee's restaurants by the end of 2000, including 34 required to be opened by
the end of 1997.  If the Company  opens fewer  restaurants  than required by the
development  schedule  in any  development  territory  and  does  not  open  the
designated  number  of  restaurants  within  the  applicable  cure  period,  the
Franchisor  has the right to terminate the Company's  development  rights in the
territory where the deficiency  occurs and in the acquired Chicago and Wisconsin
development  territories.  In  addition,  the  Franchisor  would be  entitled to
collect a 4%  royalty  based on the  Company's  average  restaurant  sales  with
respect  to each  restaurant  not  opened  in  accordance  with the  development
schedule.

     Under  the  Company's   insurance   programs,   coverage  is  obtained  for
significant  exposures  as well as those risks  required to be insured by law or
contract.  It is the Company's  preference  to retain a  significant  portion of
certain  expected losses related  primarily to workers'  compensation,  physical
loss to property,  and comprehensive  general  liability.  Provisions for losses
expected under these programs are recorded based upon the Company's estimates of
the aggregate liability for claims incurred.

     The Company is contingently liable for letters of credit and a guarantee of
the indebtedness of others aggregating  approximately $11.2 million. The Company
does not expect  circumstances  to arise that would result in the  disbursion of
funds under these guarantees.

Note 13-  Related Party Transactions

     In 1994, prior to its acquisition, ATF paid related parties rent expense of
$313,000 and management fees of $279,000.

                                       36

<PAGE>
Note 14 - Quarterly Financial Data (unaudited)

                             First       Second     Third      Fourth     Total
                            Quarter     Quarter    Quarter    Quarter      Year
1996:
Restaurant sales           $126,333     136,945    139,796    142,948    546,022
Net earnings (loss)        $ (5,487)      9,777      1,188      6,196     11,674
Earnings (loss) per 
  share                    $  (0.14)       0.25       0.03       0.16       0.30

1995:
Restaurant sales           $  91,064    108,131    118,992    122,003    440,190
Net earnings               $   5,396      7,417      6,474        992     20,279
Earnings per
  share                    $    0.15       0.19       0.16       0.02       0.52


Note 15 - Subsequent Events

     In January,  1997,  the Company  entered  into an  agreement to sell its 10
Hardee's restaurants for approximately $2.5 million. The transaction is expected
to be completed during the first quarter of 1997. The Hardee's  division was not
a  significant  division of the Company,  contributing  less than 2% of sales in
1996.

     In February,  1997, the Company entered into separate agreements to acquire
McCormick & Schmick's, an Oregon-based restaurant company, and Hops Grill & Bar,
a  Florida-based   restaurant  company.  The  purchase  price  for  McCormick  &
Schmick's, which has 16 existing restaurants,  is $53 million in cash and stock,
plus the assumption of approximately $15 million in debt. The purchase price for
Hops Grill & Bar,  which has 18 existing  restaurants,  is $31.5 million in cash
and stock plus the  assumption of  approximately  $26.5  million in debt.  These
transactions will be accounted for as purchase business combinations in 1997.

     In  February,  1997,  the Company  announced  its  intention  to issue $100
million of term convertible securities, at a rate to be determined. Net proceeds
to the Company from the offering are expected to be approximately  $96.5 million
and are expected to fund the pending  acquisitions  of McCormick & Schmick's and
Hops Grill and Bar, including retirement of acquired company debt.

                                     
                                       37
<PAGE>


Item 9.   Changes  in  and Disagreements  with  Accountants  on  Accounting and
Financial Disclosure

       Not applicable.


Part III

Item 10.  Directors and Executive Officers of the Registrant

The directors and executive officers of the Company are as follows:

     Tom E. DuPree,  Jr.  founded the Company and has been Chairman of the Board
of Directors and Chief  Executive  Officer of the Company since its formation in
1987.  Mr.  DuPree  has  been  actively  involved  in  developing  and  managing
restaurants  since 1978. He is a graduate of Georgia Institute of Technology and
holds a Master's degree in Accounting from Georgia State University.  Mr. DuPree
is 44 years old.

     John G. McLeod,  Jr. has served as Senior Vice President of Human Resources
since 1992,  Vice President of Human Resources from 1987 to 1992, and a director
and Secretary of the Company since its formation in 1987. From 1983 to 1987, Mr.
McLeod was the Personnel Director of a predecessor of the Company. Mr. McLeod is
a graduate of Wofford College. Mr. McLeod is 53 years old.

     David P.  Frazier has served as a director of the Company  since its merger
with DF&R Restaurants, Inc. (the "DF&R merger") in November 1995. Mr. Frazier is
the  Company's  Chief  Concept   Officer  and  Chairman  of  DF&R   Restaurants,
Inc.("DF&R"),  a wholly-owned  subsidiary of the Company. From 1979 to 1996, Mr.
Frazier was President, Chief Executive Officer, and a director of DF&R, which he
co-founded.  Mr. Frazier has worked in the restaurant  industry for more than 30
years. He is a graduate of Texas Tech University and is 49 years old.

     John L.  Moorhead  became a director  of the Company in January  1997.  Mr.
Moorhead  joined Best Foods in 1992 in his current  position,  Vice President of
Business Management and Marketing Services.  Prior to joining Best Foods, he was
with  PepsiCo,  Inc.  from  1979 to 1991 and last  served as Vice  President  of
Marketing Services for the Pepsi-Cola Company, a division of Pepsico, Inc. Prior
to establishing  Pepsi-Cola's  Marketing Services Group, Mr. Moorhead had served
as Vice President of Marketing for the Taco Bell Worldwide  Division,  Marketing
Director at Frito Lay and within the brand  management  system at General Mills.
Mr. Moorhead is 54 years old.

         Marc D. Redus has served as a director  of the  Company  since the DF&R
merger  with the  Company in  November  1995.  Mr.  Redus is an  Executive  Vice
President of the Company and Secretary for DF&R. From 1979 to 1996 Mr. Redus was
Secretary and a director for DF&R,  which he  co-founded in 1979.  Prior to that
time, Mr. Redus worked in the restaurant industry for five years. He is 43 years
old.

         James W. Rowe became a director  of the Company in March 1992.  He also
serves as Chairman of the Audit  Committee  and as a member of the  Compensation
Committee.  Mr. Rowe is a former Vice Chairman of the Executive Committee of The
Great Atlantic & Pacific Tea Company, Inc., from which he retired in 1993. He is
73 years old.

     Dr. Ruth G. Shaw became a director of the Company in May 1996.  Dr. Shaw is
Senior Vice President of Corporate  Resources and Chief  Administrative  Officer
for Duke  Power  Company.  She was named  Senior  Vice  President  in 1994 after
joining Duke Power in 1992 as Vice President of Corporate Communications.  Prior
to joining  Duke  Power,  she was  President  of  Charlotte's  Central  Piedmont
Community College from 1986 to 1992. Dr. Shaw is 49 years old.

     Thomas R.  Williams  became a director of the Company in December  1991. He
also  serves as Chairman of the  Compensation  Committee  and as a member of the
Audit Committee.  Mr. Williams is President of The Wales Group,  Inc., a closely
held corporation engaged in investments. He is a former Chairman of the Board of
First Wachovia  Corporation,  from which he retired in 1987.  Mr.  Williams is a
director of American  Software,  Inc.,  BellSouth  Corporation,  ConAgra,  Inc.,
Georgia  Power  Company,  and National Life  Insurance  Company of Vermont and a
trustee of The Fidelity Group of Mutual Funds. Mr. Williams is 67 years old.

                                       38
<PAGE>

     S.  Kirk  Kinsell  was  elected  to the  position  of  President  and Chief
Operating  Officer in January 1997.  Before joining Apple South, Mr. Kinsell had
been President of the Franchise  Division of ITT Sheraton,  where he created the
Four Points Hotels by ITT Sheraton concept.  Prior to joining ITT Sheraton,  Mr.
Kinsell served as Senior Vice President for Holiday Inn Worldwide.  From 1980 to
1988, Mr. Kinsell was a partner with Trammell Crow Company. He earned a Master's
degree from Cornell  University  and a Bachelor's  degree from the University of
California. Mr. Kinsell is 42 years old.

     Erich J. Booth has served as the Chief  Financial  Officer and Treasurer of
the Company  since 1991.  Before  joining the  Company,  Mr. Booth had been Vice
President of Finance of Dun & Bradstreet  Software (formerly  Management Science
America,  Inc.) since 1989.  From 1984 to 1989, he served as Vice  President and
Chief Financial Officer of Ward White USA Holding, Inc., a diversified specialty
retailer. Mr. Booth, a Certified Public Accountant, worked from 1973 to 1984 for
Peat,  Marwick,  Mitchell  & Co. He is a  graduate  of the  University  of North
Carolina at Greensboro. He is 48 years old.


                                       39

<PAGE>

Item 11.  Executive Compensation

     The following  table  summarizes  the  compensation  paid or accrued by the
Company for services  rendered during the years indicated to the Chief Executive
Officer and the four most highly compensated executive officers,  other than the
Chief Executive  Officer.  The Company did not grant any restricted stock awards
or stock appreciation rights or make any long-term incentive plan payouts during
the years indicated.

<TABLE>
                                            SUMMARY COMPENSATION TABLE
<CAPTION>
                                                                                                            Long-Term
                                                                                                           Compensation
                                                                                                                            
                                                                                                            Securities    All Other
                                                                                 Annual Compensation        Underlying  Compensation
       Name and Principal Position                                  Year       Salary($)       Bonus($)     Options(#)        ($)(1)
<S>                                                                 <C>         <C>            <C>            <C>            <C> 

 Tom E. DuPree Jr                                                   1996        285,577         81,750           --          122,218
 Chairman and Chief Execuive Officer                                1995          7,368           --          199,701         51,934
                                                                    1994        268,569        155,000           --             --

John G. McLeod, Jr                                                  1996        100,000         64,890           --            2,000
Senior Vice President, Human Resources                              1995        100,000         22,500           --            1,291
and Secretary                                                       1994         98,914         45,000           --            5,101

Erich J. Booth                                                      1996        160,000         69,525         10,125          3,706
Chief Financial Officer and Treasurer                               1995        160,000         20,000         64,750          4,167
                                                                    1994        120,892         60,000           --            6,130

David P. Frazier (2)                                                1996        160,000         81,667           --              706
Chief Concept Officer                                               1995        160,000         16,000          6,000           --

Marc D. Redus (3)                                                   1996        160,000        101,667           --              706
Executive Vice President                                            1995        160,000         16,000          6,000           --

Michael W. Evans (4)                                                1996        120,467        142,758         22,781         88,831
Former President and                                                1995        207,000         51,750        154,437          1,291
Chief Operating Officer                                             1994        199,767        120,000           --            6,213

</TABLE>

(1)  Except for Mr.  DuPree and Mr.  Evans,  the amounts  shown in this
     column consist of  contributions  by the Company to its 401(k) savings plan
     on behalf of the named  executive  officers,  and the fair market  value of
     shares  of  Common  Stock  allocated  to the  executive  officer's  account
     pursuant to the Company's Employee Stock Ownership Plan and Trust ("ESOP").
     Amounts   shown  for  1996  include  for  Mr.  McLeod  $2,000  of  matching
     contributions  to the  401(k)  plan and for Mr.  Booth  $3,000 of  matching
     contributions  to the 401(k) plan and $706  allocated to the ESOP,  for Mr.
     Frazier $706 allocated to the ESOP; and for Mr. Redus $706 allocated to the
     ESOP.  Mr.  DuPree  does not  participate  in either the ESOP or the 401(k)
     plan.  The amount  shown in this column for Mr.  DuPree  includes  $122,218
     reflecting  the current  dollar  value of the benefit to Mr.  DuPree of the
     unreimbursed  portion of the premiums paid by the Company with respect to a
     split-dollar  insurance  agreement (See "Certain  Relationships and Related
     Transactions" below for a description of such agreement), which benefit was
     determined by calculating the time value of money (using the Company's 1996
     weighted average borrowing rate of 7.5%) of the unreimbursed portion of the
     premiums  paid by the Company for the period ended  December 29, 1996.  The
     amount shown in this column for Mr. Evans consists of $706 allocated to the
     ESOP and $88,125 in severance payments.
 
(2)  Mr. Frazier became an executive officer upon the merger between the Company
     and DF&R in November 1995. Compensation shown is for services performed for
     the entire fiscal year  including  the period prior to the merger.  

(3)  Mr. Redus became an executive  officer upon the merger  between the Company
     and DF&R in November 1995. Compensation shown is for services performed for
     the entire fiscal year including the period prior to the merger

(4)   Mr. Evans resigned as of July 22, 1996.

                                       40
<PAGE>



     The  following  table sets forth  information  concerning  options  granted
during the fiscal year ended December 31, 1996, under the Company's Stock Option
Plan to the executives named in the Summary Compensation Table.

<TABLE>
                                         OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>

                                                                                                  Potential Realizable
                               Individual Grants(1)                                                 Value at Assumed
                                               Percentage of                                     Annual Rates of Stock
                         Number  of            Total Options      Exercise or                    Price Appreciation for
                    Securities underlying       Granted to        Base Price      Expiration         Option Term                 
      Name            Options Granted       Employees in 1996     ($ / share)        Date        5%($)          10%($)
      ----            ---------------       -----------------     -----------        ----        -----          ------
<S>                       <C>                       <C>             <C>            <C>          <C>             <C>

Erich J. Booth            10,125                    1.4%            21.69          12/31/05     138,112         350,004
Michael W. Evans          22,781                    3.1%            21.69          12/31/05     310,749         787,500
</TABLE>


         The  following  table sets forth  information  concerning  the  options
exercised  during 1996 and the value of  unexercised  options as of December 31,
1996 held by the executives  named in the Summary  Compensation  Table. No stock
appreciation rights were outstanding during 1996.
<TABLE>

                                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                           FISCAL YEAR-END OPTION VALUES
<CAPTION>

                                                                       Number of Shares
                                     Shares                         Underlying Unexercised      Value of Unexercised
                                    Acquired                            Options at              In-the-Money Options
                                       on             Value         December 31, 1996(#)       at December 31, 1996($)
         Name                      Exercise(#)      Realized($)   Exercisable/Unexercisable   Exercisable/Unexercisable
<S>                                 <C>            <C>               <C>       <C>              <C>         <C>

Tom E. DuPree, Jr                      --              --               --   / 199,716              --   /      --
John G.McLeod, Jr  . . . . . .      250,000        4,694,660                       --               --   /      --
Erich J. Booth .. . . . . . . .      40,000          417,200            500  /  85,000            5,466  /  110,688
David P. Frazier  . . . . . . .        --              --            10,400  /   1,600            3,652  /    1,328
Marc D. Redus  . . . . . . . .         --              --            10,400  /   1,600            3,652  /    1,328
Michael W. Evans . . . . . . .      200,987        3,548,240         68,344  / 200,000          753,893  /  251,297
</TABLE>


Comparison of Five-Year
Cumulative Shareholder Return

         The following graph compares the cumulative total shareholder return on
the Company's  Common Stock with the cumulative total return of the Standard and
Poor's 500 Stock Index,  Nation's  Restaurant News Stock Index,  for a period of
five years  comencing  December 31, 1991 and ending December 31, 1996. The graph
assumes that $100 was invested on December 31, 1991,  in Company  Common  Stock,
Standard and Poor's 500 Stock Index and the Nations Restaurant News Peer Index.

Data Points for Graph:

                Apple South         S&P 500        Nation's Restaurant News (1)
Dec.  91            98                111                    112
Dec.  92           278                120                    140
Dec.  93           605                132                    153
Dec.  94           573                134                    164
Dec.  95           930                184                    230
Dec.  96           585                226                    233


     (1)Does not reflect dividend reinvestment,  which management of the Company
believes to be immaterial.

                                       41

<PAGE>

Compensation Committee Report on Executive Compensation

         The  Compensation  Committee  of the Board of Directors is charged with
the responsibility of periodically  reviewing and making  recommendations to the
Board concerning the salaries, bonus programs, stock options, benefits and other
components of  compensation  for all officers with  individual  base salaries of
$100,000 or more. All members of the Committee are independent directors.
 
        The primary components of executive  compensation are base salary, cash
bonus and long-term incentives in the form of stock options.

         The Committee considers both internal and external factors as bases for
determining executive compensation. External factors include compensation survey
data relating to salary,  bonus,  long-term  incentives  and total  compensation
programs for  executives in companies of similar size,  growth and industry,  as
well as general surveys of executive compensation  nationally.  Internal factors
affecting  targeted total  compensation  include Company  performance  measures,
length of  service  and  individual  job  performance.  Based on these  factors,
weighted subjectively by the Committee, total compensation for 1996 was targeted
at approximately the third quartile of the range for each position.

         Total  compensation  was then  divided  between  salary and bonus.  The
Committee's  objective is to target bonus as a  meaningful  percentage  of total
compensation  (30%-50%)  while  remaining  competitive  within the industry.  To
qualify  for bonus,  the  Company's  quarterly  earnings  per share must meet or
exceed the highest prevailing  quarterly  earnings  estimate,  at the end of the
prior year as published by financial  analysts that actively follow the Company.
Bonus  earned  and  paid  to  executives  in  1996  are  shown  in  the  Summary
Compensation Table.

     The compensation for the Chief Executive Officer for 1996 was determined in
accordance  with the foregoing  policy.  As the long term component of executive
compensation, the Company grants options to purchase Common Stock of the Company
in the  future at the  market  value of the  stock on the date of grant.  Option
terms are for a period  of up to ten  years  with  vesting  schedules  generally
averaging  six  years.  The  Committee  believes  that the  Company's  executive
officers  should  acquire  substantial  equity  ownership,  either through stock
options  or  direct  stock  ownership,  as a  means  of  integrating  management
decisions with the long-term  interests of the  shareholders.  Based on the fact
that some officers  either had no current  options or had become fully vested in
past options and to accomplish the goals as stated above,  the following  grants
were made to officers and  directors  of the Company in 1996:  Michael W. Evans,
Former President and Chief Operating Officer, 22,781 shares; and Erich J. Booth,
Chief  Financial  Officer,  10,125  shares.  These option grants were made at an
option price equal to the market value of the stock on the date of grant and are
vested  over a period of ten years  with 50%  becoming  purchasable  during  the
second half of the option  term.  At February 5, 1997,  the  executive  officers
beneficially owned or held the right to acquire stock representing  9,915,217 of
the Company's  outstanding shares,  8,841,610 of which are beneficially owned by
the Chief Executive Officer.

Report submitted Febraury 5, 1997.
By:  Thomas R. Williams
       James W. Rowe



                                       42

<PAGE>


Item 12.  Security Ownership of Certain Beneficial Owners and Management

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

         The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership of the  Company's  Common Stock as of February 18, 1997 by
(i) each  person  known by the Company to own  beneficially  more than 5% of the
Company's Common Stock,  (ii) each director and executive officer of the Company
and (iii) all executive officers and directors of the Company as a group.

                                                  Shares Beneficially
                                                       Owned (1)(2)
                  Name                            Number        Percent
                  ----                            ------        -------

     Tom E. DuPree, Jr. (3)                     8,841,610         22.6%
     Marc D. Redus (4)                            459,453          1.2%
     David P. Frazier (5)                         421,392          1.1%
     John G. McLeod, Jr. (6)                      353,400            *
     Erich J. Booth (7)                            53,345            *
     Thomas R. Williams (8)                        52,143            *
     James W. Rowe (9)                             41,625            *
     Michael W. Evans (10)                         14,021            *
     Ruth G. Shaw                                   1,000            *
     State of Wisconsin Investment Board(11)    3,125,500          8.0%
     FMR Corp.(12)                              3,331,000          8.5%
     All directors and executive officers
     as a group (9 persons) (13)                9,915,217         25.3%

     Mr.  DuPree,  the  Wisconsin  Investment  Board and FMR Corp. are the only
shareholders known by the Company to be the beneficial owners of more than 5% of
the  Company's  Common Stock.  Mr.  DuPree's  address is Hancock at  Washington,
Madison,  Georgia 30650.  The address of the Wisconsin  Investment Board is P.O.
Box 7842,  Madison,  Wisconsin  53707.  The address of FMR Corp.is 82 Devonshire
Street, Boston, Massachusetts 02109.

*Less than one percent.

     (1) The named  shareholders  have sole  voting  and  investing  power  with
respect to all shares  shown as being  beneficially  owned by them  except  with
respect to the shares owned by the Company's  Employee Stock  Ownership Plan and
Trust ("ESOP").  Each  participant in the ESOP has the right to direct voting of
all  shares  allocated  to his  account  on all  matters.  Power to  direct  the
investment  of  shares  held by the ESOP  presently  rests  with  the  Company's
Employee Benefit Committee,  whose members are Messrs. DuPree, Evans and McLeod;
however,  each participant in the ESOP may elect to direct the investment of 25%
of shares  allocated to his account.  

     (2) Except  as  indicated  below, does not include shares issuable upon
exercise of stock options.

     (3) Includes 681,701 shares held by The DuPree Foundation, 473,377 held by
Madison Investment  Partnership,  57,150 shares held by the Thomas E. DuPree III
Trust and 114,285 shares held by the DuPree Family Trust.  Mr.  DuPree's wife is
the sole trustee of these  foundations and trusts.  Includes 276,045 shares held
by the ESOP which are allocated to other  employees and for which Mr. DuPree has
shared  investment  power. See Footnote (1) above. Mr. DuPree is the Chairman of
the Board of Directors and Chief Executive Officer of the Company.

     (4) Includes  10,400 shares which Mr. Redus has the right to acquire within
60 days upon the  exercise  of stock  options  at an average  exercise  price of
$15.07 per share.  Mr.  Redus is a director  and Senior  Vice  President  of the
Company.

     (5)  Includes  10,400  shares  which Mr.  Frazier  has the right to acquire
within 60 days upon the exercise of stock options at an average  exercise  price
of $15.07 per share. Mr. Frazier is a director and the President - DF&R division
of the Company.

     (6) Includes  11,185 shares held by the ESOP which are vested and allocated
to Mr.  McLeod and 264,860  shares held by the ESOP which are allocated to other
employees and for which Mr. McLeod has shared investment power. See Footnote (1)
above. Mr. McLeod is a director, the Senior Vice President - Human Resources and
the Secretary of the Company.

                                       43

<PAGE>

     (7) Includes 600 shares held by the ESOP which are vested and  allocated to
Mr. Booth, but does not include 249 shares held by ESOP which are unvested.  Mr.
Booth is Chief Financial Officer and Treasurer of the Company.

     (8)  Includes  50,625  shares  which Mr.  Williams has the right to acquire
within 60 days upon the exercise of stock options at a price of $2.17 per share.
Mr. Williams is a director of the Company.

     (9) Includes 32,000 shares held by Rowe Family Investments,  L.P. Mr. Rowe 
is a director of the Company.

    (10)  Includes  14,021  shares  held by ESOP which are vested and allocated 
to Mr. Evans.

    (11) Based on a Form 13G dated  January 21, 1997,  filed by State of 
Wisconsin Investment Board.

    (12) Based on a Form 13G dated February 14, 1997, filed by FMR Corp.

    (13) Includes 20,800 shares which the officers and directors have the right
to  acquire  within 60 days upon the  exercise  of stock options at an average
exercise  price of $15.07 per share, 25,912 shares held by the ESOP which are
vested and allocated to directors and executive officers,  and 250,133 shares
held by the ESOP which are  unvested or  allocated  to other  employees.  See
Footnote (1) above.


Item 13.  Certain Relationships and Related Transactions


In March 1995, the Company entered into a Split Dollar Insurance  Agreement (the
"Agreement")  with The DuPree  Insurance Trust (the "Trust") whereby the Company
agreed to make premium payments on certain life insurance  policies of which the
Trust is the  owner  and  beneficiary.  These  policies  provide  a total of $50
million in death  proceeds  payable upon death of the survivor of Tom E. DuPree,
Jr., the Chairman of the Board and Chief Executive  Officer of the Company,  and
his  wife.  The  devisees  under the  wills of Mr.  DuPree  and his wife are the
beneficiaries of the Trust.

         The Trust has agreed to  reimburse  the Company on an annual  basis for
that  portion of the  premiums  which  equals the current  value of the economic
benefit,  as defined by the Internal Revenue  Service,  attributable to the life
insurance  protection  provided.  The  premiums  due  under the  policies  total
$850,000 per year.  Reimbursements for the current value of the economic benefit
attributable to the life insurance  provided in 1996 totaled $1,622.  There were
no reimbursements due to the Company from the Trust at December 31, 1996.

         The  Company or the Trust can cancel the  Agreement  at any time.  Upon
cancellation, the Trust is obligated to repay the Company an amount equal to the
lesser of either the cash surrender value of the policies or the total amount of
unreimbursed  premiums paid by the Company.  Upon receipt of the death  proceeds
under  the  policies,  the  Trust is  required  to  repay  the  Company  for all
unreimbursed premium payments. The policies have been assigned to the Company to
secure the repayment obligations of the Trust.






                                       44





<PAGE>

PART IV

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

(a)   The following documents are filed as part of this Report:

   1.  Financial Statements.


   2.  Financial Statement Schedules

       None.

(b)   Reports on Form 8-K

       None.


(c)  Exhibits

          2.1  Stock  Purchase  Agreement  among the Company,  the owners of the
               partnership  interests  in Apple Tenn- Flo,  L.P.,  et al.  dated
               March 18, 1994.(4)

          2.2  Asset  Purchase  Agreement  among the Company,  TUG, Inc., et al.
               dated February 1, 1995.(6)

          2.3  Asset  Purchase  Agreement  among Apple  South,  Inc.  And Marcus
               Restaurants, Inc. Et al, datedApril 12, 1995.(8)

          2.4  Agreement and Plan of Merger, dated August 15, 1995, by and among
               the  Company,  SALSA  Acquisition  Corp.,  and DF&R  Restaurants,
               Inc.(9)

          3.1  Form of Amended and  Restated  Articles of  Incorporation  of the
               Company, as amended August 1, 1995.(8)

          4.1  See  Exhibits 3.1 for  provisions  in the  Company's  Amended and
               Restated Articles of Incorporation and Bylaws defining the rights
               of holders of the Company's Common Stock. (1)

          4.2  Indenture  dated May 1, 1996,  between the  Company and  SunTrust
               Bank, Atlanta, as Trustee. (10)

          10.1 Apple South, Inc. 1988 Stock Option Plan.(1)

          10.2 Form of Stock Option  Agreement under the Apple South,  Inc. 1988
               Stock Option Plan.(1) (11)

          10.3 Form of Apple South, Inc.  Director's  Indemnification  Agreement
               executed  by and between the Company and each member of its Board
               of Directors.(1)

          10.4 Form of Apple South,  Inc.  Officer's  Indemnification  Agreement
               executed   between  the   Company  and  each  of  its   executive
               officers.(1)

          10.5 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,  Inc., as amended and supplemented,  pertaining to
               South Carolina.(1) (11)


                                       45

<PAGE>



          10.6 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,  Inc., as amended and supplemented,  pertaining to
               West Palm Beach, Ft. Myers and Sarasota A.D.I.(1) (11)

          10.7 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,  Inc., as amended and supplemented,  pertaining to
               Tennessee/Mississippi A.D.I.(1) (11)

          10.8 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,  Inc., as amended and supplemented,  pertaining to
               Nashville, Tennessee A.D.I. and Bowling Green, Kentucky A.D.I.(1)
               (11)

          10.9 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,  Inc., as amended and supplemented,  pertaining to
               Virginia,  West  Virginia,   Washington,  D.C.,  and  Louisville,
               Kentucky.(1) (11)

         10.10 Standard  Form  Applebee's  Neighborhood  Grill  & Bar  Franchise
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International, Inc.(5) (11)

         10.11 Foodservice Distribution Agreement between PYA/Monarch,  Inc. and
               the Company.(1)

         10.12 Apple South,  Inc.  Employee  Stock  Ownership Plan and Trust.(1)
               (11)

         10.13 Apple South, Inc. Profit Sharing Plan and Trust.(1) (11)

         10.14 Amendment  No.  2  to  the  Apple  South,   Inc.  Employee  Stock
               Ownership Plan and Trust, dated November 22, 1993. (3)

         10.15 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,   Inc.,   pertaining  to   Jacksonville,   Florida
               A.D.I.(2) (11)

         10.16 Amendment  to  Development  Agreement  dated  January  10,  1992,
               Second  Amendment and Supplement to Development  Agreement  dated
               May 14, 1993, and Third Amendment to Development  Agreement dated
               January  26,  1994,   amending  the  Standard   Form   Applebee's
               Neighborhood Grill & Bar Development Agreement among the Company,
               Tom E. DuPree, Jr. and Applebee's International, Inc., as amended
               and supplemented, pertaining to South Carolina.(3)

         10.17 Third Amendment to Development  Agreement dated January 10, 1992,
               and Fourth  Amendment to Development  Agreement dated January 26,
               1994, amending the Standard Form Applebee's  Neighborhood Grill &
               Bar Development  Agreement among the Company,  Tom E. DuPree, Jr.
               and Applebee's International,  Inc., as amended and supplemented,
               pertaining to West Palm Beach, Ft. Meyers and Sarasota A.D.I.(3)

         10.18 Second  Amendment  to  Development  Agreement  dated  January 10,
               1992, and Third Amendment to Development  Agreement dated January
               26,  1994,  amending the Standard  Form  Applebee's  Neighborhood
               Grill & Bar  Development  Agreement  among  the  Company,  Tom E.
               DuPree,  Jr. and Applebee's  International,  Inc., as amended and
               supplemented, pertaining to Tennessee/Mississippi A.D.I. (3)

         10.19 Amendment to  Development  Agreement  dated January 10, 1992, and
               its Second  Amendment to Development  Agreement dated January 26,
               1994, amending the Standard Form Applebee's  Neighborhood Grill &
               Bar Development  Agreement among the Company,  Tom E. DuPree, Jr.
               and Applebee's International,  Inc., as amended and supplemented,
               pertaining  to Nashville,  Tennessee  A.D.I.  and Bowling  Green,
               Kentucky A.D.I. (3)


                                       46

<PAGE>



         10.20 Second  Amendment  to  Development  Agreement  dated  January 10,
               1992, and Third Amendment to Development  Agreement dated January
               26,  1994,  amending the Standard  Form  Applebee's  Neighborhood
               Grill & Bar  Development  Agreement  among  the  Company,  Tom E.
               DuPree,  Jr. and Applebee's  International,  Inc., as amended and
               supplemented,  pertaining to Virginia, West Virginia, Washington,
               D.C., and Louisville, Kentucky. (3)

         10.21 Amendment  to  Development  Agreement  dated  January  26,  1994,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement among the Company,  Tom E. DuPree, Jr. and
               Applebee's  International,   Inc.,  pertaining  to  Jacksonville,
               Florida A.D.I. (3)

         10.22 Apple South, Inc.  [Restated] Profit Sharing Plan and Trust dated
               October 26, 1993.(3)

         10.23 Amended  form of Stock  Option  Agreement  under the Apple South,
               Inc. 1988 Stock Option Plan.(3)

         10.24 Apple South, Inc. 1993 Stock Incentive Plan.(3)

         10.25 Form of Stock Option  Agreement under the Apple South,  Inc. 1993
               Stock Incentive Plan. (3)

         10.26 Second  Supplement to Development  Agreement dated July 27, 1994,
               between   the  Company  and   Applebee's   International,   Inc.,
               pertaining to Chattanooga, Tennessee A.D.I., Knoxville, Tennessee
               A.D.I. and  Bristol-Kingsport-Johnson  City: Tri-Cities A.D.I.(5)
               (11)

         10.27 Universal  Agreement  dated June 30,  1995,  by and  between  the
               Company and Applebee's International,  Inc. amending the Standard
               Form  Development  Agreements  appearing as Exhibits 10.5 through
               10.9, 10.15, and 10.28 through 10.30.

         10.28 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement,  dated April 25, 1995,  by and between the Company and
               Applebee's  International,  Inc., pertaining to the Cedar Rapids,
               and Des Moines, Iowa A.D.I.s,  the Rockford,  Illinois A.D.I. and
               portions of the Davenport-Rock  Island- Moline: Quad City A.D.I.;
               the Sioux City, Iowa A.D.I.;  the  Peoria-Bloomington,  Illinois,
               A.D.I.; and the Rochester-Mason City-Austin A.D.I. (11)

         10.29 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement,  dated June 30,  1995,  by and between the Company and
               Applebee's  International,  Inc.,  pertaining to a portion of the
               Chicago, Illinois A.D.I.

         10.30 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement   dated   December  29,  1989  by  and  between  Marcus
               Restaurants,  Inc. And Applebee's International,  Inc. pertaining
               to    the    Milwaukee,     Madison,     LaCrosse-Eau     Claire,
               Wausau-Rhinelander,  and Green  Bay-Appleton,  Wisconsin A.D.I.s.
               (11)

         10.31 Consent and Release  Agreement by and among the  company,  Marcus
               Restaurants,  Inc. and Applebee's International,  Inc. dated June
               30, 1995 pertaining to the  development  and franchise  rights in
               the Milwaukee, Madison, LaCrosse-Eau Claire,  Wausau-Rhinelander,
               and Green Bay-Appleton, Wisconsin A.D.I.s. (11)

         10.32 Amendment  to  Development  Agreement  dated June 30, 1995 by and
               between the Company and Applebee's  International,  pertaining to
               market  areas  in  portion  of  Illinois,   Iowa,   Missouri  and
               Wisconsin.(11)

         10.33 Second Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               pertaining  to  the  Milwaukee,   Madison,  LaCrosse-Eau  Claire,
               Wausau-  Rhinelander and Green  Bay-Appleton,  Wisconsin A.D.I.s.
               (11)


                                       47

<PAGE>



         10.34 Fifth  Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement  pertaining  to the West Palm  Beach,  Ft.
               Myers and Sarasota A.D.I. (11)

         10.35 Fourth  Amendment to  Development  Agreement  dated June 30, 1995
               and Third  Amendment to Development  Agreement dated February 24,
               1995 by and between the  Company  and  Applebee's  International,
               Inc., amending the Standard Form Applebee's  Neighborhood Grill &
               Bar  Development  Agreement  pertaining  to  the  South  Carolina
               market. (11)

         10.36 Second Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement  pertaining to the Chattanooga A.D.I., the
               Knoxville  A.D.I.  and  the  Bristol-   Kingsport-Johnson   City:
               Tri-Cities A.D.I.(11)

         10.37 Fourth Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement  pertaining  to the  Tennessee/Mississippi
               A.D.I. (11)

         10.38 Second Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement  pertaining to the  Jacksonville,  Florida
               A.D.I. (11)

         10.39 Fifth Amendment to Development  Agreement dated June 30, 1995 and
               Fourth  Amendment to  Development  Agreement  dated  February 24,
               1995,  by and between the Company and  Applebee's  International,
               Inc., amending the Standard Form Applebee's  Neighborhood Grill &
               Bar Development Agreement pertaining to Virginia,  West Virginia,
               Washington, D.C. and Louisville, Kentucky. (11)

         10.40 Third  Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement  pertaining  to the  Nashville,  Tennessee
               A.D.I. and the Bowling Green, Kentucky A.D.I. (11)

         10.41 $30 Million Amended and Restated Participation  Agreement Between
               Apple  South,  Inc.,  DR  Holdings,  L.P.,  Trust  Company  Bank,
               Southtrust  Bank of  Georgia,  N.A.,  Life  Insurance  Company of
               Georgia, and Columbine Life Insurance Company.(7)

         10.42 Lease and  Development  Agreement  Between DR Holdings,  L.P. and
               Apple South, Inc.(7)

         10.43 $165 Million Credit Agreement among Apple South,  Inc.;  Wachovia
               Bank  of  Georgia,  National  Association;  Crestar  Bank;  Trust
               Company Bank; Banque Paribas; and Bank of America Illinois, dated
               February 27, 1996. (11)

         10.44 $20 Million Loan  Agreement  among Apple  South,  Inc. And Branch
               Banking and Trust Company of South  Carolina,  dated  November 1,
               1995.(9)

         10.45 $165  Million  Credit  Agreement  Dated as of February  27, 1996.
               (12)

         10.46 $25 Million Debt Agreement Dated September 30, 1996.

         13.1  Annual Report to Shareholders  for the fiscal year ended December
               31, 1995

         23.1  Consent of KPMG Peat Marwick LLP

         27.1  Financial Data Schedule
                                       48

<PAGE>


     (1)  Incorporated  by reference to the  corresponding  exhibit number filed
with the Company's Registration Statement on Form S-1, File No. 33-42662.

     (2)  Incorporated  by reference to the  corresponding  exhibit number filed
with the Company's Registration Statement on Form S-1, File No. 33-58378.

     (3)  Incorporated by reference to the Company's  Annual Report on Form 10-K
for its fiscal year ended December 31, 1993.

     (4)  Incorporated  by  reference  to Exhibit  2.1 filed with the  Company's
Report on Form 8-K dated April 12, 1994.

     (5)  Incorporated by reference to the Company's  Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.

     (6)  Incorporated  by reference to Exhibit  10.30 filed with the  Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.

     (7) Incorporated by reference to the registrant's  Quarterly Report on Form
10-Q for its fiscal quarter ended April 2, 1995

     (8) Incorporated by reference to the registrant's  Quarterly Report on Form
10-Q for its fiscal quarter ended July 2, 1995

     (9) Incorporated by reference to the registrant's  Quarterly Report on Form
10-Q for its fiscal quarter ended October 1, 1995

     (10) Incorporated by reference to the Company's  registration  statement on
Form S-3, File No. 333-02958.

     (11)  Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.

     (12) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended March 31, 1996.

                                       49

<PAGE>


                                   SIGNATURES


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

                               APPLE SOUTH, INC.

                 By:       /s/ Tom E. DuPree, Jr.
                               Tom E. DuPree, Jr.
                               Chief Executive Officer and
                               Chairman of the Board
February 19, 1997
Atlanta, Georgia













                                       50

<PAGE>
         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.


   Signature               Title                              Date

/s/ Tom E. DuPree, Jr.    Chairman of the Board of            February 19, 1997
----------------------    Directors and Chief Executive
    Tom E. DuPree, Jr.    Officer (principal executive officer)

       

/s/ S. Kirk Kinsell        President and Chief Operating      February 19, 1997
----------------------     Officer
    S. Kirk Kinsell       



/s/ John G. McLeod, Jr.    Director, Senior Vice President    February 19, 1997
-----------------------    - Human Resources, and Secretary
    John G. McLeod, Jr.     

                                            

/s/ Erich J. Booth         Chief Financial Officer and        February 19, 1997
------------------         Treasurer (principal financial 
    Erich J. Booth         and accounting officer) 



/s/ David P. Frazier       Chief Concept Officer and          February 19, 1997
--------------------       Director 
    David P. Frazier



/s/ Marc D. Redus          Director and Executive Vice        February 19, 1997
-----------------          President
    Marc D. Redus    



/s/ Thomas R. Williams     Director                           February 19, 1997 
----------------------
    Thomas R. Williams



/s/ James W. Rowe          Director                           February 19, 1997 
-----------------
    James W. Rowe



/s/ Dr. Ruth G. Shaw       Director                           February 19, 1997 
--------------------
    Dr. Ruth G. Shaw



/s/ John L. Moorhead      Director                            February 19, 1997 
 --------------------
    John L. Moorhead


                                       51
<PAGE>

                                  Exhibit Index
         Exhibit
         Number

          2.1  Stock  Purchase  Agreement  among the Company,  the owners of the
               partnership  interests  in Apple Tenn- Flo,  L.P.,  et al.  dated
               March 18, 1994.(4)

          2.2  Asset  Purchase  Agreement  among the Company,  TUG, Inc., et al.
               dated February 1, 1995.(6)

          2.3  Asset  Purchase  Agreement  among Apple  South,  Inc.  And Marcus
               Restaurants, Inc. Et al, datedApril 12, 1995.(8)

          2.4  Agreement and Plan of Merger, dated August 15, 1995, by and among
               the  Company,  SALSA  Acquisition  Corp.,  and DF&R  Restaurants,
               Inc.(9)

          3.1  Form of Amended and  Restated  Articles of  Incorporation  of the
               Company, as amended August 1, 1995.(8)

          4.1  See  Exhibits 3.1 for  provisions  in the  Company's  Amended and
               Restated Articles of Incorporation and Bylaws defining the rights
               of holders of the Company's Common Stock. (1)

          4.2  Indenture  dated May 1, 1996,  between the  Company and  SunTrust
               Bank, Atlanta, as Trustee. (10)

          10.1 Apple South, Inc. 1988 Stock Option Plan.(1)

          10.2 Form of Stock Option  Agreement under the Apple South,  Inc. 1988
               Stock Option Plan.(1) (11)

          10.3 Form of Apple South, Inc.  Director's  Indemnification  Agreement
               executed  by and between the Company and each member of its Board
               of Directors.(1)

          10.4 Form of Apple South,  Inc.  Officer's  Indemnification  Agreement
               executed   between  the   Company  and  each  of  its   executive
               officers.(1)

          10.5 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,  Inc., as amended and supplemented,  pertaining to
               South Carolina.(1) (11)


                                       52

<PAGE>



          10.6 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,  Inc., as amended and supplemented,  pertaining to
               West Palm Beach, Ft. Myers and Sarasota A.D.I.(1) (11)

          10.7 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,  Inc., as amended and supplemented,  pertaining to
               Tennessee/Mississippi A.D.I.(1) (11)

          10.8 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,  Inc., as amended and supplemented,  pertaining to
               Nashville, Tennessee A.D.I. and Bowling Green, Kentucky A.D.I.(1)
               (11)

          10.9 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,  Inc., as amended and supplemented,  pertaining to
               Virginia,  West  Virginia,   Washington,  D.C.,  and  Louisville,
               Kentucky.(1) (11)

         10.10 Standard  Form  Applebee's  Neighborhood  Grill  & Bar  Franchise
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International, Inc.(5) (11)

         10.11 Foodservice Distribution Agreement between PYA/Monarch,  Inc. and
               the Company.(1)

         10.12 Apple South,  Inc.  Employee  Stock  Ownership Plan and Trust.(1)
               (11)

         10.13 Apple South, Inc. Profit Sharing Plan and Trust.(1) (11)

         10.14 Amendment  No.  2  to  the  Apple  South,   Inc.  Employee  Stock
               Ownership Plan and Trust, dated November 22, 1993. (3)

         10.15 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement  among the Company,  Tom E. DuPree,  Jr. and Applebee's
               International,   Inc.,   pertaining  to   Jacksonville,   Florida
               A.D.I.(2) (11)

         10.16 Amendment  to  Development  Agreement  dated  January  10,  1992,
               Second  Amendment and Supplement to Development  Agreement  dated
               May 14, 1993, and Third Amendment to Development  Agreement dated
               January  26,  1994,   amending  the  Standard   Form   Applebee's
               Neighborhood Grill & Bar Development Agreement among the Company,
               Tom E. DuPree, Jr. and Applebee's International, Inc., as amended
               and supplemented, pertaining to South Carolina.(3)

         10.17 Third Amendment to Development  Agreement dated January 10, 1992,
               and Fourth  Amendment to Development  Agreement dated January 26,
               1994, amending the Standard Form Applebee's  Neighborhood Grill &
               Bar Development  Agreement among the Company,  Tom E. DuPree, Jr.
               and Applebee's International,  Inc., as amended and supplemented,
               pertaining to West Palm Beach, Ft. Meyers and Sarasota A.D.I.(3)

         10.18 Second  Amendment  to  Development  Agreement  dated  January 10,
               1992, and Third Amendment to Development  Agreement dated January
               26,  1994,  amending the Standard  Form  Applebee's  Neighborhood
               Grill & Bar  Development  Agreement  among  the  Company,  Tom E.
               DuPree,  Jr. and Applebee's  International,  Inc., as amended and
               supplemented, pertaining to Tennessee/Mississippi A.D.I. (3)

         10.19 Amendment to  Development  Agreement  dated January 10, 1992, and
               its Second  Amendment to Development  Agreement dated January 26,
               1994, amending the Standard Form Applebee's  Neighborhood Grill &
               Bar Development  Agreement among the Company,  Tom E. DuPree, Jr.
               and Applebee's International,  Inc., as amended and supplemented,
               pertaining  to Nashville,  Tennessee  A.D.I.  and Bowling  Green,
               Kentucky A.D.I. (3)


                                       53

<PAGE>



         10.20 Second  Amendment  to  Development  Agreement  dated  January 10,
               1992, and Third Amendment to Development  Agreement dated January
               26,  1994,  amending the Standard  Form  Applebee's  Neighborhood
               Grill & Bar  Development  Agreement  among  the  Company,  Tom E.
               DuPree,  Jr. and Applebee's  International,  Inc., as amended and
               supplemented,  pertaining to Virginia, West Virginia, Washington,
               D.C., and Louisville, Kentucky. (3)

         10.21 Amendment  to  Development  Agreement  dated  January  26,  1994,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement among the Company,  Tom E. DuPree, Jr. and
               Applebee's  International,   Inc.,  pertaining  to  Jacksonville,
               Florida A.D.I. (3)

         10.22 Apple South, Inc.  [Restated] Profit Sharing Plan and Trust dated
               October 26, 1993.(3)

         10.23 Amended  form of Stock  Option  Agreement  under the Apple South,
               Inc. 1988 Stock Option Plan.(3)

         10.24 Apple South, Inc. 1993 Stock Incentive Plan.(3)

         10.25 Form of Stock Option  Agreement under the Apple South,  Inc. 1993
               Stock Incentive Plan. (3)

         10.26 Second  Supplement to Development  Agreement dated July 27, 1994,
               between   the  Company  and   Applebee's   International,   Inc.,
               pertaining to Chattanooga, Tennessee A.D.I., Knoxville, Tennessee
               A.D.I. and  Bristol-Kingsport-Johnson  City: Tri-Cities A.D.I.(5)
               (11)

         10.27 Universal  Agreement  dated June 30,  1995,  by and  between  the
               Company and Applebee's International,  Inc. amending the Standard
               Form  Development  Agreements  appearing as Exhibits 10.5 through
               10.9, 10.15, and 10.28 through 10.30.

         10.28 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement,  dated April 25, 1995,  by and between the Company and
               Applebee's  International,  Inc., pertaining to the Cedar Rapids,
               and Des Moines, Iowa A.D.I.s,  the Rockford,  Illinois A.D.I. and
               portions of the Davenport-Rock  Island- Moline: Quad City A.D.I.;
               the Sioux City, Iowa A.D.I.;  the  Peoria-Bloomington,  Illinois,
               A.D.I.; and the Rochester-Mason City-Austin A.D.I. (11)

         10.29 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement,  dated June 30,  1995,  by and between the Company and
               Applebee's  International,  Inc.,  pertaining to a portion of the
               Chicago, Illinois A.D.I.

         10.30 Standard Form  Applebee's  Neighborhood  Grill & Bar  Development
               Agreement   dated   December  29,  1989  by  and  between  Marcus
               Restaurants,  Inc. And Applebee's International,  Inc. pertaining
               to    the    Milwaukee,     Madison,     LaCrosse-Eau     Claire,
               Wausau-Rhinelander,  and Green  Bay-Appleton,  Wisconsin A.D.I.s.
               (11)

         10.31 Consent and Release  Agreement by and among the  company,  Marcus
               Restaurants,  Inc. and Applebee's International,  Inc. dated June
               30, 1995 pertaining to the  development  and franchise  rights in
               the Milwaukee, Madison, LaCrosse-Eau Claire,  Wausau-Rhinelander,
               and Green Bay-Appleton, Wisconsin A.D.I.s. (11)

         10.32 Amendment  to  Development  Agreement  dated June 30, 1995 by and
               between the Company and Applebee's  International,  pertaining to
               market  areas  in  portion  of  Illinois,   Iowa,   Missouri  and
               Wisconsin.(11)

         10.33 Second Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               pertaining  to  the  Milwaukee,   Madison,  LaCrosse-Eau  Claire,
               Wausau-  Rhinelander and Green  Bay-Appleton,  Wisconsin A.D.I.s.
               (11)


                                       54

<PAGE>



         10.34 Fifth  Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement  pertaining  to the West Palm  Beach,  Ft.
               Myers and Sarasota A.D.I. (11)

         10.35 Fourth  Amendment to  Development  Agreement  dated June 30, 1995
               and Third  Amendment to Development  Agreement dated February 24,
               1995 by and between the  Company  and  Applebee's  International,
               Inc., amending the Standard Form Applebee's  Neighborhood Grill &
               Bar  Development  Agreement  pertaining  to  the  South  Carolina
               market. (11)

         10.36 Second Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement  pertaining to the Chattanooga A.D.I., the
               Knoxville  A.D.I.  and  the  Bristol-   Kingsport-Johnson   City:
               Tri-Cities A.D.I.(11)

         10.37 Fourth Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement  pertaining  to the  Tennessee/Mississippi
               A.D.I. (11)

         10.38 Second Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement  pertaining to the  Jacksonville,  Florida
               A.D.I. (11)

         10.39 Fifth Amendment to Development  Agreement dated June 30, 1995 and
               Fourth  Amendment to  Development  Agreement  dated  February 24,
               1995,  by and between the Company and  Applebee's  International,
               Inc., amending the Standard Form Applebee's  Neighborhood Grill &
               Bar Development Agreement pertaining to Virginia,  West Virginia,
               Washington, D.C. and Louisville, Kentucky. (11)

         10.40 Third  Amendment to Development  Agreement dated June 30, 1995 by
               and  between  the Company  and  Applebee's  International,  Inc.,
               amending the Standard Form  Applebee's  Neighborhood  Grill & Bar
               Development  Agreement  pertaining  to the  Nashville,  Tennessee
               A.D.I. and the Bowling Green, Kentucky A.D.I. (11)

         10.41 $30 Million Amended and Restated Participation  Agreement Between
               Apple  South,  Inc.,  DR  Holdings,  L.P.,  Trust  Company  Bank,
               Southtrust  Bank of  Georgia,  N.A.,  Life  Insurance  Company of
               Georgia, and Columbine Life Insurance Company.(7)

         10.42 Lease and  Development  Agreement  Between DR Holdings,  L.P. and
               Apple South, Inc.(7)

         10.43 $165 Million Credit Agreement among Apple South,  Inc.;  Wachovia
               Bank  of  Georgia,  National  Association;  Crestar  Bank;  Trust
               Company Bank; Banque Paribas; and Bank of America Illinois, dated
               February 27, 1996. (11)

         10.44 $20 Million Loan  Agreement  among Apple  South,  Inc. And Branch
               Banking and Trust Company of South  Carolina,  dated  November 1,
               1995.(9)

         10.45 $165  Million  Credit  Agreement  Dated as of February  27, 1996.
               (12)

         10.46 $25 Million Debt Agreement Dated September 30, 1996.

         13.1  Annual Report to Shareholders  for the fiscal year ended December
               31, 1995

         23.1  Consent of KPMG Peat Marwick LLP

         27.1  Financial Data Schedule
          
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<PAGE>



     (1)  Incorporated  by reference to the  corresponding  exhibit number filed
with the Company's Registration Statement on Form S-1, File No. 33-42662.

     (2)  Incorporated  by reference to the  corresponding  exhibit number filed
with the Company's Registration Statement on Form S-1, File No. 33-58378.

     (3)  Incorporated by reference to the Company's  Annual Report on Form 10-K
for its fiscal year ended December 31, 1993.

     (4)  Incorporated  by  reference  to Exhibit  2.1 filed with the  Company's
Report on Form 8-K dated April 12, 1994.

     (5)  Incorporated by reference to the Company's  Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.

     (6)  Incorporated  by reference to Exhibit  10.30 filed with the  Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.

     (7) Incorporated by reference to the registrant's  Quarterly Report on Form
10-Q for its fiscal quarter ended April 2, 1995

     (8) Incorporated by reference to the registrant's  Quarterly Report on Form
10-Q for its fiscal quarter ended July 2, 1995

     (9) Incorporated by reference to the registrant's  Quarterly Report on Form
10-Q for its fiscal quarter ended October 1, 1995

     (10) Incorporated by reference to the Company's  registration  statement on
Form S-3, File No. 333-02958.

     (11)  Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.

     (12) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for its fiscal quarter ended March 31, 1996.


       






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