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 MARCH 22, 1999

                                       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 73,408,047 shares of Common Stock, par value
$.001 per share, outstanding as of April 20, 1999.


<PAGE>

                                TABLE OF CONTENTS

PART I   FINANCIAL INFORMATION                                              PAGE

ITEM 1   FINANCIAL STATEMENTS

            CONDENSED CONSOLIDATED BALANCE SHEETS
              MARCH 22, 1999 AND DECEMBER 28, 1998.............................3

            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE 
              INCOME QUARTERS ENDED MARCH 22, 1999 AND MARCH 23, 1998 .........5

            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              QUARTERS ENDED MARCH 22, 1999 AND MARCH 23, 1998 ................6

            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...............7

ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS............................................13

ITEM 3   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........19

PART II  OTHER INFORMATION

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

ITEM 2   CHANGES IN SECURITIES................................................21

ITEM 3   DEFAULTS UPON SENIOR SECURITIES......................................21

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................21

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

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K.....................................22


                                       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)
                                                  MARCH 22,    DECEMBER 28,
                                                    1999          1998
                                                  ---------    ------------
CURRENT ASSETS:

Cash and cash equivalents:
    Restricted                                    $  1,417      $  1,738
    Unrestricted                                     2,219         2,925
Accounts receivable                                  1,788         1,327
Notes receivable, net - current portion                 94           224
Inventory                                            2,035         2,068
Property and equipment held for sale                 2,756         2,755
Deferred loan costs - current portion                  432           793
Prepaid expenses and other current assets            1,120           468
                                                  --------      --------
    Total current assets                            11,861        12,298


Property and equipment, net                         77,162        78,390
Intangibles, net of accumulated amortization         9,916        10,123
Deferred loan costs - less current portion             428           378
Notes receivable, net-less current portion             235           252
Deposits and other non-current assets                  569           658
                                                  --------      --------
                                                  $100,171      $102,099
                                                  ========      ========


SEE  ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       3
<PAGE>

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

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                             (UNAUDITED)
                                                                              MARCH 22,      DECEMBER 28,
                                                                                1999            1998
                                                                              ---------      ------------
<S>                                                                           <C>             <C>      
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations            $   1,891       $   1,381
Accounts payable                                                                  5,654           5,896
Accrued wages, salaries and benefits                                              2,688           2,360
Reserves for restaurant relocations and abandoned sites                           1,207           1,635
Other accrued liabilities                                                         7,177           7,133
Deferred income-current portion                                                     207             203
                                                                              ---------       ---------
    Total current liabilities                                                    18,824          18,608

Long-term debt, less current maturities                                          28,105          28,645
Obligations under capital leases, less current maturities                           748           1,009
Deferred income, less current portion                                               752             848
Long-term reserves for restaurant relocations and abandoned sites                   543             430
Minority interests in joint ventures                                                674             802
Other noncurrent liabilities                                                      7,028           7,149
                                                                              ---------       ---------
    Total liabilities                                                            56,674          57,491

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 73,408,047 at March 22, 1999 and
      at December 28, 1998                                                           73              73
Additional paid-in capital                                                      121,579         121,579
Retained deficit                                                                (77,755)        (76,644)
                                                                              ---------       ---------
                                                                                 43,897          45,008
Less treasury stock, at cost, 578,904 shares                                        400             400
                                                                              ---------       ---------
    Net stockholders' equity                                                     43,497          44,608
                                                                              ---------       ---------
                                                                              $ 100,171       $ 102,099
                                                                              =========       =========
</TABLE>


See accompanying notes to condensed consolidated financial statements


                                       4
<PAGE>

                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                    (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                  QUARTER ENDED
                                                                    MARCH 22,      MARCH 23,
                                                                      1999           1998
                                                                 -------------     ---------  
<S>                                                                 <C>            <C>     
REVENUES:
Restaurant sales                                                    $ 30,140       $ 35,107
Franchise revenues and fees                                            1,560          1,844
Modular restaurant packages                                               13             52
                                                                    --------       --------
    Total revenues                                                  $ 31,713       $ 37,003

COSTS AND EXPENSES:
Restaurant food and paper costs                                        9,089         11,389
Restaurant labor costs                                                10,057         10,691
Restaurant occupancy expense                                           2,408          2,637
Restaurant depreciation and amortization                               1,643          1,874
Other restaurant operating expense                                     3,237          3,097
Advertising expense                                                    1,912          1,876
Cost of modular restaurant package revenues                               98             70
Other depreciation and amortization                                      454            515
General and administrative expenses                                    2,917          3,167
Losses on assets to be disposed of                                        --             63
                                                                    --------       --------
    Total costs and expenses                                          31,815         35,379
                                                                    --------       --------

    Operating (loss) income                                             (102)         1,624

OTHER INCOME (EXPENSE):
Interest income                                                           58             79
Interest expense                                                        (850)          (954)
Interest - loan cost amortization                                       (331)          (415)
                                                                    --------       --------
(Loss) income before minority interests and income
      taxes                                                           (1,225)           334
Minority interests in operations of joint ventures                      (114)           (60)
                                                                    --------       --------
(Loss) income before income taxes                                     (1,111)           394
Income taxes                                                              --             --
                                                                    --------       --------
        Net (loss) income                                           $ (1,111)      $    394
                                                                    ========       ========
Comprehensive (loss) income                                         $ (1,111)      $    394
                                                                    ========       ========

 Net loss per common share - (basic and diluted)                    $  (0.02)      $   0.01
                                                                    ========       ========

Weighted average number of common shares - (basic and diluted)        73,408         73,313
                                                                    ========       ========
</TABLE>


SEE ACCOMPANYING 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)


<TABLE>
<CAPTION>
                                                                   QUARTER ENDED
                                                              -----------------------
                                                              MARCH 22,     MARCH 23,
                                                                1999          1998
                                                              --------      ---------
<S>                                                            <C>           <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                                              $(1,111)      $   394
Adjustments to reconcile net (loss) income to net cash
  provided by operating activities:
    Depreciation and amortization                                2,098         2,389
    Provision for losses on assets to be disposed of                --            63
    Deferred loan cost amortization                                331           412
    Provision for bad debt                                         106           116
    Loss on disposal of property & equipment                        (6)           (3)
    Minority interests in (losses) earnings                       (114)          (60)
Changes in assets and liabilities:
    Increase in accounts receivable                               (561)       (1,123)
    Decrease (increase) in notes receivable                        141           (16)
    Decrease in inventory                                           33           108
    Increase in prepaid expenses and other current assets         (648)         (335)
    Decrease in deposits and other                                  89            14
    Decrease in accounts payable                                  (242)       (1,515)
    (Decrease) increase in accrued liabilities                     (44)           58
    (Decrease) increase in deferred income                         (92)          279
                                                               -------       -------
    Net cash (used in) provided by operating activities            (20)          781
                                                               -------       -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                                              (701)         (127)
Proceeds from sale of assets                                        17           273
                                                               -------       -------
    Net cash (used in) provided by investing activities           (684)          146
                                                               -------       -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt                              (291)         (961)
Deferred loan costs incurred                                       (17)           --
Distributions to minority interests                                (15)          (20)
                                                               -------       -------
    Net cash used in financing activities                         (323)         (981)
                                                               -------       -------
    Net decrease in cash                                        (1,027)          (54)
CASH AT BEGINNING OF PERIOD                                      4,663         3,921
                                                               -------       -------
CASH AT END OF PERIOD                                          $ 3,636       $ 3,867
                                                               =======       =======
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION---
      Interest paid                                            $   907       $   946
                                                               =======       =======
</TABLE>


SEE ACCOMPANYING 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 quarter ended March 22, 1999, are not necessarily an
indication of the results that may be expected for the fiscal year ending
January 3, 2000. Except as disclosed herein, there has been no material change
in the information disclosed in the notes to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 28, 1998. Therefore, it is suggested that the accompanying
financial statements be read in conjunction with the Company's December 28, 1998
consolidated financial statements.

(b) PURPOSE AND ORGANIZATION - The principal business of Checkers Drive-In
Restaurants, Inc. (the "Company", "Checkers") is the operation and franchising
of Checkers restaurants. At March 22, 1999, there were 465 Checkers restaurants
operating in 22 different states, the District of Columbia, Puerto Rico and West
Bank in the Middle East. Of those restaurants, 233 were Company-operated
(including 12 joint venture restaurants) and 232 were operated by franchisees.
The accounts of the joint ventures have been included with those of the Company
in these condensed consolidated financial statements. Intercompany balances and
transactions have been eliminated in consolidation and minority interests have
been established for the outside partners' interests. The Company reports on a
fiscal year which will end on the Monday closest to December 31st. Each quarter
consists of three 4-week periods, with the exception of the fourth quarter which
consists of four 4-week periods. The Company's 1999 fiscal year will include a
53rd week, thereby increasing the fourth quarter to seventeen weeks.

(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.

(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. Restricted Cash consists of cash on deposit with various
financial institutions as collateral to support the Company's obligations to
certain states for potential workers' compensation claims. This cash is not
available for the Company's use until such time that the respective states
permit its release.

(e) RECEIVABLES - Receivables consist primarily of franchise fees, royalties and
notes due from franchisees and receivables from the sale of MRP's. Allowances
for doubtful receivables were $2.2 million at March 22, 1999 and $2.3 million at
December 28, 1998.

(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 and the
mortgages payable to FFCA Acquisition Corporation (see Note 3) 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.

(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. P & E 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 


                                       7
<PAGE>

useful lives of the assets. Property held for sale includes various excess
restaurant facilities and land. The aggregate carrying value of property and
equipment held for sale is periodically reviewed and adjusted downward to market
value, when appropriate.

(j) INTANGIBLES - Goodwill and other intangibles 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) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS - The balance sheets
as of March 22, 1999 and December 28, 1998 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.

(m) EARNINGS PER SHARE - The Company calculates basic and diluted earnings
(loss) per share in accordance with the Statement of Financial Accounting
Standard No. 128, "Earnings per Share", which is effective for periods ending
after December 15, 1997.

(n) SEGMENT REPORTING - SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" changes the way public companies report
information about segments of their business in their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company operates primarily in the quick-service restaurant
industry. The Company's Champion Modular Restaurants division does not have a
material effect upon the Company's financial statements.

(o) 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.

(p) RECLASSIFICATIONS - Certain amounts in the 1998 financial statements have
been reclassified to conform to the 1999 presentation.

NOTE 2:  LIQUIDITY

         The Company has a working capital deficit of $7.0 million at March 22,
1999. It is anticipated that the Company will continue to have a working capital
deficit since approximately 88% of the Company's assets are long-term (primarily
property, equipment, and intangibles), and since all operating trade payables,
accrued expenses, and property and equipment payables are current liabilities of
the Company. At March 22, 1999, a significant portion ($17.4 million) of the
Company's long-term debt relates to the Company's Restated Credit Agreement
which originally was to mature on July 31, 1999. During March and April 1999,
Santa Barbara Restaurant Group, Inc. ("SBRG"), a company which is an 8.2% owner
of Rally's Hamburgers Inc., ("Rally's") acquired approximately $4.9 million of
debt due to three members of the lender group. The terms associated with the
SBRG debt are identical to terms that other participants of the lender group
have pursuant to the Restated Credit Agreement. On March 24, 1999, SBRG and the
other remaining members of the lender group agreed to an extension of the
maturity date to April 30, 2000. As of March 22, 1999, Fidelity National
Financial, Inc. owned 31.1% of the outstanding common stock of SBRG.

         See Note 6: "Merger" for discussion of the Merger with Rally's. Rally's
has a working capital deficit of $5.9 million at March 22, 1999. It is
anticipated that Rally's will continue to have a working capital deficit since
approximately 89% of Rally's assets are long-term (primarily property,
equipment, investment in affiliate and intangibles), and since all operating

                                       8
<PAGE>

trade payables, accrued expenses, and property and equipment payables are
current liabilities of Rally's. At March 22, 1999, a significant portion ($53.5
million) of Rally's long-term liabilities relates to the Rally's Senior Notes to
mature in June, 2000. Rally's is currently evaluating alternatives for
refinancing or repaying the outstanding Senior Notes that mature in June 2000.
These alternatives include a sale-leaseback transaction or additional mortgage
financing. Other options include the sale of certain Rally-owned markets to
current or new franchisees in transactions that would provide immediate funds to
reduce debt and would also provide a continued source of income through future
royalties.

NOTE 3:  LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                   MARCH 22,   DECEMBER 28,
                                                                                     1999          1998
                                                                                   ---------   ------------
<S>                                                                                 <C>          <C>    
Note payable under Restated Credit Agreement at 13% interest due each 28 day
     period, originally maturing July 31, 1999, subsequently extended
     to April 30, 2000 (see Note 2)                                                 $17,432      $17,432
Notes payable due at various dates secured by building and equipment
    with interest rates primarily ranging from 9.0% to 11.32%, payable monthly        1,068        1,214
Mortgages payable to FFCA Acquisition Corporation secured by 24
    Company-owned restaurants, payable in aggregate monthly installments
    of $93,213,  including interest at 9.5%                                           9,972       10,000
Other, at interest rates ranging from 7.0% to 10.0%                                     965          997
                                                                                    -------      -------
Total long-term debt and capital lease obligations                                   29,437       29,643
Less current installments                                                             1,332          998
                                                                                    -------      -------
Long-term debt, less current maturities                                             $28,105      $28,645
                                                                                    =======      =======
</TABLE>

NOTE 4:  INCOME TAXES

         The Company recorded an income tax benefit of $422,000 for the quarter
ended March 22, 1999 and income tax expense of $150,000 for the quarter ended
March 23, 1998, or 38.0% of the respective loss or income before income taxes.
The Company then recorded a valuation allowance of $422,000 against deferred
income tax assets for the quarter ended March 22, 1999 (reversed $150,000 in
valuation allowances for the quarter ended March 23, 1998). The Company's total
valuation allowances of approximately $32.8 million as of March 22, 1999 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 5:  RELATED PARTIES

         Effective November 30, 1997 the Company entered into a Management
Services Agreement with Rally's whereby Checkers 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. Checkers increased its corporate and regional staff in
late 1997 and 1998 in order to meet the demands of the agreement, but management
believes the income generated by this agreement has enabled Checkers to attract
the management staff with expertise necessary to more successfully manage and
operate both companies at significantly reduced costs to both entities. During
the quarters ended March 22, 1999 and March 23, 1998, the Company charged
Rally's $1.7 million and $913,000, respectively in accordance with the
Management Service Agreement. Effective April 6, 1999, the Company began sharing
the services of the Chief Financial Officer with Rally's.

NOTE 6:  MERGER

         On January 29, 1999, Checkers and Rally's announced the signing of a
definitive merger agreement ("the Merger") pursuant to which Rally's will merge
into Checkers in an all stock transaction. The Merger agreement provides that
each outstanding share of the Rally's stock will be exchanged for 1.99 shares of
Checkers stock. Immediately following the Merger and a one-for-twelve reverse
split, there will be approximately 9,387,859 common shares outstanding. In
addition, each of Rally's outstanding stock options (5.6 million as of March 22,
1999) will be exchanged for options at the exchange rate of 1 to 1.99 of
Checkers. The approximate 19.1 million shares of Checkers common stock which
Rally's owns will be retired as a result of the Merger. Checkers and Rally's
have each received investment bankers' opinions as to the fairness of the
exchange rate used in the Merger. The Merger transaction is subject to certain
approvals, including but not limited to approval by the 

                                       9
<PAGE>

shareholders of Checkers and Rally's and the holders of Rally's Senior Notes and
is expected to close in the third quarter of fiscal year 1999.

         At March 22, 1999, Rally's owned 19,130,930 shares (26.06 percent) of
the outstanding common stock of Checkers and public shareholders owned the
remaining 54,277,177 shares of Checkers common stock. Checkers will issue
58,377,134 shares of its common stock to Rally's shareholders in exchange for
all the outstanding common stock of Rally's (29,335,243 outstanding shares) at a
1 to 1.99 exchange ratio. After the transaction, Rally's shareholders will own
58,377,134 shares (51.8 percent of the outstanding common stock of the new
Checkers) and the remaining 54,277,117 shares (48.2 percent of Checker common
stock) will then be held by then current shareholders of Checkers.

         The Merger transaction will be accounted for under the purchase method
of accounting and will be treated as a reverse acquisition as the stockholders
of Rally's will receive the larger portion (51.8%) of the voting interests in
the combined enterprise. Accordingly, Rally's is considered the acquirer for
accounting purposes and therefore, Checkers' assets and liabilities will be
recorded based upon their fair market value.

         The following unaudited pro forma condensed consolidated financial data
sets forth certain pro forma financial information giving effect to the Merger.
The pro forma financial information is based on, and should be read in
conjunction with the historical consolidated financial statements of each of the
companies and the notes related thereto.

         The pro forma condensed consolidating balance sheet gives effect to the
issuance of 58,377,134 shares of the Checkers common stock in exchange for
29,335,243 shares of Rally's common stock, based upon the per share price of the
Checkers common shares at $0.531 and a one-for-twelve reverse split, assuming
the Merger had occurred March 22, 1999:

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                  CHECKERS       RALLY'S
                                                                  MARCH 22,      MARCH 22,         PRO FORMA
                                                                    1999           1999           ADJUSTMENTS     MERGED
                                                                  ---------      ---------        -----------    ---------
<S>                                                               <C>            <C>                <C>          <C>      
ASSETS:
Current assets                                                    $  11,861      $  13,323          $      -     $  25,184
Property and equipment, net                                          77,162         60,290                         137,452
Investment in affiliate, including net goodwill                                                                          -
    of $11,717, net of accumulated amortization                           -         22,567        A) (22,567)            -
Intangibles, net of accumulated amortization                          9,916         23,402        G)  19,391        52,709
Other assets, net of accumulated amortization                         1,232          2,620                           3,852
                                                                  ---------      ---------          --------     ---------
                                                                  $ 100,171      $ 122,202          $ (3,176)    $ 219,197
                                                                  =========      =========          ========     =========
LIABILITIES:
Current liabilities                                                  18,824         19,204        B)   1,500        39,528
Senior notes, net of discount, less current maturities                    -         53,543                          53,543
Long-term debt and capital lease obligations, less                                                                       -
    current maturities                                               28,853         12,588                          41,441
Minority interests in joint ventures                                    674              -                             674
Other long-term liabilities                                           8,323          3,951                          12,274
                                                                  ---------      ---------          --------     ---------
      Total  liabilities                                             56,674         89,286             1,500       147,460

STOCKHOLDERS' EQUITY:
Preferred stock                                                           -              -                 -             -
Common stock                                                             73          2,961        C)  (3,025)            9
Additional paid-in capital                                          121,579         97,346        D) (81,914)      137,011
Retained deficit                                                    (77,755)       (65,283)       E)  77,755       (65,283)
                                                                  ---------      ---------          --------     ---------
                                                                     43,897         35,024            (7,184)       71,737
Less treasury stock, at cost                                           (400)        (2,108)       F)   2,508             -
                                                                  ---------      ---------          --------     ---------
    Net stockholders' equity                                         43,497         32,916            (4,676)       71,737
                                                                  ---------      ---------          --------     ---------
                                                                  $ 100,171      $ 122,202          $ (3,176)    $ 219,197
                                                                  =========      =========          ========     =========
</TABLE>


A)   Pro forma adjustment to record the elimination of Rally's original
     investment of $10,850 in Checkers common stock and the reclassification to
     intangibles of $11,717 of goodwill associated with Rally's investment in
     Checkers.
B)   Pro forma adjustment to accrue estimated transaction costs related to the
     Merger.
C)   Pro forma adjustment to record the issuance of 58,377 shares of Checkers
     common stock in exchange for Rally's outstanding shares, $58; to eliminate
     the previous common stock account of Rally's, ($2,961); to eliminate the
     par value associated with Rally's investment in Checkers common stock,
     ($19); and to effect a one-for-twelve reverse split, ($103).
D)   Pro forma adjustments, in accordance with reverse acquisition accounting,
     to record the fair value of the outstanding 54,277 shares of common stock
     of Checkers valued at $0.531 per share, $28,767 which is net of related par
     value; eliminate the previous treasury stock of Rally's, ($2,108);
     eliminate the previous additional paid-in capital account of Checkers,


                                       10
<PAGE>

     ($121,579); to reduce additional paid in capital for the par value of the
     58,377 shares issued to Rally's shareholders, ($58); to eliminate the
     previous common stock account of Rally's, $2,961; to attribute a $10,000
     estimated fair value to the outstanding Checkers stock options and
     warrants, and effect a one-for-twelve reverse split, $103.
E)   Pro forma adjustments to record the elimination of the retained deficit
     account of Checkers.
F)   Pro forma adjustment to eliminate the previous treasury stock of Checkers,
     $400; as well as the treasury stock of Rally's, $2,108 which is cancelled
     as a result of the Merger.
G)   Pro forma adjustment to record goodwill of $7,674 associated with the
     Merger and the reclassification of $11,717 of goodwill associated with
     Rally's original investment in Checkers (see A).

NOTES: The final adjustments to value the outstanding Checkers options and
warrants as well as final adjustments to the fair value of assets and
liabilities as a result of the Merger will not be known until the merger is
completed.

The following unaudited pro forma condensed consolidating statement of
operations sets forth certain pro forma financial information giving effect to
the Merger, assuming the Merger had occurred December 29, 1998:

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                      CHECKERS          RALLY'S
                                                                    TWELVE WEEKS      TWELVE WEEKS
                                                                        ENDED             ENDED
                                                                      MARCH 22,         MARCH 22,         PRO FORMA
                                                                        1999              1999           ADJUSTMENTS        MERGED
                                                                    ------------      ------------       -----------       -------- 
<S>                                                                   <C>                <C>               <C>             <C>      
TOTAL REVENUES                                                        $ 31,713           $ 30,119                          $ 61,832
                                                                      --------           --------          ------          --------

COSTS AND EXPENSES:
Restaurant operating costs                                              26,434             24,206                            50,640
Advertising expense                                                      1,912              1,801                             3,713
Other expenses                                                              98                352                               450
Other depreciation and amortization                                        454                570        H)   200             1,224
General and administrative expense                                       2,917              3,081        I)   (88)            5,910
                                                                      --------           --------          ------          --------
          Total cost and expenses                                       31,815             30,010             112            61,937
                                                                      --------           --------          ------          --------

          Operating (loss) income                                         (102)               109            (112)             (105)

Other income (expense):
          Interest income                                                   58                188                               246
          Gains on bond repurchases                                          -                256                               256
          Loss on investment in affiliate                                    -               (434)       J)   434                 -
          Interest expense                                              (1,181)            (1,685)                           (2,866)
                                                                      --------           --------          ------          --------

Loss before minority interest, income taxes                             (1,225)            (1,566)            322            (2,469)

Minority interests in (losses) earnings                                   (114)                 -                              (114)
                                                                      --------           --------          ------          --------

Loss before income taxes                                                (1,111)            (1,566)            322            (2,355)

Income taxes                                                                 -                 37                                37
                                                                      --------           --------          ------          --------

Net (loss) earnings                                                   $ (1,111)          $ (1,603)         $  322          $ (2,392)
                                                                      ========           ========          ======          ======== 

Comprehensive (loss) earnings                                         $ (1,111)          $ (1,603)         $  322          $ (2,392)
                                                                      ========           ========          ======          ======== 

Net (loss) income per common share (basic and diluted)                  ($0.02)            ($0.05)                           ($0.25)
                                                                      ========           ========                          ======== 
Weighted average number of common shares
              (basic and diluted)                                       73,408             29,335                        K)   9,388
                                                                      ========           ========                          ========
</TABLE>

H)   Pro forma adjustment to increase the amortization of goodwill associated
     with the Merger. 
I)   Pro forma adjustment to eliminate excess public company expenses recorded
     on Rally's. 
J)   Pro forma adjustment to eliminate loss from the Rally's equity investment
     in Checkers.
K)   The merged weighted average number of common shares outstanding consists
     of 112,654 shares immediately following the Merger, effected for the
     one-for-twelve reverse split.


                                       11
<PAGE>

         The following unaudited pro forma condensed consolidating statement of
operations sets forth certain pro forma financial information giving effect to
the Merger, assuming the Merger had occurred December 29, 1997:

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                     CHECKERS            RALLY'S
                                                                    FISCAL YEAR         FISCAL YEAR
                                                                       ENDED               ENDED       
                                                                    DECEMBER 28,        DECEMBER 28,     PRO FORMA
                                                                        1998                1998        ADJUSTMENTS       MERGED
                                                                     ---------           ---------      -----------      --------- 
<S>                                                                  <C>                 <C>             <C>             <C>       
TOTAL REVENUES                                                       $ 145,708           $ 144,952                       $ 290,660
                                                                     ---------           ---------       -------         --------- 

COSTS AND EXPENSES:
Restaurant operating costs                                             119,416             113,782                         233,198
Advertising expense                                                      6,921               9,853                          16,774
Other expenses                                                             516                 647                           1,163
Other depreciation and amortization                                      2,275               2,503     H)    842             5,620
General and administrative expense                                      13,309              13,404     I)   (380)           26,333
SFAS 121 provisions                                                      2,953               3,362                           6,315
                                                                     ---------           ---------       -------         --------- 
          Total cost and expenses                                      145,390             143,551           462           289,403
                                                                     ---------           ---------       -------         --------- 

          Operating income (loss)                                          318               1,401          (462)            1,257

Other income (expense):

          Interest income                                                  272                 480                             752
          Loss on investment in affiliate                                    -              (2,019)    J)  2,019                 -
          Interest expense                                              (6,007)             (7,145)            -           (13,152)
                                                                     ---------           ---------       -------         --------- 

Loss before minority interest and income tax
         expense (benefit)                                              (5,417)             (7,283)        1,557           (11,143)
Minority interests in operations of joint ventures                         (73)                  -                             (73)
                                                                     ---------           ---------       -------         --------- 

Loss before income tax expense (benefit)                                (5,344)             (7,283)        1,557           (11,070)
Income tax expense (benefit)                                                 -                 252                             252
                                                                     ---------           ---------       -------         --------- 

Net (loss) earnings                                                     (5,344)             (7,535)        1,557           (11,322)
                                                                     =========           =========       =======         ========= 

Comprehensive (loss) earnings                                        $  (5,344)          $  (7,535)      $ 1,557         $ (11,322)
                                                                     =========           =========       =======         ========= 

Net loss per common share (basic and diluted)                           ($0.07)             ($0.28)                         ($1.21)
                                                                     =========           =========                       ========= 

Weighted average number of common shares
          (basic and diluted)                                           73,388              27,170                     K)    9,388
                                                                     =========           =========                       ========= 
</TABLE>

H)   Pro forma adjustment to increase the amortization of goodwill associated
     with the Merger.
I)   Pro forma adjustment to eliminate excess public company expenses recorded
     on Rally's.
J)   Pro forma adjustment to eliminate loss from the Rally's equity investment
     in Checkers.
K)   The merged weighted average number of common shares outstanding consists of
     112,654 shares immediately following the Merger, effected for the
     one-for-twelve reverse split.


                                       12
<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 March 22, 1999, Checkers
Drive-In Restaurants, Inc., ("Checkers", "the Company") had an ownership
interest in 233 Company operated restaurants and additional 232 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 March 22, 1999, there were 221 such restaurants) and (ii) the
Company owns a 10.55% to 65.83% interest in various partnerships which own the
restaurants (a "Joint Venture Restaurant"). As of March 22, 1999, there were 12
such Joint Venture Restaurants whose operations are consolidated in the
financial statements of the Company.

         On January 29, 1999, Rally's Hamburgers, Inc. ("Rally's") and Checkers
announced the signing of a definitive merger agreement pursuant to which both
companies would merge in an all stock transaction (the "Merger"). The Merger
agreement provides that each outstanding share of Rally's stock will be
exchanged for 1.99 shares of Checkers stock. The approximate 19.1 million shares
of Checkers common stock which Rally's owns will be retired following the
Merger. Checkers and Rally's have each received investment bankers' opinions as
to the fairness of the exchange rate used in the Merger. The transaction is
subject to certain approvals, including but not limited to approval by the
shareholders of Checkers and Rally's and the holders of Rally's Senior Notes and
is expected to close in the third quarter of fiscal year 1999.

         On November 30, 1997, a Management Services Agreement was established
between the Company and Rally's pursuant to which the Company is providing
accounting, information technology and other management services to Rally's. At
approximately the same time, a new management team was put into place to provide
the operational and functional expertise necessary to explore the opportunities
and potential synergies available to both companies. The Rally's corporate
office in Louisville, Kentucky was closed, as well as various regional offices
of both companies. The Management Services Agreement also provided for the
supervision of both Checkers and Rally's operations by a single Regional Vice
President, within each region, which increased spans of control with fewer
personnel. Checkers general and administrative expenses during the quarter were
approximately $250,000 below the same quarter of the prior year. The number of
markets that contain both Checkers and Rally's units is limited and no market in
which either company utilizes broadcast media is shared. Therefore, the
companies combined their advertising creative and media buying with one agency
in August of 1998 which resulted in similar commercials running for both
companies with reductions of agency fees and production costs.

         Comparable store sales at Checkers were 14.3% below the same quarter of
the prior year. Severe winter weather in January and intense discounting by
major competitors combined to reduce sales. In addition, the seasonal population
increase that typically occurs in the core Florida markets was less significant
this year. During the first quarter of fiscal 1999, the Company's broadcast
media utilized the positioning statement "Fresh, because we just made it" to
emphasize the commitment to serve fresh hot food to every customer. This message
was primarily communicated to consumers via television advertising.

         Since the first quarter of fiscal 1998, the Company, along with its
franchisees, experienced a net decrease of 18 operating restaurants. In the
first quarter of fiscal 1999, the Company opened one restaurant, acquired three
restaurants from franchisees and closed one restaurant and franchisees opened 3
restaurants and transferred three restaurants to the Company. 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 MRP's. Cost of restaurant
sales relates to food and paper costs. Other restaurant expenses include labor
and all other restaurant costs for Company operated restaurants. 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 selling, 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 produced or used MRP's refurbished for sale in connection
with those openings.


                                       13
<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
MRP revenue. The table also sets forth certain selected restaurant operating
data.


<TABLE>
<CAPTION>
                                                               QUARTER ENDED
                                                                (UNAUDITED)
                                                          -----------------------
                                                          MARCH 22,     MARCH 23,
                                                            1999          1998
                                                          ---------     ---------
<S>                                                         <C>          <C>   
Revenues      
    Restaurant sales                                         95.0%        94.9%
    Franchise revenues and fees                               4.9%         5.0%
    Modular restaurant packages                               0.1%         0.1%
                                                          --------      -------  
        Total  revenues                                     100.0%       100.0%
COSTS AND EXPENSES
    Restaurant food and paper costs (1)                      30.2%        32.4%
    Restaurant labor costs (1)                               33.4%        30.5%
    Restaurant occupancy expense (1)                          8.0%         7.5%
    Restaurant depreciation and amortization (1)              5.5%         5.3%
    Other restaurant operating expense (1)                   10.7%         8.8%
    Advertising expense (1)                                   6.3%         5.3%
    Costs of modular restaurant package revenues (2)        753.9%       134.6%
    Other depreciation and amortization                       1.4%         1.4%
    General and administrative expense                        9.2%         8.6%
    Loss provisions                                           0.0%         0.2%
                                                          --------      -------  
        Operating (loss) income                              (0.3)%        4.4%
                                                          --------      -------  

OTHER INCOME (EXPENSE)
    Interest income                                           0.2%         0.2%
    Interest expense                                         (2.7)%       (2.6)%
    Interest - loan cost amortization                        (1.0)%       (1.1)%
    Minority interests in losses                              0.4%         0.2%
                                                          --------      -------  

   (Loss) income before income tax expense                   (3.5)%        1.1%
   Income tax expense                                         0.0%         0.0%
                                                          --------      -------  
        Net (loss) income                                    (3.5)%        1.1%
                                                          ========      =======  
</TABLE>

(1)  As a percent of restaurant sales.
(2)  As a percent of modular restaurant package revenues.


                                       14
<PAGE>
                                                    QUARTER ENDED
                                                     (UNAUDITED)
                                                ---------------------
                                                MARCH 22,    MARCH 23,
                                                  1999         1998
                                                --------     --------
Operating data:
System - wide restaurant sales (in 000's):
  Company - operated                            $30,140      $35,107
  Franchised                                     38,755       47,715
                                                -------      -------
        Total                                   $68,895      $82,822
                                                =======      =======
Average annual sales per restaurant open
    for a full year (in 000's) (3):               1999         1998
                                                --------     --------
      Company - operated                        $    583     $    599
      Franchised                                $    766     $    730
      System - wide                             $    670     $    664
                                                --------     --------
Number of restaurants (4)
      Company - operated                             233          230
      Franchised                                     232          253
                                                --------     --------
           Total                                     465          483
                                                ========     ========

(3)  Includes sales of restaurants open for entire previous 52 weeks.
(4)  Number of restaurants open at end of period.


COMPARISON OF HISTORICAL RESULTS - QUARTER ENDED MARCH 22, 1999 AND QUARTER
ENDED MARCH 23, 1998

         REVENUES. Total revenues decreased 14.3% to $31.7 million for the
quarter ended March 22, 1999, compared to $37.0 million for the quarter ended
March 23, 1998. Company operated restaurant sales decreased $14.1% to $30.1
million for the quarter ended March 22, 1999, from $35.1 million for the quarter
ended March 23, 1998. Restaurant sales for comparable Company-owned restaurants
for the quarter ended March 22, 1999, decreased 14.3% compared to the quarter
ended March 23, 1998. Comparable Company-owned restaurants are those
continuously open during both reporting periods. These decreases in restaurant
sales and comparable restaurants sales are primarily attributable to severe
winter weather and intense discounting by competitors during the current
quarter.

         Franchise revenues and fees decreased 15.4% to $1.6 million for the
quarter ended March 22, 1999, from $1.8 million for the quarter ended March 23,
1998. This was a result of a net decrease of twenty-one franchised restaurants
since March 23, 1998, and opening three franchise restaurants during the quarter
ended March 22, 1999 versus one in the first quarter of fiscal 1998. 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.

         MRP package revenues decreased 75.0% to $13,000 for the quarter ended
March 22, 1999, from $52,000 for the quarter ended March 23, 1998 due to
decreased sales volume of MRP's to the Company's franchisees which is a result
of franchisees sales of used MRP's and the Company's efforts to refurbish and
sell its inventory of used MRP's from previously closed sites. These efforts
have been successful, however, these sales have negatively impacted the new
building revenues.

         COSTS AND EXPENSES. Restaurant food and paper costs totalled $9.1
million or 30.2% of restaurant sales for the quarter ended March 22, 1999,
compared to $11.4 million or 32.4% of restaurant sales for the quarter ended
March 23, 1998. The decrease in these costs as a percentage of restaurant sales
was due to the introduction of the two-patty platform that utilizes a smaller
hamburger patty for the value conscious customer.

         Restaurant labor costs, which includes restaurant employees' salaries,
wages, benefits and related taxes, totalled $10.1 million or 33.4% of restaurant
sales for the quarter ended March 22, 1999, compared to $10.7 million or 30.5%
of restaurant sales for the quarter ended March 23, 1998. The increase in
restaurant labor costs as a percentage of restaurant sales was due to the
decrease in comparable store sales and the impact of operating at lower sales 
levels.

         Restaurant occupancy expense, which includes rent, property taxes,
licenses and insurance, totalled $2.4 million or 8.0% of restaurant sales for
the quarter ended March 22, 1999 compared to $2.6 million or 7.5% of restaurant
sales for 


                                       15
<PAGE>

the quarter ended March 23, 1998. This increase in restaurant occupancy costs as
a percentage of restaurant sales was due primarily to the decrease in average
restaurant sales relative to the fixed and semi-variable nature of these
expenses.

         Restaurant depreciation and amortization decreased by $231,000 or 12.3%
for the quarter ended March 22, 1999, as compared to the quarter ended March 23,
1998, due primarily to certain assets becoming fully depreciated, partially
offset by a net increase of three Company operated restaurants from March 23,
1998 to March 22, 1999.

         Advertising expense remained consistent at $1.9 million or 6.3% of
restaurant sales for the quarter ended March 22, 1999, and $1.9 million or 5.3%
of restaurant sales for the quarter ended March 23, 1998.

         Other restaurant expenses includes all other restaurant level operating
expenses other than food and paper costs, labor and benefits, rent and other
occupancy costs which includes utilities, maintenance and other costs. These
expenses totaled $3.2 million or 10.7% of restaurant sales for the quarter ended
March 22, 1999, compared to $3.1 million or 8.8% of restaurant sales for the
quarter ended March 23, 1998. The increase in the quarter ended March 22, 1999,
as a percentage of restaurant sales was primarily related to the decrease in
average restaurant sales relative to the fixed and semi-variable nature of these
expenses.

         Costs of MRP revenues totalled $98,000 or 766.2% of MRP revenues for
the quarter ended March 22, 1999, compared to $70,000 or 134.6% of such revenues
for the quarter ended March 23, 1998. The increase in these expenses as a
percentage of MRP 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 $2.9 million or 9.2% of total
revenues, for the quarter ended March 22, 1999, compared to $3.2 million or 8.6%
of total revenues for the quarter ended March 23, 1998. The decrease in these
expenses of $251,000 was primarily due to the additional savings associated with
the Management Services Agreement with Rally's which gained the most significant
effect in the middle of the first quarter of 1998.

         INTEREST EXPENSE. Interest expense other than loan cost amortization
decreased to $850,000 or 2.7% of total revenues for the quarter ended March 22,
1999 from $954,000 or 2.6% of total revenues for the quarter ended March 23,
1998. This decrease was due to a reduction in the weighted average balance of
debt outstanding during the respective periods and the impact of a $10.0 million
mortgage transaction in December 1998, the proceeds of which were primarily used
to reduce debt bearing higher interest rates. Loan cost amortization decreased
by $83,000 to $331,000 in 1999 from $415,000 for the quarter ended March 23,
1998 due to accelerated amortization of deferred loan costs associated with
unscheduled principal reductions in 1998.

         INCOME TAX EXPENSE. Due to the loss for the quarter, the Company
recorded an income tax benefit of $422,000 or 38.0% of the loss before income
taxes which was completely offset by deferred income tax valuation allowances of
$422,000 for the quarter ended March 22, 1999, as compared to an income tax
benefit of $150,000 or 35.0% of earnings before income taxes offset by the
reversal of deferred income tax valuation allowances of $2.0 million for the
quarter ended March 23, 1998. The effective tax rates differ from the expected
federal tax rate of 34.0% due to state income taxes and job tax credits.

LIQUIDITY AND CAPITAL RESOURCES

         On November 14, 1996, the Company's debt under its loan agreement and
credit line was acquired from its previous lenders by a group of entities and
individuals, most of whom are engaged in the quick-service restaurant business.
This investor group (the "CKE Group") was led by CKE Restaurants, Inc. ("CKE")
the parent of Carl Karcher Enterprises, Inc., Hardee's Food System, Inc., Taco
Bueno Restaurants, Inc., and Summit Family Restaurants, Inc. Also participating
were most members of the former lender group, Fidelity National Financial, Inc.
("Fidelity") and KCC Delaware Company, a wholly-owned subsidiary of GIANT GROUP,
LTD. ("GIANT"). CKE, GIANT and an affiliate of Fidelity (Santa Barbara
Restaurant Group, Inc.) are the largest stockholders of Rally's Hamburgers, Inc.

         On November 22, 1996, the Company and the CKE Group executed an Amended
and Restated Credit Agreement (the "Restated Credit Agreement") thereby
completing a restructuring of the debt under the Loan Agreement. The Restated
Credit Agreement consolidated all of the debt under the Loan Agreement and the
Credit Line into a single obligation. At the time of the restructuring, the
outstanding principal balance under the Loan Agreement and the Credit Line was
$35.8 million. Pursuant to the terms of the Restated Credit Agreement, the term
of the debt was extended by one (1) year until July 31, 1999, and the interest
rate on the indebtedness was reduced to a fixed rate of 13%. In addition, all
principal payments were deferred until May 19, 1997, and the CKE Group agreed to
eliminate certain financial covenants, to relax others and to eliminate
approximately $4.3 million in restructuring fees and charges. The Restated
Credit Agreement also provided that certain members of the CKE Group agreed to
provide to the Company a short term revolving line of credit of up to $2.5
million, also at a fixed interest rate of 13% (the "Secondary Credit Line"). In
consideration for the restructuring, the Restated Credit Agreement required the
Company to issue to the members of the CKE Group warrants to purchase an
aggregate of 20 million shares of the 


                                       16
<PAGE>

Company's common stock at an exercise price of $.75 per share, which was the
approximate market price of the common stock prior to the announcement of the
debt transfer. Since November 22, 1996, the Company has reduced the principal
balance under the Restated Credit Agreement by $18.4 million and has repaid the
Secondary Credit Line in full. A portion of the funds utilized to make these
principal reduction payments were obtained by the Company from the sale of
certain closed restaurant sites to third parties. Additionally, the Company
utilized $10.5 million of the proceeds from the February 21, 1997, private
placement and $8.0 million of the proceeds of a $10.0 million mortgage financing
transaction completed on December 18, 1998 for these principal reductions, both
of which are described later in this section. Pursuant to the Restated Credit
Agreement, the prepayments of principal made in 1996 and early in 1997 relieved
the Company of the requirement to make any of the regularly scheduled principal
payments under the Restated Credit Agreement which would have otherwise become
due in fiscal year 1998 through maturity. The Amended and Restated Credit
Agreement provides however, that 50% of any future asset sales must be utilized
to prepay principal.

         At March 22, 1999, a significant portion ($17.4 million) of the
Company's long-term debt relates to the Company's Restated Credit Agreement
which originally was to mature on July 31, 1999. During March and April 1999,
Santa Barbara Restaurant Group, Inc. ("SBRG"), a company which is an 8.2% owner
of Rally's, acquired approximately $4.9 million of debt due to three members of
the lender group. The terms associated with the SBRG debt are identical to terms
that other participants of the lender group have pursuant to the Restated Credit
Agreement. On March 24, 1999, SBRG and the other remaining members of the lender
group agreed to an extension of the maturity date to April 30, 2000. As of
December 28, 1998, Fidelity National Financial, Inc. owned 31.1% of the
outstanding common stock of SBRG.

         The Company's Restated Credit Agreement with the CKE Group contains
restrictive covenants which include the consolidated EBITDA covenant as defined.
As of March 22, 1999 and during a majority of 1998, the Company was in violation
of the consolidated EBITDA covenant. The Company received a waiver for periods
11 through 13 of fiscal 1998, and for all periods remaining through the earlier
of July 12, 1999 or the effective date of the Merger with Rally's.

         On February 21, 1997, the Company completed a private placement (the
"Private Placement") of 8,981,453 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 and Raymond James and Associates, Inc., also
participated in the Private Placement. The Company received approximately $19.5
million in net proceeds after $500,000 of issuance costs from the Private
Placement. The Company used $8 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. Raymond James and Associates, Inc. received 209,524 shares of
the common stock for services related to the Private Placement. Under the
purchase price protection provisions of these 209,524 shares, Raymond James and
Associates, Inc. was paid $170,000 as of December 28, 1998 and will be paid a
remaining total of approximately $252,000 during 1999. On August 6, 1997, the
87,719 shares of preferred stock were converted into 8,771,900 shares of the
Company's common stock valued at $10 million. In accordance with the agreement
underlying the Private Placement (the "Private Placement Agreement"), the
Company also issued 610,524 shares of common stock as a dividend pursuant to the
liquidation preference provisions of the Private Placement Agreement, valued at
$696,000 to the holders of the preferred stock issued in the Private Placement.

         On December 1, 1998, the Company entered into two lease agreements,
which have been recorded as obligations under capital lease, with Granite
Financial, Inc. (a wholly owned subsidiary of Fidelity), whereby the Company
leased $659,000 of security equipment for its restaurants in the aggregate. The
first lease agreement is payable monthly at approximately $13,000 including
effective interest at 13.08%. The second lease is payable at approximately
$9,000, including effective interest at 10.90%. Both of these leases have terms
of three years.

         On December 18, 1998, the Company completed a $10.0 million mortgage
financing transaction with FFCA Acquisition Corporation (FFCA) collaterized by
24 fee-owned properties. The terms of the transaction include a stated interest
rate of 9.5% on the unpaid balance over a 20 year term. The net proceeds of the
mortgage transaction were approximately $9.6 million of which $8.0 million was
utilized to reduce the amount outstanding under the Restated Credit Agreement
and approximately $612,000 was used to retire other debt associated with the
collateral upon closing. Approximately $1.0 million was retained for operational
initiatives of the Company, including but not limited to new menu boards.

         In 1999, the franchise community has indicated an intent to open 15 to
20 new units and the Company intends to close fewer restaurants focusing on
improving restaurant margins.


                                       17
<PAGE>

         The Company has a working capital deficit of $7.0 million at March 22,
1999. It is anticipated that the Company will continue to have a working capital
deficit since approximately 88% of the Company's assets are long-term (primarily
property, equipment, and intangibles), and since primarily all operating trade
payables, accrued expenses, and property and equipment payables are current
liabilities of the Company.

         On January 29, 1999, Checkers and Rally's announced the signing of a
definitive merger agreement pursuant to which Rally's will merge into Checkers
in a stock for stock transaction. The Merger agreement provides that each
outstanding share of Rally's will be exchanged for 1.99 shares of Checkers
common stock. Rally's currently owns approximately 26.06% of Checkers common
stock and these shares will be retired following the Merger. Checkers plans to
execute a one-for-twelve reverse stock split immediately following the Merger to
reduce the number of shares then outstanding. The Merger transaction is subject
to certain approvals, including but not limited to the approval by the
shareholders of Checkers and Rally's and the holders of Rally's senior notes
(see Note 6 to the condensed consolidated financial statements). The transaction
is expected to close early in the third quarter of 1999. Although operating
under the guidelines of the Management Services Agreement has enabled both
companies to realize expense reductions and other synergies, management
anticipates that the Merger will lead to further expense reductions when
completed.

         Rally's has a working capital deficit of $5.9 million at March 22,
1999. It is anticipated that Rally's will continue to have a working capital
deficit since approximately 89% of Rally's assets are long-term (primarily
property, equipment, investment in affiliate and intangibles), and since all
operating trade payables, accrued expenses, and property and equipment payables
are current liabilities of Rally's. At March 22, 1999, a significant portion
($53.5 million) of Rally's long-term liabilities relates to the Rally's Senior
Notes to mature in June, 2000. Rally's is currently evaluating alternatives for
refinancing or repaying the outstanding Senior Notes that mature in June 2000.
These alternatives include a sale-leaseback transaction or additional mortgage
financing. Other options include the sale of certain Rally-owned markets to
current or new franchisees in transactions that would provide immediate funds to
reduce debt and would also provide a continued source of income through future
royalties.

         Overall, the Company believes many of the fundamental steps have been
taken to improve the Company's initiative toward profitability and 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, but
there can be no assurance that it will be able to do so.

YEAR 2000

         The Year 2000 problem arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of "19". The
Company has completed an assessment of all known internal Information Technology
(IT) systems to document its state of readiness.

         The Company utilizes accounting software packages such as Lawson
(general ledger/accounts payable) and Cyborg (payroll) that require periodic
upgrades to benefit from the latest modifications to the programs. Typically,
all releases of such upgrades must be implemented, eliminating a company's
ability to move directly to the most recent release. During 1998, the Company
successfully implemented all required releases of both Lawson and Cyborg that
preceded the Year 2000 compliant release. The consulting and training required
for the next Lawson and Cyborg upgrades are underway with targeted
implementation dates during the second and third quarter of 1999 at a cost to
Checkers of approximately $50,000. The Company has assessed the computer systems
utilized at the restaurant level and determined such systems to be Year 2000
compliant. Costs of replacing certain desktop computers and other required
modifications at the corporate office are not expected to exceed $70,000.
Rally's will incur a similar amount of expense related to these upgrades.

         Pursuant to the Management Services Agreement that exists between the
Company and Rally's, the Company is also responsible for the testing for and
implementation of Year 2000 computer systems for Rally's. In addition, as
administrative functions of Rally's such as payroll and accounting are handled
by Checkers employees, initiatives previously discussed will also impact the
operations of Rally's. The Company's information technology department is also
responsible for the store level computer systems utilized by Rally's. While the
cash registers that are used by Rally's for each transaction are Year 2000
compliant, the back-office computer and related software is not. The back-office
computer is utilized for capturing and controlling such items as payroll and
food cost and is required to sustain communication of this and other data to the
corporate office. New computer systems will be purchased by Rally's and the
software currently utilized by the Checkers restaurants will be installed. Final
testing of this software will be complete during the second quarter of 1999 and
completion of the rollout is expected by August 31, 1999. The costs of
compliance of shared systems is allocated between the two companies, whereas
additional hardware costs at the restaurants are not shared.

         The Company is continuing to identify third parties that must be Year
2000 compliant to ensure the continued success of our operations. Letters were
drafted to send to companies that provide financial services, utilities,
inventory preparation and distribution and other key services. This
communication was initiated during the first quarter of 1999. The Company has
not been notified of any anticipated Year 2000 related failures by these third
parties but it can not be assured that all such entities will be operable on
January 1, 2000.


                                       18
<PAGE>

         Although the Company's systems are not currently fully Year 2000
compliant, management feels that the Company's risk in this area is minimal. If
the Company is unable to implement the upgrade to the payroll system, it would
be able to utilize a third party to process payroll at a cost of approximately
$125,000 per year. Contingency plans related to the accounting software package
are still under development.

ITEM 3   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         None.

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:

         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 pending
a resolution of the lawsuits pending in the Sixth Judicial Circuit in and for
Pinellas County, Florida described above has been granted by the United States
District Court. 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. 


                                       19
<PAGE>

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 filed an Answer to the Amended Counterclaim , but on
October 21, 1998, the court dismissed the Amended Counterclaim based on
Counterclaimants failure to comply with certain Court rules relating to the
prosecution of the claims. The Court's dismissal is the subject of a pending
Motion for Reconsideration. 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, 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. On December 15, 1998, the court granted the Company's Motion
to Convert Tampa Checkmate's bankruptcy proceedings from a Chapter 11 proceeding
to a Chapter 7 liquidation. Additionally, on February 1, 1999, the bankruptcy
Court granted the Company's Motion to Lift the Automatic Stay imposed by 11
U.S.C Section 362 to allow the Company to proceed with the disposition of the
property which is the subject of its mortgage. The adversary Complaint and
Counterclaim in the bankruptcy proceedings remain pending. 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 


                                       20
<PAGE>

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. In view of a decision by the
Company, GIANT and Rally's not to implement the transaction that had been
announced on September 28, 1998, plaintiffs have agreed to provide the Company
and all other defendants with an open extension of time to respond to the
compliant. Plaintiffs have indicated that they will likely file an amended
complaint in the event of the consummation of a merger between the Company and
Rally's. 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 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 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. For the reasons stated above in the description of the FIRST ALBANY
action, plaintiffs have agreed to provide the Company and all other defendants
with an open extension of time to respond to the complaint. Plaintiffs have
indicated that they will likely file an amended complaint in the event of the
consummation of a merger between the Company and Rally's. 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.

         The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.

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.


                                       21
<PAGE>

ITEM 5.   OTHER INFORMATION

          NASDAQ MINIMUM REQUIREMENTS-SHARE PRICE UNDER $1.00

          In September 1998, the Company received notice from NASDAQ that
delisting could occur on December 18, 1998 if the Company's common stock failed
to maintain a bid price greater than or equal to $1.00 for ten consecutive
trading days during the next ninety days. The Company's common stock price did
not meet that criteria and management requested and was granted an oral hearing
to present a plan of action to NASDAQ to regain compliance with this standard.
The plan of action included the Merger with Rally's Hamburgers, Inc. and a
subsequent one-for-twelve reverse stock split. The Company has maintained its
listing status beyond the February 17, 1999 hearing date and through the date of
this report.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)       Exhibits:

          10.18 Agreement and Plan of Merger, dated as of January 28, 1999, by
                and between the Company and Rally's Hamburgers, Inc. 
                (incorporated by reference to Exhibit 10.18 to the Annual
                Report on Form 10-K of the Company for the fiscal year ended
                December 28, 1998).

          27    Financial Data Schedule

(b)      Reports on 8-K:

         The following reports on Form 8-K were filed during the quarter covered
by this report:

         The Company filed a report on Form 8-K with the Securities and Exchange
Commission dated January 29, 1999, reporting under Item 5, the signing of the
Agreement and Plan of Merger, dated as of January 28, 1999, pursuant to which
the Company will acquire all of Rally's Hamburgers, Inc., common stock in an all
stock transaction. It was also reported that Checkers anticipates a
one-for-twelve reverse stock split immediately following the merger.

         The Company filed a report on Form 8-K with the Securities and Exchange
Commission dated April 6, 1999, reporting under Item 5, the appointment of
Richard A. Peabody as Senior Vice President and Chief Financial Officer of
Rally's Hamburgers, Inc. and the resignation of Joseph N. Stein as Executive
Vice President and Chief Financial Officer of Rally's Hamburgers, Inc. and as
Executive Vice President and Chief Administrative Officer of the Company.


                                       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:   May 5, 1999            By: /s/ RICHARD A. PEABODY
                                   -----------------------
                               Richard A. Peabody
                               Senior Vice President and Chief Financial Officer
                               (Principal Financial and Accounting Officer)



                                       23
<PAGE>


                            March 22, 1999 FORM 10-Q
                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                  EXHIBIT INDEX




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

   10.18          Agreement and Plan of Merger, dated as of January 28, 1999, by
                  and between the Company and Rally's Hamburgers, Inc. 
                  (incorporated by reference to Exhibit 10.18 to the Annual
                  Report on Form 10-K of the Company for the fiscal year ended
                  December 28, 1998).

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