SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

(Mark One)

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 7, 1998

                                       OR

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

For the transition period from _______ to _______

                         Commission file number 0-19649

                       CHECKERS DRIVE-IN RESTAURANTS, INC.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
             


                     DELAWARE                          58-1654960
          ------------------------------           -------------------
          (State or other jurisdiction of          (I.R.S. employer
          incorporation or organization)           identification no.)
         

          14255 49TH STREET NORTH, BUILDING 1
          SUITE 101
          CLEARWATER, FL                                     33762
          ---------------------------------------          ----------
          (Address of principal executive offices)         (Zip code)
         

Registrant's telephone number, including area code: (727) 519-2000

      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 [ ]

      The Registrant had 73,411,092 shares of Common Stock, par value $.001 per
share, outstanding as of October 7, 1998.

      This document contains 25 pages. Exhibit Index appears at page 24.


<PAGE>
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<CAPTION>

                                TABLE OF CONTENTS




<S>      <C>                                                                         <C>
PART I   FINANCIAL INFORMATION                                                       PAGE

ITEM 1   FINANCIAL STATEMENTS
           Condensed Consolidated Balance Sheets
             September 7, 1998 and December 29, 1997..................................3

           Condensed Consolidated Statements of Operations 
             Quarter ended September 7, 1998 and September 8, 1997
             and Three Quarters ended September 7, 1998 and September 8, 1997.........5

           Condensed Consolidated Statements of Cash Flows
             Three Quarters ended September 7, 1998 and September 8, 1997.............6

           Notes to Condensed Consolidated Financial Statements.......................7

ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS...................................................12

ITEM 3   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................18


PART II  OTHER INFORMATION

ITEM 1   LEGAL PROCEEDINGS...........................................................19

ITEM 2   CHANGES IN SECURITIES.......................................................22

ITEM 3   DEFAULTS UPON SENIOR SECURITIES.............................................22

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........................22

ITEM 5   OTHER INFORMATION...........................................................22

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K............................................22
</TABLE>

                                       2

<PAGE>
PART I.    FINANCIAL INFORMATION

ITEM 1               FINANCIAL STATEMENTS

                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)


                                     ASSETS

                                                (UNAUDITED)
                                                SEPTEMBER 7,    DECEMBER 29,
                                                   1998            1997
                                               -------------    ------------
CURRENT ASSETS:

Cash and cash equivalents:
    Restricted                                   $  1,472           2,555
    Unrestricted                                    2,215           1,366
Accounts receivable                                 1,017           1,175
Notes receivable-current                              182             265
Inventory                                           2,045           2,222
Assets held for sale                                3,117           4,332
Deferred loan costs-current                         1,511           1,648
Prepaid expenses and other current assets           1,003             309
                                                 --------        --------
    Total current assets                           12,562          13,872


Property and equipment, net                        81,705          87,889
Intangibles, net of accumulated amortization       10,818          11,520
Deferred loan costs - less current portion           --             1,099
Notes receivable - long term portion                  343             381
Deposits and other non-current assets                 611             640
                                                 --------        --------
                                                 $106,039        $115,401
                                                 ========        ========

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       3

<PAGE>
<TABLE>
<CAPTION>

                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)


                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                              (UNAUDITED)
                                                                              SEPTEMBER 7,      DECEMBER 29,
                                                                                  1998              1997
                                                                              ------------      ------------
<S>                                                                             <C>               <C>      
CURRENT LIABILITIES:

Current installments of long-term debt and capital lease obligations            $  26,961         $   3,484
Accounts payable                                                                    5,649             8,186
Accrued wages, salaries and benefits                                                2,558             2,528
Reserves for Restaurant relocation and abandoned sites                              1,517             2,159
Other accrued liabilities                                                           7,994            11,408
Deferred income-current                                                               212               260
                                                                                ---------         ---------
    Total current liabilities                                                      44,891            28,025

Long-term debt and capital lease obligations, less current installments             2,453            29,401
Deferred income                                                                       608               346
Long-term reserves for Restaurant relocations and abandoned sites                     434               581
Minority interests in joint ventures                                                  872               966
Other noncurrent liabilities                                                        7,677             5,710
                                                                                ---------         ---------
    Total liabilities                                                              56,935            65,029

STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, authorized 2,000,000 shares, no shares
    outstanding                                                                      --                --
Common stock, $.001 par value, authorized 150,000,000 shares, issued
    and outstanding 73,411,092 at September 7, 1998 and 72,755,031
    at December 29, 1997                                                               73                73
Additional paid-in capital                                                        112,550           112,536
Warrants                                                                            9,463             9,463
Retained deficit                                                                  (72,582)          (71,300)
                                                                                ---------         ---------
                                                                                   49,504            50,772
Less treasury stock, at cost, 578,904 shares                                          400               400
                                                                                ---------         ---------
    Net stockholders' equity                                                       49,104            50,372
                                                                                ---------         ---------
                                                                                $ 106,039         $ 115,401
                                                                                =========         =========
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       4
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<CAPTION>
                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

                                                           QUARTER ENDED              THREE QUARTERS ENDED
                                                      -----------------------        -----------------------
                                                       SEPT. 7,     SEPT. 8,          SEPT. 7,     SEPT. 8,
                                                         1998          1997             1998          1997
                                                      ---------     ---------        ---------     ---------
<S>                                                   <C>           <C>              <C>           <C>      
REVENUES:
Restaurant sales                                      $  30,770     $  30,786        $  98,880     $  94,987
Franchise revenues and fees                               1,714         1,797            5,314         5,122
Modular restaurant packages                                 101           150              220           494
                                                      ---------     ---------        ---------     ---------
    Total revenues                                    $  32,585     $  32,733        $ 104,414     $ 100,603

COSTS AND EXPENSES:
Restaurant food and paper costs                           9,619         9,715           31,351        31,223
Restaurant labor costs                                   10,110         9,887           31,619        31,017
Restaurant occupancy expense                              2,622         2,573            7,841         7,377
Restaurant depreciation and amortization                  1,768         1,904            5,283         5,731
Other restaurant operating expense                        3,014         3,093            9,440         9,526
Advertising expense                                       1,630         1,588            5,093         4,828
Cost of modular restaurant package revenues                 158           150              341           439
Other depreciation and amortization                         531           518            1,564         1,546
General and administrative expenses                       3,128         3,609            9,563        10,936
Loss provisions                                             251          --               (123)         --
                                                      ---------     ---------        ---------     ---------
    Total costs and expenses                             32,831        33,037          101,972       102,623
                                                      ---------     ---------        ---------     ---------

    Operating income (loss)                                (246)         (304)           2,442        (2,020)

OTHER INCOME (EXPENSE):
Interest income                                              49            57              192           238
Interest expense                                           (867)       (1,046)          (2,700)       (3,566)
Interest - loan cost amortization                          (415)         (445)          (1,244)       (3,100)
                                                      ---------     ---------        ---------     ---------
Loss before minority interests and income
      tax expense                                        (1,479)       (1,738)          (1,310)       (8,448)
Minority interests                                          (10)         --                (28)          (60)
                                                      ---------     ---------        ---------     ---------
Loss before income tax expense                           (1,469)       (1,738)          (1,282)       (8,388)
Income tax expense                                         --            --               --            --
                                                      ---------     ---------        ---------     ---------
        Net loss                                      $  (1,469)    $  (1,738)       $  (1,282)    $  (8,388)
                                                      =========     =========        =========     =========
Preferred dividends                                   $    --       $     696        $    --       $     696
                                                      ---------     ---------        ---------     ---------
Net loss to common shareholders                       $  (1,469)    $  (2,434)       $  (1,282)    $  (9,084)
                                                      =========     =========        =========     =========
Comprehensive loss                                    $  (1,469)    $  (2,434)       $  (1,282)    $  (9,084)
                                                      =========     =========        =========     =========

Net loss per common share - basic                     $   (0.02)    $   (0.04)       $   (0.02)    $   (0.15)
                                                      =========     =========        =========     =========
Net loss per common share - diluted                   $   (0.02)    $   (0.04)       $   (0.02)    $   (0.15)
                                                      =========     =========        =========     =========

Weighted average number of common shares - basic         73,411        65,548           73,379        60,163
                                                      =========     =========        =========     =========
Weighted average number of common shares - diluted       73,411        65,548           73,379        60,163
                                                      =========     =========        =========     =========
</TABLE>


SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       5
<PAGE>
                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

                                                          THREE QUARTERS ENDED
                                                          --------------------
                                                          SEPT. 7,    SEPT. 8,
                                                            1998        1997
                                                          --------    --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                  $ (1,282)   $ (8,388)
Adjustments to reconcile net loss to net cash
  provided by operating activities:
    Depreciation and amortization                            6,847       7,277
    Provision for losses on assets to be disposed of           377        --
    Reverse sales tax audit provision                         (500)       --
    Deferred loan cost amortization                          1,244       3,100
    Provision for bad debt                                     466         323
    Gain on debt extinguishment                               (141)       --
    Loss on disposal of property & equipment                    29          81
    Minority interests in (losses) earnings                    (28)        (60)
Changes in assets and liabilities:
    Increase in accounts receivable                           (269)     (1,351)
    Decrease in notes receivable                                65         316
    Decrease in inventory                                      176         260
    Decrease in income taxes receivable                       --         3,514
    Increase in prepaid expenses and other
     current assets                                           (699)       (772)
    Decrease in deposits and other                              29         119
    Decrease in accounts payable                            (2,503)     (6,205)
    Decrease in accrued liabilities                         (1,896)     (3,960)
    Increase in deferred income                                214          10
                                                          --------    --------
    Net cash provided by (used in) operating activities      2,129      (5,736)
                                                          --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                                        (1,046)     (1,198)
Proceeds from sale of assets                                 2,005       3,280
Cash paid on business purchases                               --          (155)
                                                          --------    --------
    Net cash provided by investing activities                  959       1,927
                                                          --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on short-term debt                                 --        (2,500)
Principal payments on long-term debt                        (3,257)    (12,423)
Net proceeds from private placement                           --        19,450
Distributions to minority interests                            (65)        (53)
                                                          --------    --------
    Net cash (used in) provided by financing activities     (3,322)      4,474
                                                          --------    --------
    Net (decrease) increase in cash                           (234)        665
CASH AT BEGINNING OF PERIOD                                  3,921       3,056
                                                          --------    --------
CASH AT END OF PERIOD                                     $  3,687    $  3,721
                                                          ========    ========
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION---
      Interest paid                                       $  2,822    $  4,071
                                                          ========    ========

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       6

<PAGE>



                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1:   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)       BASIS OF PRESENTATION - The accompanying unaudited financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
necessary to present fairly the information set forth therein have been
included. The operating results for the three quarters ended September 7, 1998,
are not necessarily an indication of the results that may be expected for the
fiscal year ending December 28, 1998. Except as disclosed herein, there has been
no material change in the information disclosed in the notes to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 29, 1997. Therefore, it is suggested that the
accompanying financial statements be read in conjunction with the Company's
December 29, 1997 consolidated financial statements.

(b)       PURPOSE AND ORGANIZATION - The principal business of Checkers Drive-In
Restaurants, Inc. (the "Company") is the operation and franchising of Checkers
Restaurants. At September 7, 1998, there were 483 Checkers Restaurants operating
in 23 different states, the District of Columbia, Puerto Rico and West Bank in
the Middle East. Of those Restaurants, 228 were Company-operated (including 12
joint venture restaurants) and 255 were operated by franchisees. The accounts of
the joint ventures have been included with those of the Company in these
consolidated financial statements.

          The consolidated financial statements also include the accounts of all
of the Company's subsidiaries, including Champion Modular Restaurant Company,
Inc. ("Champion"). Champion manufactures Modular Restaurant Packages ("MRP's")
primarily for the Company and franchisees. Intercompany balances and
transactions have been eliminated in consolidation and minority interests have
been established for the outside partners' interests.

(c)       REVENUE RECOGNITION - Franchise fees are generated from the sale of
rights to develop, own and operate Restaurants. Such fees are based on the
number of potential Restaurants in a specific area which the franchisee agrees
to develop pursuant to the terms of the franchise agreement between the Company
and the franchisee and are recognized as income on a pro rata basis when
substantially all of the Company's obligations per location are satisfied,
generally at the opening of the Restaurant. Franchise fees are nonrefundable.
The Company receives royalty fees from franchisees based on a percentage of each
restaurant's gross revenues. Royalty fees are recognized as earned. Champion
recognizes revenues on the percentage-of-completion method, measured by the
percentage of costs incurred to the estimated total costs of the contract.

(d)      CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
instruments purchased with an original maturity of less than three months to be
cash equivalents. In January 1998, $1.2 million in restricted cash balances were
released for the Company's use as the funds have been guaranteed by a letter of
credit from a bank.

(e)      RECEIVABLES - Receivables consist primarily of franchise fees,
royalties and notes due from franchisees and receivables from the sale of
modular restaurant packages. Allowances for doubtful receivables were $2.2
million at September 7, 1998 and $2.1 million at December 29, 1997.

(f)      INVENTORY - Inventories are stated at the lower of cost (first-in,
first-out (FIFO) method) or market.

(g)      DEFERRED LOAN COSTS - Deferred loan costs incurred in connection with
the Company's November 22, 1996 restructure of its primary credit facility (see
Note 2) are being amortized on the effective interest method.

(h)      IMPAIRMENT OF LONG LIVED ASSETS - The Company accounts for tangible
property and intangibles under the Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of" (SFAS 121), which requires the write-down of certain
intangibles and tangible property associated with under performing sites to the
level supported by the forecasted discounted cash flow in cases where
undiscounted cash flow projected does not exceed the book value of the related
assets.

                                       7

<PAGE>


(i)       PROPERTY AND EQUIPMENT - Property and equipment (P & E) are stated at
cost except for P & E that have been impaired, for which the carrying amount is
reduced to estimated fair value. Property and equipment under capital leases are
stated at their fair value at the inception of the lease. Depreciation and
amortization are computed on straight-line method over the estimated useful
lives of the assets.

(j)       GOODWILL AND NON-COMPETE AGREEMENTS - Goodwill and non-compete
agreements are being amortized over 20 years and 3 to 7 years, respectively, on
a straight-line basis.

(k)       INCOME TAXES - The Company accounts for income taxes under the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under the asset or liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date (see Note 5).

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

(m)       DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS - The balance
sheets as of September 7, 1998 and December 29, 1997 reflect the fair value
amounts which have been determined using available market information and
appropriate valuation methodologies. However, considerable judgement is required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. The carrying amounts of cash and
cash equivalents, receivables, accounts payable, and long-term debt are a
reasonable estimate of their fair value. Interest rates that are currently
available to the Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value for debt issues that are not quoted
on an exchange.

(n)       EARNINGS PER SHARE - Basic and diluted earnings (loss) per share are
calculated in accordance with the Statement of Financial Accounting Standard No.
128, "Earnings per Share". Effective for periods ending after December 15, 1997,
SFAS 128 replaces the presentation of primary earnings per share and fully
diluted earnings per share previously found in Accounting Principles Board
Opinion No. 15, "Earnings Per Share" ("APB 15") with basic earnings per share
and diluted earnings per share. Potentially dilutive common stock warrants and
options have no effect, as they are anti-dilutive for all periods presented.

(o)       STOCK OPTIONS - As discussed in Note 3, the Company utilizes the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation".

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

(q)       YEAR 2000 - In January 1997, the Company developed a plan to deal with
the Year 2000 problem and began converting its computer systems to be Year 2000
compliant. The plan provides for the conversion efforts to be completed by the
end of 1999. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year. The
total cost of the project is estimated to be $100,000 and will be funded through
operating cash flows. The Company anticipates expensing all costs associated
with these systems changes as costs are incurred.

(r)       RECLASSIFICATIONS - Certain amounts in the 1997 financial statements
have been reclassified to conform to the 1998 presentation.

                                       8

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<CAPTION>

NOTE 2:       LONG TERM DEBT

Long-term debt consists of the following:
(Dollars in thousands)                                                            SEPTEMBER 7,   DECEMBER 29,
                                                                                     1998           1997
                                                                                  ------------   ------------
<S>                                                                                 <C>            <C>    
Notes payable under Restated Credit Agreement                                       $25,432        $26,077
Notes payable and obligations under capital lease, due at various dates
     secured by building and equipment with interest rates primarily ranging
     from 9.0% to 15.83%, payable monthly                                             2,856          5,441
Other                                                                                 1,126          1,367
                                                                                    -------        -------
Total long-term debt                                                                 29,414         32,885
Less current installments                                                            26,961          3,484
                                                                                    -------        -------
Long-term debt, less current installments                                           $ 2,453        $29,401
                                                                                    =======        =======
</TABLE>

          At November 13, 1997, the effective date of the registration
statements filed on Form S-4, the Company had outstanding promissory notes in
the aggregate principal amount of approximately $3.2 million, (the "Notes")
payable to Rall-Folks, Inc. ("Rall-Folks"), Restaurant Development Group, Inc.
("RDG") and Nashville Twin Drive-Through Partners, L.P. (" N.T.D.T."). The
Company agreed to acquire the Notes issued to Rall-Folks and RDG in
consideration of the issuance of an aggregate of approximately 1.9 million
shares of Common Stock and the Note issued to NTDT in exchange for a convertible
note in the same principal amount and convertible into approximately 614,000
shares of Common Stock pursuant to agreements entered into in 1995 and
subsequently amended. All three of the parties received varying degrees of
protection on the purchase price of the promissory notes. Accordingly, the
actual number of shares to be issued was to be determined by the market price of
the Company's stock. Consummation of the Rall-Folks, RDG, and NTDT purchases
occurred on November 24, December 5, and November 24, 1997, respectively.

          During December 1997, the Company issued an aggregate of 2,622,559
shares of common stock in payment of $2.9 million of principal and accrued
interest relating to the Notes. In early 1998, the Company issued an additional
359,129 shares of common stock to NTDT. Additionally, in January 1998, the
Company issued 12,064 shares of common stock to RDG in payment of accrued
interest, issued 279,868 shares of common stock and paid $86,000 in cash to
Rall-Folks in full settlement of all remaining amounts owed in relation to debt
principal, accrued interest, and purchase price protection. After these
issuances, the remaining amount owed in relation to these Notes was $22,000
payable to NTDT. It is currently estimated that the Company may owe
approximately $70,000 in additional cash payments to NTDT for principal, accrued
interest and purchase price protection. As of September 7, 1998, the Company has
paid RDG $36,000 for accrued interest and purchase price protection and does not
expect any significant financial commitments beyond $70,000 necessary to settle
the Notes.

          The Company's primary credit facility (the "Restated Credit
Agreement") is held by an investor group led by CKE Restaurants, Inc.. Also
participating is KCC Delaware, a wholly owned subsidiary of GIANT GROUP, LTD
which is a significant shareholder of Rally's Hamburgers, Inc. (a 26% owner of
the Company). The Restated Credit Agreement with the CKE Group contains
restrictive covenants which include the consolidation EBITDA covenant as
defined, As of July 13, 1998, the Company was in violation of the consolidated
EBITDA covenant. The Company received a waiver for periods seven through ten of
fiscal 1998. This credit facility is due in full on July 31, 1999 and is
therefore classified in its entirety as current installments of long-term debt.

NOTE 3:   RELATED PARTIES

          Effective November 30, 1997 the Company entered into a Management
Services Agreement with Rally's, whereby the Company is providing accounting,
technology, and other functional and management services to predominantly all of
the operations of Rally's. The Management Services Agreement carries a term of
seven years, terminable upon the mutual consent of the parties. The Company will
receive fees from Rally's relative to the shared departmental costs times the
respective store ratio. The Company has increased its corporate and regional
staff in late 1997 and early 1998 in order to meet the demands of the agreement,
but management believes that sharing of administrative expenses ($1.5 million in
the third quarter of 1998 and $3.5 million for the three quarters ended
September 7, 1998) under the terms of this agreement will enable the Company to
attract the management staff with

                                       9

<PAGE>

expertise necessary to more successfully manage and operate both Rally's and the
Company at significantly reduced costs to both entities. Although the number of
Company employees has grown to handle the increased workload, the costs of each
department are equitably allocated between the Company and Rally's in accordance
with the Management Services Agreement.

NOTE 4:   LOSS PROVISIONS

          During the third quarter of 1998, the Company recorded provisions of
$188,000 to reserve for the costs associated with the closure of two
Restaurants. Additionally, during 1998 the Company recorded losses on assets to
be disposed of in the amounts of $63,000 in each quarter in order to lower the
net realizable value on certain of its assets held for sale including used MRPs.
During the second quarter of 1998, the Company recorded a reversal of $500,000
of previously accrued state sales tax audit provisions due to the successful
completion of certain state sales tax audits.

NOTE 5:   INCOME TAXES

          The Company recorded an income tax benefit of $558,000 for the quarter
ended September 7, 1998 and income tax benefits of $660,000 for the quarter
ended September 8, 1997, or 38.0% of the respective losses before income taxes.
The Company then recorded a valuation allowance of $558,000 against deferred
income tax assets for the quarter ended September 7, 1998 ($660,000 for the
quarter ended September 8, 1997). The Company's total valuation allowances of
approximately $30.9 million as of September 7, 1998, is maintained on deferred
tax assets which the Company has not determined to be more likely than not
realizable at this time. Subject to a review of the tax assets, these valuation
allowances will be reversed during periods in the future in which the Company
records pre-tax income, in amounts necessary to offset any then recorded income
tax expenses attributable to such future periods.

NOTE 6:   LITIGATION

          TEX-CHEX, INC. ET AL V. CHECKERS DRIVE-IN RESTAURANTS, INC. ET. AL. On
February 4, 1997, a Petition was filed against the Company and two former
officers and directors of the Company in the District Court of Travis County,
Texas 98th Judicial District, ENTITLED TEX-CHEX, INC., BRIAN MOONEY, AND SILVIO
PICCINI V. CHECKERS DRIVE-IN RESTAURANTS, INC., JAMES MATTEI, AND HERBERT G.
BROWN and numbered as Case No. 97-01335 on the docket of said court. The
original Petition generally alleged that Tex-Chex, Inc. and the individual
Plaintiffs were induced into entering into two franchise agreements and related
personal guarantees with the Company based on fraudulent misrepresentations and
omissions made by the Company. On October 2, 1998, the Plaintiffs filed an
Amended Petition realleging the fraudulent misrepresentations and omission
claims set forth in the original Petition and asserting additional causes of
action for violation of Texas' Deceptive Trade Practices Act and violation of
Texas' Business Opportunity Act. The Company believes the causes of action
asserted in the amended Petition against the Company and the individual
defendants are without merit and intends to defend them vigorously. The matter
is in the pre-trial stages and no estimate of any possible loss or range of loss
resulting from the lawsuit can be made at this time.

          CHECKERS DRIVE-IN RESTAURANTS, INC. V. INTERSTATE DOUBLE DRIVE-THRU,
INC. ET. AL. On May 9, 1998, a Counterclaim was filed against the company and a
former officer and director of the Company, Herbert T. Brown, in the United
States District Court for the Middle District of Florida, Tampa Division,
entitled CHECKERS DRIVE-IN RESTAURANTS, INC. V. INTERSTATE DOUBLE DRIVE-THRU,
INC. AND JIMMIE V. GILES and numbered as Case No. 98-648-CIV-T-23B on the docket
of said court. The original Complaint filed by the Company seeks a temporary and
permanent injunction enjoining Interstate Double Drive-Thru, Inc. and Mr. Giles'
continued use of Checkers' Marks and trade dress notwithstanding the termination
of its Franchise Agreement and to collect unpaid royalty fees and advertising
fund contributions. The Court granted the Company's motion for a preliminary
injunction on July 16, 1998. The Counterclaim generally alleges that Interstate
Double Drive-Thru, Inc. and Mr. Giles were induced into entering a franchise
agreement and a personal guaranty, respectfully, with the Company based on
misrepresentations and omissions made by the Company. The Counterclaim asserts
claims for breach of contract, breach of the implied convenant of good faith and
fair dealing, violation of Florida's Deceptive Trade Practices Act, violation of
Florida's Franchise Act, violation of Mississippi's Franchise Act, fraudulent
concealment, fraudulent inducement, negligent misrepresentation and rescission.
The Company has filed a motion to dismiss seven of the nine causes of action set
forth in the Counterclaim which remain pending. The Company believes the causes
of action asserted in the Counterclaim against the Company and Mr. Brown are
without merit and intends to defend them vigorously. The matter is in the
pre-trial stages and no estimate of any possible loss or range of loss resulting
from the lawsuit can be made at this time.

                                       10

<PAGE>


          FIRST ALBANY CORP., AS CUSTODIAN FOR THE BENEFIT OF NATHAN SUCKMAN V.
CHECKERS DRIVE-IN RESTAURANTS, INC. ET AL. Case No. 16667. This putative class
action was filed on September 29, 1998, in the Delaware Chancery Court in and
for New Castle County, Delaware by First Albany Corp., as custodian for the
benefit of Nathan Suckman, an alleged stockholder of 500 shares of the Company's
common stock. The complaint names the Company and certain of its current and
former officers and directors as defendants including William P. Foley, II,
James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A. Peabody, James T.
Holder, Terry N. Christensen, Frederick E. Fisher, Clarence V. McKee, Burt
Sugarman, C. Thomas Thompson and Peter C. O'Hara. The Complaint also names
Rally's Hamburgers, Inc. ("Rally's") and GIANT GROUP, LTD. ("GIANT") as
defendants. The complaint arises out of the proposed merger announced on
September 28, 1998 between the Company, Rally's and GIANT (the "Proposed
Merger") and alleges generally, that certain of the defendants engaged in an
unlawful scheme and plan to permit Rally's to acquire the public shares of the
Company's stock in a "going-private" transaction for grossly inadequate
consideration and in breach of the defendants' fiduciary duties. The plaintiff
allegedly initiated the Complaint on behalf of all stockholders of the Company
as of September 28, 1998, and seeks INTER ALIA, certain declaratory and
injunctive relief against the consummation of the Proposed Merger, or in the
event the Proposed Merger is consummated, recision of the Proposed Merger and
costs and disbursements incurred in connection with bringing the action,
including attorney's fees, and such other relief as the Court may deem just and
proper. The Company believes the lawsuit is without merit and intends to defend
it vigorously. No estimate of possible loss or range of loss resulting from the
lawsuit can be made at this time.

          DAVID J. STEINBERG AND CHAILE B. STEINBERG, INDIVIDUALLY AND ON BEHALF
OF THOSE SIMILARLY SITUATED V. CHECKERS DRIVE-IN RESTAURANTS, INC., ET AL. Case
No. 16680. This putative class action was filed on October 2, 1998, in the
Delaware Chancery Court in and for New Castle County, Delaware by David J.
Steinberg and Chaile B. Steinberg, alleged stockholders of an unspecified number
of shares of the Company's common stock. The complaint names the Company and
certain of its current officers and directors as defendants including William P.
Foley, II, James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A.
Peabody, James T. Holder, Terry N. Christensen, Frederick E. Fisher, Clarence V.
McKee, Burt Sugarman, C. Thomas Thompson and Peter C. O'Hara. The Complaint also
names Rally's and GIANT as defendants. As with the FIRST ALBANY complaint
described above, this complaint arises out of the proposed merger announced on
September 28, 1998 between the Company, Rally's and GIANT (the "Proposed
Merger") and alleges generally, that certain of the defendants engaged in an
unlawful scheme and plan to permit Rally's to acquire the public shares of the
Company's common stock in a "going-private" transaction for grossly inadequate
consideration and in breach of the defendant's fiduciary duties. The plaintiffs
allegedly initiated the Complaint on behalf of all stockholders of the Company
as of September 28, 1998, and seeks INTER ALIA, certain declaratory and
injunctive relief against the consummation of the Proposed Merger, or in the
event the Proposed Merger is consummated, recision of the Proposed Merger and
costs and disbursements incurred in connection with bringing the action,
including attorneys' fees, and such other relief as the Court may deem just and
proper. The Company believes the lawsuit is without merit and intends to defend
it vigorously. No estimate of possible loss or range of loss resulting from the
lawsuit can be made at this time.

NOTE 7:   SUBSEQUENT EVENT

          On September 28, 1998 the Company announced that it had agreed in
principle to a merger transaction pursuant to which the Company and GIANT GROUP,
LTD. ("GIANT"), will become wholly-owned subsidiaries of Rally's Hamburgers,
Inc. ("Rally's"). Under the terms of the letter of intent each share of
Checker's common stock will be converted into 0.5 share of Rally's common stock
and each share of GIANT'S common stock will be converted into 10.48 shares of
Rally's common stock upon consummation of the merger. The transaction is subject
to negotiation of definitive agreements, receipt of fairness opinions by each
party, receipt of stockholder and other required approvals and customary
conditions.

                                       11

<PAGE>



ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

INTRODUCTION

          The Company commenced operations on August 1, 1987, to operate and
franchise Checkers Double Drive-Thru Restaurants. As of September 7, 1998, the
Company had an ownership interest in 228 Company-operated Restaurants and an
additional 255 Restaurants were operated by franchisees. The Company's ownership
interest in the Company-operated Restaurants is in one of two forms: (i) the
Company owns 100% of the Restaurant (as of September 7, 1998, there were 216
such Restaurants) and (ii) the Company owns a 10.55% or 65.83% interest in a
partnership which owns the Restaurant (a "Joint Venture Restaurant") (as of
March 23, 1998, there were 12 such Joint Venture Restaurants).

          During the third quarter of fiscal 1998, the Company realized an
overall 0.1% decrease in Restaurant sales compared to the third quarter of
fiscal 1997 due to the closure of two Restaurants during the current quarter.
Comparable store sales increased 0.6% during the same period.

          During the third quarter, the Company continued to apply a marketing
strategy in major markets relying primarily on television advertising that
focused on the quality and freshness of the menu items the Company offers. With
the goal of enhancing menu flexibility, the Company continues a test that will
evaluate the utilization of two sizes of hamburger patties rather than the
standard quarter pound patty that is currently in use. The Company is still
determining the expected impact of a system-wide introduction of new menu
boards.

          The Company continues to realize reductions in food and paper costs
during the third quarter of 1998. Restaurant food and paper costs were 31.3% of
restaurant sales for the quarter versus 31.6% of restaurant sales during the
same quarter of the prior year. Management's efforts to improve food and paper
costs by implementing tighter operational controls were supplemented by cost of
sales reductions realized by cooperating with CKE Restaurants, Inc. and Rally's
Hamburgers, Inc. (Rally's) to leverage the purchasing power of the three
entities to negotiate improved terms for their respective contracts with
suppliers. Labor costs increased during the third quarter of 1998 to 32.9% of
Restaurant sales compared with 32.1% of Restaurant sales for the same quarter of
the prior year. This increase was due to higher bonus and group insurance costs
and to the increased staffing necessary to accelerate the speed with which our
customers are served.

          Effective November 30, 1997 the Company entered into a Management
Services Agreement with Rally's, whereby the Company is providing accounting,
information technology, and other functional and management services to
predominantly all of the operations of Rally's. The Management Services
Agreement carries a term of seven years, terminable upon the mutual consent of
the parties. The Company will receive fees from Rally's relative to the shared
departmental costs times the respective store ratio. The Company has increased
its corporate and regional staff in late 1997 and early 1998 in order to meet
the demands of the agreement, but management believes that sharing of
administrative expenses under the terms of this agreement will enable the
Company to attract the management staff with expertise necessary to more
successfully manage and operate both Rally's and the Company at significantly
reduced costs to both entities. During the third quarter of 1998, the Company
was able to expand the scope of synergistic opportunities under the Management
Services Agreement to include the consolidation of marketing personnel as well
as the marketing agencies utilized by both concepts.

          In 1998, the franchise community has indicated an intent to open up to
20 new units, 14 of which have been opened as of the third quarter. The Company
will continue to focus on improving existing Restaurant sales and margins. The
franchise group as a whole continues to experience higher average per store
sales than Company stores.

          The Company receives revenues from Restaurant sales, franchise fees,
royalties and sales of fully-equipped manufactured Modular Restaurant Packages
("MRPs"). Cost of MRP's relates to all Restaurant equipment and building
materials, labor and other direct and indirect costs of production. Other
expenses, such as depreciation and amortization, and general and administrative
expenses, relate both to Company-operated Restaurant operations and MRP revenues
as well as the Company's franchise sales and support functions. The Company's
revenues and expenses are affected by the number and timing of additional
Restaurant openings and the sales volumes of both existing and new Restaurants.
MRP revenues are directly affected by the number of new franchise Restaurant
openings and the number of new MRP's completed or used MRP's refurbished for
sale in connection with those openings.

                                       12

<PAGE>


RESULTS OF OPERATIONS

          The following table sets forth the percentage relationship to total
revenues of the listed items included in the Company's Consolidated Statements
of Operations. Certain items are shown as a percentage of Restaurant sales and
Modular Restaurant Package revenue. The table also sets forth certain selected
restaurant operating data.

<TABLE>
<CAPTION>

                                                           QUARTER ENDED        THREE QUARTERS ENDED
                                                            (UNAUDITED)             (UNAUDITED)
                                                         -------------------    --------------------
                                                         SEPT. 7,   SEPT. 8,    SEPT. 7,    SEPT. 8,
REVENUES                                                   1998       1997         1998       1997
                                                         --------   --------    --------    --------
<S>                                                      <C>        <C>         <C>         <C>  
    Restaurant sales                                       94.4%      94.1%        94.7%      94.4%
    Franchise revenues and fees                             5.3%       5.5%         5.1%       5.1%
    Modular restaurant packages                             0.3%       0.4%         0.2%       0.5%
                                                         ------     ------       ------     ------
        Total  revenues                                   100.0%     100.0%       100.0%     100.0%
COSTS AND EXPENSES
    Restaurant food and paper costs (1)                    31.3%      31.6%        31.7%      32.9%
    Restaurant labor costs (1)                             32.9%      32.1%        32.0%      32.7%
    Restaurant occupancy expense (1)                        8.5%       8.4%         7.9%       7.8%
    Restaurant depreciation and amortization (1)            5.7%       6.2%         5.3%       6.0%
    Other restaurant operating expense (1)                  9.8%      10.0%         9.5%      10.0%
    Advertising expense (1)                                 5.3%       5.2%         5.2%       5.1%
    Costs of modular restaurant package revenues (2)      156.4%     100.0%       155.0%      88.9%
    Other depreciation and amortization                     1.6%       1.6%         1.5%       1.5%
    General and administrative expense                      9.6%      11.0%         9.2%      10.9%
    Loss provisions                                         0.8%       0.0%        (0.1)%      0.0%
                                                         ------     ------       ------     ------
        Operating income (loss)                            (0.8)%     (0.9)%        2.3%      (2.0)%
                                                         ------     ------       ------     ------
OTHER INCOME (EXPENSE)
    Interest income                                         0.2%       0.2%         0.2%       0.2%
    Interest expense                                       (2.7)%     (3.2)%       (2.6)%     (3.5)%
    Interest - loan cost amortization                      (1.3)%     (1.4)%       (1.2)%     (3.1)%
    Minority interests losses                               0.0%       0.0%         0.0%      (0.1)%
                                                         ------     ------       ------     ------

   Loss before income tax expense                          (4.5)%     (5.3)%       (1.2)%     (8.3)%
   Income tax expense                                       0.0%       0.0%         0.0%       0.0%
                                                         ------     ------       ------     ------
        Net loss                                           (4.5)%     (5.3)%       (1.2)%     (8.3)%
                                                         ======     ======       ======     ======
Preferred Dividends                                         0.0%       2.1%         0.0%       0.7%
                                                         ------     ------       ------     ------
Net loss to common shareholders                            (4.5)%     (7.4)%       (1.2)%     (9.0)%
                                                         ======     ======       ======     ======
<FN>
(1)  As a percent of Restaurant sales.
(2)  As a percent of Modular restaurant package revenues.
</FN>
</TABLE>


                                       13

<PAGE>
<TABLE>
<CAPTION>
                                                             QUARTER ENDED         THREE QUARTERS ENDED
                                                              (UNAUDITED)              (UNAUDITED)
                                                           -------------------     --------------------
                                                           SEPT. 7,   SEPT. 8,      SEPT. 7,   SEPT. 8,
                                                             1998       1997          1998       1997
                                                           --------   --------     --------   ---------
<S>                                                        <C>        <C>          <C>        <C>     
Operating data:
    System - wide restaurant sales (in 000's):
      Company - operated                                   $ 30,770   $ 30,786      $ 98,880   $ 94,987
      Franchised                                             40,374     43,226       126,044    124,485
                                                           --------   --------      --------   --------
            Total                                          $ 71,144   $ 74,012      $224,924   $219,472
                                                           ========   ========      ========   ========

Average annual sales per restaurant open for a full year
    (in 000's) (3):                                          1998       1997
                                                           --------   --------
      Company - operated                                   $    612   $    612
      Franchised                                           $    739   $    742
      System - wide                                        $    674   $    677
                                                           --------   --------
Number of Restaurants (4)
      Company - operated                                        228        232
      Franchised                                                255        248
                                                           --------   --------
           Total                                                483        480
                                                           ========   ========
<FN>
(3) Includes sales of restaurants open for entire previous 52 weeks including
    stores expected to be closed in the following year.
(4) Number of restaurants open at end of period.
</FN>
</TABLE>

COMPARISON OF HISTORICAL RESULTS - QUARTER ENDED SEPTEMBER 7, 1998 AND QUARTER
ENDED SEPTEMBER 8, 1997

          REVENUES. Total revenues decreased 0.5% to $32.6 million for the
quarter ended September 7, 1998, compared to $32.7 million for the quarter ended
September 8, 1997. Company-operated Restaurant sales remained consistent at
$30.8 million for the quarter ended September 7, 1998, and $30.8 million for the
quarter ended September 8, 1997. Restaurant sales for comparable
Company-operated Restaurants for the quarter ended September 7, 1998, increased
0.6% compared to the quarter ended September 8, 1997. Comparable
Company-operated Restaurants are those continuously open during both reporting
periods. This increase was offset by the net decrease of four Company-operated
Restaurants since September 8, 1997.

          Franchise revenues and fees decreased 4.6% to $1.7 million for the
quarter ended September 7, 1998, from $1.8 million for the quarter ended
September 8, 1997. This was a result of a 6.6% decrease in franchise restaurant
sales for the third quarter of 1998 versus the third quarter of 1997 and fewer
franchise restaurant openings in the third quarter of 1998 versus the third
quarter 1997. The Company recognizes franchise fees as revenues when the Company
has substantially completed its obligations under the franchise agreement,
usually at the opening of the franchised Restaurant.

          Modular restaurant package ("MRP") revenues decreased 32.7% to
$101,000 for the quarter ended September 7, 1998, from $150,000 for the quarter
ended September 8, 1997. Modular restaurant package revenues except service work
orders are recognized on the percentage of completion method during the
construction process; therefore, a substantial portion of the modular restaurant
package revenues and costs are recognized prior to the opening of a Restaurant
or shipment to a convenience store operator and include amounts charged to
franchisees for the refurbishment of used MRP's.

          COSTS AND EXPENSES. Restaurant food and paper costs totalled $9.6
million or 31.3% of Restaurant sales for the quarter ended September 7, 1998,
compared to $9.7 million or 31.6% of Restaurant sales for the quarter ended
September 8, 1997. The decrease in these costs as a percentage of Restaurant
sales was due to new purchasing contracts negotiated in 1997 and 1998.

          Restaurant labor costs, which includes restaurant employees' salaries,
wages, benefits and related taxes, totalled $10.1 million or 32.9% of Restaurant
sales for the quarter ended September 7, 1998, compared to $9.9 million or 32.1%
of Restaurant sales for the quarter ended September 8, 1997. These increases in
Restaurant labor costs were due to increased bonus expense and group insurance
costs and increased staffing levels at the restaurants necessary to accelerate
the speed with which customers are served.

                                       14
<PAGE>


          Restaurant occupancy expense, which includes rent, property taxes,
licenses and insurance, totalled $2.6 million or 8.5% of Restaurant sales for
the quarter ended September 7, 1998 compared to $2.6 million or 8.4% of
Restaurant sales for the quarter ended September 8, 1997. This increase in
percentage of restaurant sales was due primarily to an increase in property
taxes and rent expense, partially offset by the operation of four fewer
Company-operated Restaurants at September 7, 1998.

          Restaurant depreciation and amortization decreased by $136,000 or 7.1%
for the quarter ended September 7, 1998, as compared to the quarter ended
September 8, 1997, due primarily to a net decrease of four Company-operated
restaurants from September 8, 1997 to September 7, 1998 and certain assets
becoming fully depreciated since September 8, 1997.

          Other restaurant operating expenses include all other Restaurant level
operating expenses other than food and paper costs, labor and benefits, rent and
other occupancy costs which include utilities, maintenance and other costs.
These expenses totalled $3.0 million or 9.8% of Restaurant sales for the quarter
ended September 7, 1998, compared to $3.1 million or 10.0% of Restaurant sales
for the quarter ended September 8, 1997. The decreased expense is due primarily
to a decrease in utilities and the impact of four fewer Restaurants operating
during the quarter ended September 7, 1998 versus the third quarter of the prior
year.

          Advertising expense increased as a percentage of sales to 5.3% for the
quarter ended September 7, 1998, from 5.2% of Restaurant sales for the quarter
ended September 8, 1997. The actual increase in this expense was $42,000.

          Costs of modular restaurant package revenues totalled $158,000 or
156.4% of modular restaurant package revenues for the quarter ended September 7,
1998, compared to $150,000 or 100.0% of such revenues for the quarter ended
September 8, 1997. The increase in these expenses as a percentage of modular
restaurant package revenues was attributable to the decline in MRP revenues
relative to the fixed and semi-variable nature of these costs.

          General and administrative expenses were $3.1 million or 9.6% of total
revenues, for the quarter ended September 7, 1998, compared to $3.6 million or
11.0% of total revenues for the quarter ended September 8, 1997. The decrease in
these expenses of $481,000 was primarily due to the continued savings associated
with the management services agreement between the Company and Rally's
Hamburgers, Inc. pursuant to which Checkers is providing the majority of the
administrative functions for Rally's.

          LOSS PROVISIONS. During the third quarter of 1998, the Company
recorded $251,000 in losses on assets to be disposed of, of which $63,000 was
recorded in order to lower the net realizable value on certain of its assets
held for sale and $188,000 to provide for the closure of two Restaurants.

          INTEREST EXPENSE. Interest expense other than loan cost amortization
decreased to $867,000 or 2.7% of total revenues for the quarter ended September
7, 1998 from $1.0 million or 3.2% of total revenues for the quarter ended
September 8, 1997. This decrease was due to a reduction in the weighted average
balance of debt outstanding during the respective periods. Loan cost
amortization decreased by $30,000 to $415,000 for the quarter ended September 7,
1998 from $445,000 for the quarter ended September 8, 1997.

          INCOME TAX EXPENSE. Due to the loss for the quarter, the Company
recorded an income tax benefit of $558,000 or 38.0% of the loss before income
taxes which was completely offset by deferred income tax valuation allowances of
$558,000 for the quarter ended September 7, 1998, as compared to an income tax
benefit of $660,000 or 38.0% of earnings before income taxes offset by deferred
income tax valuation allowances of $660,000 for the quarter ended September 8,
1997. The effective tax rates differ from the expected federal tax rate of 35.0%
due to state income taxes.

          NET LOSS. The net loss for the quarter was $1.5 million or $.02 per
share for the quarter ended September 7, 1998 compared to a net loss to common
shareholders of $2.4 million or $.04 per share after deducting preferred
dividends of $696,000 for the quarter ended September 8, 1997. This improvement
was primarily the result of a decrease in general and administrative expenses
and a reduction in interest expense, partially offset by higher labor costs at
the Restaurant level and the recording of loss provisions.


COMPARISON OF HISTORICAL RESULTS - THREE QUARTERS ENDED SEPTEMBER 7, 1998 AND
THREE QUARTERS ENDED SEPTEMBER 8, 1997

          REVENUES. Total revenues increased 3.8% to $104.4 million for the
three quarters ended September 7, 1998, compared to $100.6 million for the
quarter ended September 8, 1997. Company-operated Restaurant sales increased
4.1% to $98.9 million for the three quarters ended September 7, 1998, from $95.0
million for the three quarters ended September 8, 1997. Restaurant sales for
comparable Company-operated Restaurants for the three quarters ended September
7, 1998, increased 4.7% compared to the three quarters ended September 8, 1997.
Comparable Company-operated Restaurants are those continuously open during both
reporting periods. These increases in Restaurant sales and comparable Restaurant
sales are primarily attributable to the successful introduction of the Spicy
Chicken Sandwich in

                                       15

<PAGE>


1998, the introduction of new $.99 menu items and the brand positioning
advertising featuring the "Fresh, because we just made it" tag line that focuses
on the quality of the Company's products.

          Franchise revenues and fees increased 3.7% to $5.3 million for the
three quarters ended September 7, 1998, from $5.1 million for the three quarters
ended September 8, 1997. This was a result of a 1.3% increase in franchise
restaurant sales for the first three quarters of 1998 versus the first three
quarters of 1997 and the opening of more franchised restaurants during the first
three quarters of 1998 versus the first three quarters of 1997. The Company
recognizes franchise fees as revenues when the Company has substantially
completed its obligations under the franchise agreement, usually at the opening
of the franchised Restaurant.

          Modular restaurant package revenues decreased 55.5% to $220,000 for
the three quarters ended September 7, 1998, from $494,000 for the three quarters
ended September 8, 1997. Modular restaurant package revenues, except service
work orders, are recognized on the percentage of completion method during the
construction process; therefore, a substantial portion of the modular restaurant
package revenues and costs are recognized prior to the opening of a Restaurant
or shipment to a convenience store operator. Included in modular restaurant
revenues are amounts charged to franchisees for the refurbishment of used MRPs
under service work orders.

          COSTS AND EXPENSES. Restaurant food and paper costs totalled $31.4
million or 31.7% of Restaurant sales for the three quarters ended September 7,
1998, compared to $31.2 million or 32.9% of Restaurant sales for the three
quarters ended September 8, 1997. The decrease in these costs as a percentage of
Restaurant sales was due to new purchasing contracts negotiated in 1997 and
1998.

          Restaurant labor costs, which includes restaurant employees' salaries,
wages, benefits and related taxes, totaled $31.6 million or 32.0% of Restaurant
sales for the three quarters ended September 7, 1998, compared to $31.0 million
or 32.7% of Restaurant sales for the three quarters ended September 8, 1997. The
decrease in these costs as a percentage of Restaurant sales was due to the
efficiencies gained at higher sales levels and a reduction in worker's
compensation expense, partially offset by an increase in group insurance costs.

          Restaurant occupancy expense, which includes rent, property taxes,
licenses and insurance, totaled $7.8 million or 7.9% of Restaurant sales for the
three quarters ended September 7, 1998 compared to $7.4 million or 7.8% of
Restaurant sales for the three quarters ended September 8, 1997. This increase
in restaurant occupancy costs was due primarily to increases in property taxes
and rent expense partially offset by the operation of four fewer Restaurants
since September 8, 1997.

          Restaurant depreciation and amortization decreased by $448,000 or 7.8%
for the three quarters ended September 7, 1998, as compared to the three
quarters ended September 8, 1997, due primarily to a net decrease of four
Company-operated Restaurants and certain assets becoming fully depreciated since
September 8, 1997.

          Other restaurant operating expenses include all other Restaurant level
operating expenses other than food and paper costs, labor and benefits, rent and
other occupancy costs which include utilities, maintenance and other costs.
These expenses totaled $9.4 million or 9.5% of Restaurant sales for the three
quarters ended September 7, 1998, compared to $9.5 million or 10.0% of
Restaurant sales for the three quarters ended September 8, 1997. The decrease in
these costs as a percentage of sales was primarily related to the increase in
average Restaurant sales relative to the fixed and semi-variable nature of these
expenses. Increased repair and maintenance expenditures were offset by a
decrease in utilities and the impact of a net decrease of four Company-operated
Restaurants since September 8, 1997.

          Advertising expense increased by $265,000 to 5.2% of Restaurant sales
for the three quarters ended September 7, 1998, from 5.1% of Restaurant sales
for the three quarters ended September 8, 1997. The increase in this expense was
due to the increased utilization of television advertising during 1998 versus a
higher proportion of less expensive radio advertising during 1997.

          Costs of modular restaurant package revenues totaled $341,000 or
155.0% of modular restaurant package revenues for the three quarters ended
September 7, 1998, compared to $439,000 or 88.9% of such revenues for the three
quarters ended September 8, 1997. The increase in these expenses as a percentage
of modular restaurant package revenues was attributable to the decline in MRP
revenues relative to the fixed and semi-variable nature of these costs.

          General and administrative expenses were $9.6 million or 9.2% of total
revenues, for the three quarters ended September 7, 1998, compared to $11.0
million or 10.9% of total revenues for the quarter ended September 8, 1997. The
decrease in these expenses of $1.4 million was primarily due to the continued
savings associated with the management services agreement between the Company
and Rally's, pursuant to which Checkers is providing the majority of the
administrative functions for Rally's, and terminated merger costs of $350,000
that were recorded during the second quarter of 1997.

          LOSS PROVISIONS. During the first, second and third quarters of 1998,
the Company recorded losses on assets to be disposed of in the amounts of
$63,000 each quarter in order to lower the net realizable value on certain of
its assets held for sale and an additional $188,000 in the third quarter to
provide for the closure of two Restaurants. As a partial offset, during the
second quarter of 1998, 

                                       16

<PAGE>


the Company recorded a reversal of $500,000 of previously accrued state sales
tax audit provisions due to the successful completion of certain state sales tax
audits.

          INTEREST EXPENSE. Interest expense other than loan cost amortization
decreased to $2.7 million or 2.6% of total revenues for the three quarters ended
September 7, 1998 from $3.6 million or 3.5% of total revenues for the quarter
ended September 8, 1997. This decrease was due to a reduction in the weighted
average balance of debt outstanding during the respective periods. Loan cost
amortization decreased by $1.9 million to $1.2 million in 1998 from $3.1 million
for the three quarters ended September 8, 1997 due to the 1997 accelerated
amortization of deferred loan costs resulting from $9.7 million in unscheduled
principal reductions in early 1997.

          INCOME TAX EXPENSE. During 1998, the Company recorded income tax
expense of $487,000 or 38.0% of the net income before income taxes which was
completely offset by the reversal of deferred income tax valuation allowances of
$487,000 for the three quarters ended September 7, 1998, as compared to an
income tax benefit of $3.2 million or 38.0% of earnings before income taxes
offset by deferred income tax valuation allowances of $3.2 million for the three
quarters ended September 8, 1997. The effective tax rates differ from the
expected federal tax rate of 35.0% due to state income taxes and job tax
credits.

          NET INCOME (LOSS). Restaurant operating margins before advertising
expense improved by $3.2 million in 1998, versus the comparable three quarters
in 1997. Earnings were negatively impacted in 1997 by the expensing of $3.1
million in deferred loan costs and $350,000 in terminated merger costs in the
three quarters ended September 8, 1997, versus $1.2 million in deferred loan
cost amortization in 1998. Net loss before tax and the deferred loan cost
amortization was $38,000 or $.00 per share for the three quarters ended
September 7, 1998 and $4.9 million or $.08 per share for the three quarters
ended September 8, 1997, which resulted primarily from an increase in the
average Restaurant sales and margins, an increase in royalties and franchise
fees, a decrease in general and administrative expenses and a reduction in
interest expense.

LIQUIDITY AND CAPITAL RESOURCES

          On February 21, 1997, the Company completed a private placement (the
"Private Placement") of 8,771,929 shares of the Company's common stock, $.001
par value, and 87,719 shares of the Company's Series A preferred stock, $.001
par value (the "Preferred Stock"). CKE Restaurants, Inc. purchased 6,162,299 of
the Company's common stock and 61,623 of the Preferred Stock and other qualified
investors, including other members of the CKE Group of lenders under the
Restated Credit Agreement, also participated in the Private Placement. The
Company received $19.5 million in net proceeds after $500,000 of issuance costs
from the Private Placement. The Company used $8.0 million of the Private
Placement proceeds to reduce the principal balance due under the Restated Credit
Agreement; $2.5 million was utilized to repay the Secondary Credit Line; $2.3
million was utilized to pay outstanding balances to various key food and paper
distributors; and the remaining amount was used primarily to pay down
outstanding balances due certain other vendors. The reduction of the debt under
the Restated Credit Agreement and the Secondary Credit Line, both of which
carried a 13% interest rate reduced the Company's interest payments by more than
$1.3 million on an annualized basis.

          At November 13, 1997, the effective date of the Company's Registration
Statements on Forms S-4, the Company had outstanding promissory notes in the
aggregate principal amount of approximately $3.2 million (the "Notes") payable
to Rall-Folks, Inc. ("Rall-Folks"), Restaurant Development Group, Inc. ("RDG")
and Nashville Twin Drive-Through Partners, L.P. (N.T.D.T."). The Company agreed
to acquire the Notes issued to Rall-Folks and RDG in consideration of the
issuance of an aggregate of approximately 1.9 million shares of Common Stock and
the Note issued to NTDT in exchange for a series of convertible notes in the
same aggregate principal amount and convertible into approximately 614,000
shares of Common Stock pursuant to agreements entered into in 1995 and
subsequently amended. All three of the parties received varying degrees of
protection on the purchase price of the promissory notes. Accordingly, the
actual number of shares to be issued was to be determined by the market price of
the Company's stock. Consummation of the Rall-Folks, RDG, and NTDT purchases
occurred on November 24, and December 5, and November 24, 1997, respectively.

          During December 1997, the Company issued an aggregate of 2,622,559
shares of common stock in payment of $2.9 million of principal and accrued
interest relating to the Notes. In early 1998, the Company issued an additional
359,129 shares of common stock to NTDT. Additionally, in January 1998, the
Company issued 12,064 shares of common stock to RDG in payment of accrued
interest, issued 279,868 shares of common stock and paid $86,000 in cash to
Rall-Folks in full settlement of all remaining amounts owed in relation to debt
principal, accrued interest, and purchase price protection. After these
issuance's, the remaining amount owed in relation to these Notes was $22,000
payable to NTDT. It is currently estimated that the Company may owe
approximately $70,000 in additional cash payments to NTDT for principal, accrued
interest and purchase price protection. As of September 7, 1998, the Company has
paid RDG $36,000 for accrued interest and purchase price protection and does not
expect any significant financial commitments beyond $70,000 necessary to settle
the Notes.

          The Company currently does not have significant development plans for
additional Company Restaurants during fiscal 1998.

                                       17

<PAGE>


          The Company's primary credit facility (the "Restated Credit
Agreement") is held by an investor group led by CKE Restaurants, Inc.. Also
participating is KCC Delaware, a wholly owned subsidiary of GIANT GROUP, LTD
which is a significant shareholder of Rally's Hamburgers, Inc. (a 26% owner of
the Company). The Restated Credit Agreement with the CKE Group contains
restrictive covenants which include the consolidation EBITDA covenant as
defined, As of July 13, 1998, the Company was in violation of the consolidated
EBITDA covenant. The Company received a waiver for periods seven through ten of
fiscal 1998. This credit facility is due in full on July 31, 1999 and is
therefore classified in its entirety as current installments of long-term debt.

          The Company has negative working capital of $32.3 million at September
7, 1998 (determined by subtracting current liabilities from current assets). A
majority of the negative working capital position is due to the classification
of the remaining principal balance ($25.4 million) of the Restated Credit
Agreement, due July 31, 1999, as a current liability. Various repayment or
refinancing alternatives are currently being evaluated. It is anticipated that
the Company will continue to have negative working capital since approximately
88.2% of the Company's assets are long-term (property, equipment, and
intangibles), and since all operating trade payables, accrued expenses, and
property and equipment payables are current liabilities of the Company. In
January 1998, $1.2 million in restricted cash balances were released for the
Company's use as the funds have been guaranteed by a letter of credit from a
bank.

          Effective November 30, 1997, the Company entered into a Management
Services Agreement with Rally's whereby the Company is providing accounting,
technology, and other functional and management services to predominantly all of
the operations of Rally's. The Management Services Agreement carries a term of
seven years, terminable upon the mutual consent of the parties. The Company will
receive fees from Rally's relative to the shared departmental costs times the
respective store ratio. The Company has increased its corporate and regional
staff in late 1997 and early 1998 in order to meet the demands of the agreement,
but management believes that sharing of administrative expenses under the terms
of this agreement will enable the Company to attract the management staff with
expertise necessary to more successfully manage and operate both Rally's and the
Company at significantly reduced costs to both entities. During the third
quarter of 1998, the Company was able to expand the scope of synergistic
opportunities under the Management Services Agreement to include the
consolidation of marketing personnel as well as the marketing agencies utilized
by both concepts.

          On September 25, 1998 the Company announced that it had agreed in
principle to a merger transaction pursuant to which the Company along with GIANT
GROUP, LTD., ("GIANT"), will become wholly-owned subsidiaries of Rally's
Hamburgers, Inc. ("Rally's"). Under the terms of the letter of intent each share
of Checker's common stock will be converted into 0.5 share of Rally's common
stock and each share of GIANT's common stock will be converted into 10.48 shares
of Rally's common stock upon consummation of the merger. The transaction is
subject to negotiation of definitive agreements, receipt of fairness opinions by
each party, receipt of stockholder and other required approvals and customary
conditions.

          Overall, the Company believes many of the fundamental steps have been
taken to improve the Company's profitability, but there can be no assurance that
it will be able to do so. Management believes that cash flows generated from
operations, and asset sales should allow the Company to continue to meet its
financial obligations and to pay operating expenses.

          The Company's prior operating results are not necessarily indicative
of future results. The Company's future operating results may be affected by a
number of factors, including: uncertainties related to the general economy;
competition; costs of food and labor; the Company's ability to obtain adequate
capital and to continue to lease or buy successful sites and construct new
Restaurants; and the Company's ability to locate capable franchisees. The price
of the Company's common stock can be affected by the above. Additionally, any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
the Company's common stock in a given period.


ITEM 3    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COMPETITION

          The Company's Restaurant operations compete in the fast food industry,
which is highly competitive with respect to price, concept, quality and speed of
service, Restaurant location, attractiveness of facilities, customer
recognition, convenience and food quality and variety. The industry includes
many fast food chains, including national chains which have significantly
greater resources than the Company that can be devoted to advertising, product
development and new Restaurants. In certain markets, the Company will also
compete with other quick-service double drive-thru hamburger chains with
operating concepts similar to the Company. The fast food industry is often
significantly affected by many factors, including changes in local, regional or
national economic conditions affecting consumer spending habits, demographic
trends and traffic patterns, changes in consumer taste, consumer concerns about
the nutritional quality of quick-service food and increases in the number, type
and location of competing quick-service Restaurants. The Company competes
primarily on the basis of speed of service, price, value, food quality and
taste. In addition, with respect to selling franchises, the Company competes
with many franchisors of Restaurants and other business concepts.

                                       18

<PAGE>

All of the major chains have increasingly offered selected food items and
combination meals, including hamburgers, at temporarily or permanently
discounted prices. Beginning generally in the summer of 1993, the major fast
food hamburger chains began to intensify the promotion of value priced meals,
many specifically targeting the 99(cent) price point at which the Company sells
its "Champ Burger(R)". This promotional activity has continued at increasing
levels, and management believes that it has had a negative impact on the
Company's sales and earnings. Increased competition, additional discounting and
changes in marketing strategies by one or more of these competitors could have
an adverse effect on the Company's sales and earnings in the affected markets.
With respect to its Modular Restaurant Packages, the Company competes primarily
on the basis of price and speed of construction with other modular construction
companies as well as traditional construction companies, many of which have
significantly greater resources than the Company.

SFAS 121

          The Company examines its long-lived assets for potential impairment
where circumstances indicate that such impairment may exist, 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" ("SFAS
121"). The Company believes such examination requires the operations and store
level economics of individual restaurants be evaluated for potential impairment.
The Company recorded write-downs of its assets in the fourth quarter of fiscal
year 1995 and during fiscal year 1996 pursuant to SFAS 121. No assurance can be
given that even an overall return to profitability will preclude the write-down
of assets associated with the operation of an individual restaurant or
restaurants in the future.

GOVERNMENT REGULATIONS

          The Company has no material contracts with the United States
government or any of its agencies.

          The restaurant industry generally, and each Company-operated and
franchised Restaurant specifically, are subject to numerous federal, state and
local government regulations, including those relating to the preparation and
sale of food and those relating to building, zoning, health, accommodations for
disabled members of the public, sanitation, safety, fire, environmental and land
use requirements. The Company and its franchisees are also subject to laws
governing their relationship with employees, including minimum wage
requirements, accommodation for disabilities, overtime, working and safety
conditions and citizenship requirements. The Company is also subject to
regulation by the FTC and certain laws of States and foreign countries which
govern the offer and sale of franchises, several of which are highly
restrictive. Many State franchise laws impose substantive requirements on the
franchise agreement, including limitations on noncompetition provisions and on
provisions concerning the termination or nonrenewal of a franchise. Some States
require that certain materials be registered before franchises can be offered or
sold in that state. The failure to obtain or retain food licenses or approvals
to sell franchises, or an increase in the minimum wage rate, employee benefit
costs (including costs associated with mandated health insurance coverage) or
other costs associated with employees could adversely affect the Company and its
franchisees. Mandated increases in the minimum wage rate were implemented in
1996 and 1997. 

           The Company's construction, transportation and placement of Modular
Restaurant Packages is subject to a number of federal, state and local laws
governing all aspects of the manufacturing process, movement, end use and
location of the building. Many states require approval through state agencies
set up to govern the modular construction industry, other states have provisions
for approval at the local level. The transportation of the Company's Modular
Restaurant Package is subject to state, federal and local highway use laws and
regulations which may prescribe size, weight, road use limitations and various
other requirements. The descriptions and the substance of the Company's
warranties are also subject to a variety of state laws and regulations.

PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          Except as described below, the Company is not a party to any material
litigation and is not aware of any threatened material litigation:
                
          IN RE CHECKERS SECURITIES LITIGATION, Master File No.
93-1749-Civ-T-17A. On October 13, 1993, a class action complaint was filed in
the United States District Court for the Middle District of Florida, Tampa
Division, by a stockholder against the Company, certain of its officers and
directors, including Herbert G. Brown, Paul C. Campbell, George W. Cook, Jared
D. Brown, Harry S. Cline, James M. Roche, N. John Simmons, Jr. and James F.
White, Jr., and KPMG Peat Marwick, the Company's auditors. The complaint
alleges, generally, that the Company issued materially false and misleading
financial statements which were not prepared in accordance with generally
accepted accounting principles, in violation of Section 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Florida common
law and statute. The allegations, including an allegation that 

                                       20
<PAGE>


the Company inappropriately selected the percentage of completion method of
accounting for sales of modular restaurant buildings, are primarily directed to
certain accounting principles followed by Champion. The plaintiffs sought to
represent a class of all purchasers of the Company's Common Stock between
November 22, 1991 and October 8, 1993, and an unspecified amount of damages.
Although the Company believed this lawsuit was unfounded and without merit, in
order to avoid further expenses of litigation, the parties reached an agreement
in principle for the settlement of this class action. The agreement for
settlement provides for one of the Company's director and officer liability
insurance carriers and another party to contribute to a fund for the purpose of
paying claims on a claims-made basis up to a total of $950,000. The Company has
agreed to contribute ten percent (10%) of claims made in excess of $475,000 for
a total potential liability of $47,500. The settlement was approved by the Court
on January 30, 1998.

          GREENFELDER ET AL. V. WHITE, ,JR., ET AL. On August 10, 1995, a state
court Complaint was filed in the Circuit Court of the Sixth Judicial Circuit in
and for Pinellas County, Florida, Civil Division, entitled GAIL P. GREENFELDER
AND POWERS BURGERS, INC. V. JAMES F. WHITE, JR., CHECKERS DRIVE-IN RESTAURANTS,
INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED D. BROWN, ROBERT G. BROWN AND
GEORGE W. COOK, Case No. 95-4644-CI-21 (hereinafter the "Power Burgers
Litigation"). The original Complaint alleged, generally, that certain officers
of the Company intentionally inflicted severe emotional distress upon Ms.
Greenfelder, who is the sole stockholder, President and Director of Powers
Burgers, Inc. (hereinafter "Powers Burgers") a Checkers franchisee. The original
Complaint further alleged that Ms. Greenfelder and Powers Burgers were induced
into entering into various agreements and personal guarantees with the Company
based upon misrepresentations by the Company and its officers and that the
Company violated provisions of Florida's Franchise Act and Florida's Deceptive
and Unfair Trade Practices Act. The original Complaint alleged that the Company
is liable for all damages caused to the Plaintiffs. The Plaintiffs seek damages
in an unspecified amount in excess of $2,500,000 in connection with the claim of
intentional infliction of emotional distress, $3,000,000 or the return of all
monies invested by the Plaintiffs in Checkers' franchises in connection with the
misrepresentation of claims, punitive damages, attorneys' fees and such other
relief as the court may deem appropriate. The Court has granted, in whole or in
part, three (3) Motions to Dismiss the Plaintiffs' Complaint, as amended,
including an Order entered on February 14, 1997, which dismissed the Plaintiffs'
claim of intentional infliction of emotional distress, with prejudice, but
granted the Plaintiffs leave to file an amended pleading with respect to the
remaining claims set forth in their Amended Complaint. A third Amended Complaint
has been filed and an Answer, Affirmative Defenses, and a Counterclaim to
recover unpaid royalties and advertising fund contributions has been filed by
the Company. In response to the Court's dismissal of certain claims in the Power
Burgers Litigation, on May 21, 1997, a companion action was filed in the Circuit
Court of the Sixth Judicial Circuit in and for Pinellas County, Florida, Civil
Division, entitled GAIL P. GREENFELDER, POWERS BURGERS OF AVON PARK, INC., AND
POWER BURGERS OF SEBRING, INC. V. JAMES F. WHITE, JR., CHECKERS DRIVE-IN
RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED D. BROWN, ROBERT G.
BROWN AND GEORGE W. COOK, Case No. 97-3565-CI, asserting, in relevant part, the
same causes of action as asserted in the Power Burgers Litigation. An Answer,
Affirmative Defenses, and a Counterclaim to recover unpaid royalties and
advertising fund contributions have been filed by the Company. On February 4,
1998, the Company terminated Power Burgers, Inc.'s, Power Burgers of Avon Park,
Inc.'s and Power Burgers of Sebring, Inc.'s franchise agreements and thereafter
filed two Complaints in the United States District Court for the Middle District
of Florida, Tampa Division, styled CHECKERS DRIVE-IN RESTAURANTS, INC. V. POWER
BURGERS OF AVON PARK, INC., Case No. 98-409-CIV-T-17A and CHECKERS DRIVE-IN
RESTAURANTS, INC. V. POWERS BURGERS, INC, Case No. 98-410-CIV-T-26E. The
Complaint seeks, INTER ALIA, a temporary and permanent injunction enjoining
Power Burgers, Inc. and Power Burgers of Avon Park, Inc.'s continued use of
Checkers' Marks and trade dress. A Motion to Stay the foregoing actions are
currently pending. The Company believes the lawsuits initiated against the
Company are without merit, and intends to continue to defend them vigorously. No
estimate of any possible loss or range of loss resulting from the lawsuit can be
made at this time.

          CHECKERS DRIVE-IN RESTAURANTS, INC. V. TAMPA CHECKMATE FOOD SERVICES,
INC., ET AL. On August 10, 1995, a state court Counterclaim and Third Party
Complaint was filed in the Circuit Court of the Thirteenth Judicial Circuit in
and for Hillsborough County, Florida, Civil Division, entitled TAMPA CHECKMATE
FOOD SERVICES, INC., CHECKMATE FOOD SERVICES, INC. AND ROBERT H. GAGNE V.
CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JAMES F.
WHITE, JR., JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No.
95-3869. In the original action filed by the Company in July 1995, against Mr.
Gagne and Tampa Checkmate Food Services, Inc., (hereinafter "Tampa Checkmate") a
company controlled by Mr. Gagne, the Company is seeking to collect on a
promissory note and foreclose on a mortgage securing the promissory note issued
by Tampa Checkmate and Mr. Gagne, and obtain declaratory relief regarding the
rights of the respective parties under Tampa Checkmate's franchise agreement
with the Company. The Counterclaim and Third Party Complaint allege, generally,
that Mr. Gagne, Tampa Checkmate and Checkmate Food Services, Inc. (hereinafter
"Checkmate") were induced into entering into various franchise agreements with,
and personal guarantees to, the Company based upon misrepresentations by the
Company. The Counterclaim and Third Party Complaint seek damages in the amount
of $3,000,000 or the return of all monies invested by Checkmate, Tampa Checkmate
and Mr. Gagne in Checkers' franchises, punitive damages, attorneys' fees and
such other relief as the court may deem appropriate. The Counterclaim was
dismissed by the court on January 26, 1996, with the right to amend. On February
12, 1996, the Counterclaimants filed an Amended Counterclaim alleging violations
of Florida's Franchise Act, Florida's Deceptive and Unfair Trade Practices Act,
and breaches of implied duties of "good faith and fair dealings" in connection
with a settlement agreement and franchise agreement between various of the
parties. The Amended Counterclaim seeks a judgment for damages in an unspecified
amount, punitive damages, attorneys' fees and such other relief as the court may
deem appropriate. The Company has filed an Answer to the Complaint. On or about
July 15, 1997, Tampa Checkmate filed a Chapter 11 petition in the United States
Bankruptcy Court for the Middle District of Florida, Tampa Division entitled IN
RE: TAMPA CHECKMATE FOOD SERVICES, INC., and numbered as 97-11616-8G-1 on the
docket of said Court. On July 25, 1997, Checkers filed an Adversary Complaint in
the Tampa Checkmate bankruptcy proceedings entitled CHECKERS DRIVE-IN
RESTAURANTS, INC. V. TAMPA CHECKMATE FOOD SERVICES,

                                       20

<PAGE>


INC. and numbered as Case No. 97-738. Following a hearing on Checkers' motion
for Preliminary Injunction on July 22, 1998, the Court entered an order
enjoining Tampa Checkmate's continued use of Checkers' Marks and trade dress
notwithstanding the termination of its Franchise Agreement on April 8, 1997. The
Company believes that the lawsuit is without merit and intends to continue to
defend it vigorously. No estimate of possible loss or range of loss resulting
from the lawsuit can be made at this time.

          TEX-CHEX, INC. ET AL V. CHECKERS DRIVE-IN RESTAURANTS, INC. ET. AL. On
February 4, 1997, a Petition was filed against the Company and two former
officers and directors of the Company in the District Court of Travis County,
Texas 98th Judicial District, ENTITLED TEX-CHEX, INC., BRIAN MOONEY, AND SILVIO
PICCINI V. CHECKERS DRIVE-IN RESTAURANTS, INC., JAMES MATTEI, AND HERBERT G.
BROWN and numbered as Case No. 97-01335 on the docket of said court. The
original Petition generally alleged that Tex-Chex, Inc. and the individual
Plaintiffs were induced into entering into two franchise agreements and related
personal guarantees with the Company based on fraudulent misrepresentations and
omissions made by the Company. On October 2, 1998, the Plaintiffs filed an
Amended Petition realleging the fraudulent misrepresentations and omission
claims set forth in the original Petition and asserting additional causes of
action for violation of Texas' Deceptive Trade Practices Act and violation of
Texas' Business Opportunity Act. The Company believes the causes of action
asserted in the amended Petition against the Company and the individual
defendants are without merit and intends to defend them vigorously. The matter
is in the pre-trial stages and no estimate of any possible loss or range of loss
resulting from the lawsuit can be made at this time.

          CHECKERS DRIVE-IN RESTAURANTS, INC. V. INTERSTATE DOUBLE DRIVE-THRU,
INC. ET. AL. On May 9, 1998, a Counterclaim was filed against the company and a
former officer and director of the Company, Herbert T. Brown, in the United
States District Court for the Middle District of Florida, Tampa Division,
entitled CHECKERS DRIVE-IN RESTAURANTS, INC. V. INTERSTATE DOUBLE DRIVE-THRU,
INC. AND JIMMIE V. GILES and numbered as Case No. 98-648-CIV-T-23B on the docket
of said court. The original Complaint filed by the Company seeks a temporary and
permanent injunction enjoining Interstate Double Drive-Thru, Inc. and Mr. Giles'
continued use of Checkers' Marks and trade dress notwithstanding the termination
of its Franchise Agreement and to collect unpaid royalty fees and advertising
fund contributions. The Court granted the Company's motion for a preliminary
injunction on July 16, 1998. The Counterclaim generally alleges that Interstate
Double Drive-Thru, Inc. and Mr. Giles were induced into entering a franchise
agreement and a personal guaranty, respectfully, with the Company based on
misrepresentations and omissions made by the Company. The Counterclaim asserts
claims for breach of contract, breach of the implied convenant of good faith and
fair dealing, violation of Florida's Deceptive Trade Practices Act, violation of
Florida's Franchise Act, violation of Mississippi's Franchise Act, fraudulent
concealment, fraudulent inducement, negligent misrepresentation and rescission.
The Company has filed a motion to dismiss seven of the nine causes of action set
forth in the Counterclaim which remain pending. The Company believes the causes
of action asserted in the Counterclaim against the Company and Mr. Brown are
without merit and intends to defend them vigorously. The matter is in the
pre-trial stages and no estimate of any possible loss or range of loss resulting
from the lawsuit can be made at this time.

          FIRST ALBANY CORP., AS CUSTODIAN FOR THE BENEFIT OF NATHAN SUCKMAN V.
CHECKERS DRIVE-IN RESTAURANTS, INC. ET AL. Case No. 16667. This putative class
action was filed on September 29, 1998, in the Delaware Chancery Court in and
for New Castle County, Delaware by First Albany Corp., as custodian for the
benefit of Nathan Suckman, an alleged stockholder of 500 shares of the Company's
common stock. The complaint names the Company and certain of its current and
former officers and directors as defendants including William P. Foley, II,
James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A. Peabody, James T.
Holder, Terry N. Christensen, Frederick E .Fisher, Clarence V. McKee, Burt
Sugarman, C. Thomas Thompson and Peter C. O'Hara. The Complaint also names
Rally's Hamburgers, Inc. ("Rally's") and GIANT GROUP, LTD. ("GIANT") as
defendants. The complaint arises out of the proposed merger announced on
September 28, 1998 between the Company, Rally's and GIANT (the "Proposed
Merger") and alleges generally, that certain of the defendants engaged in an
unlawful scheme and plan to permit Rally's to acquire the public shares of the
Company's stock in a "going-private" transaction for grossly inadequate
consideration and in breach of the defendants' fiduciary duties. The plaintiff
allegedly initiated the Complaint on behalf of all stockholders of the Company
as of September 28, 1998, and seeks INTER ALIA, certain declaratory and
injunctive relief against the consummation of the Proposed merger, or in the
event the Proposed Merger is consummated, recision of the Proposed Merger and
costs and disbursements incurred in connection with bringing the action,
including attorney's fees, and such other relief as the Court may deem just and
proper. The Company believes the lawsuit is without merit and intends to defend
it vigorously. No estimate of possible loss or range of loss resulting from the
lawsuit can be made at this time.

          DAVID J. STEINBERG AND CHAILE B. STEINBERG, INDIVIDUALLY AND ON BEHALF
OF THOSE SIMILARLY SITUATED V. CHECKERS DRIVE-IN RESTAURANTS, INC., ET AL. Case
No. 16680. This putative class action was filed on October 2, 1998, in the
Delaware Chancery Court in and for New Castle County, Delaware by David J.
Steinberg and Chaile B. Steinberg, alleged stockholders of an unspecified number
of shares of the Company's common stock. The complaint names the Company and
certain of its current officers and directors as defendants including William P.
Foley, II, James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A.
Peabody, James T. Holder, Terry N. Christensen, Frederick E. Fisher, Clarence
V.McKee, Burt Sugarman, C. Thomas Thompson and Peter C. O'Hara. The Complaint
also names Rally's and GIANT as defendants. As with the FIRST ALBANY complaint
described above, this complaint arises out of the proposed merger announced on
September 28, 1998 between the Company, Rally's and GIANT (the "Proposed
Merger") and alleges generally, that certain of the defendants engaged in an
unlawful scheme and plan to permit Rally's to acquire the public shares of the
Company's common stock in a "going-private" transaction for grossly inadequate
consideration and in breach of 

                                       21

<PAGE>


the defendant's fiduciary duties. The plaintiffs allegedly initiated the
Complaint on behalf of all stockholders of the Company as of September 28, 1998,
and seeks INTER ALIA, certain declaratory and injunctive relief against the
consummation of the Proposed merger, or in the event the Proposed Merger is
consummated, recision of the Proposed Merger and costs and disbursements
incurred in connection with bringing the action, including attorneys' fees, and
such other relief as the Court may deem just and proper. The Company believes
the lawsuit is without merit and intends to defend it vigorously. No estimate of
possible loss or range of loss resulting from the lawsuit can be made at this
time.


ITEM 2.   CHANGES IN SECURITIES

          None


ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          None


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

          None


ITEM 5.   OTHER INFORMATION

          None


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)       Exhibits:

          27    Financial Data Schedule

(b)       Reports on 8-K:


          There were no reports on Form 8-K filed during the quarter covered by
          this report.

                                       22

<PAGE>


SIGNATURE


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




                                    CHECKERS DRIVE-IN RESTAURANTS, INC.
                                               (Registrant)


Date: October 20, 1998              By: /s/ RICHARD A. PEABODY
                                        ----------------------
                                    Richard A. Peabody
                                    Vice President and Chief Financial Officer
                                    (Principal Accounting Officer)

                                       23

<PAGE>


                           SEPTEMBER 7, 1998 FORM 10-Q
                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                  EXHIBIT INDEX



EXHIBIT #                EXHIBIT DESCRIPTION                          PAGE
---------                -------------------                          ----

  27                     Financial Data Schedule 
                         (included in electronic filing only).         23


                                       24