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 JUNE 14, 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 July 20, 1999.



<PAGE>

                                TABLE OF CONTENTS

PART I   FINANCIAL INFORMATION                                             PAGE

ITEM 1   FINANCIAL STATEMENTS

            CONDENSED CONSOLIDATED BALANCE SHEETS
              JUNE 14, 1999 AND DECEMBER 28, 1998............................3

            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
              INCOME QUARTERS ENDED JUNE 14, 1999 AND JUNE 15, 1998
              AND TWO QUARTERS ENDED JUNE 14, 1999 AND JUNE 15, 1998 ........5

            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              TWO QUARTERS ENDED JUNE 14, 1999 AND JUNE 15, 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.........20

PART II   OTHER INFORMATION

ITEM 1   LEGAL PROCEEDINGS..................................................22

ITEM 2   CHANGES IN SECURITIES..............................................25

ITEM 3   DEFAULTS UPON SENIOR SECURITIES....................................25

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...............25

ITEM 5   OTHER INFORMATION..................................................25

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K...................................25

                                       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

<TABLE>
<CAPTION>
                                                        (UNAUDITED)
                                                          JUNE 14,     DECEMBER 28,
                                                           1999           1998
                                                        -----------    ------------
<S>                                                      <C>            <C>
Current Assets:

Cash and cash equivalents:
    Restricted                                           $  1,417       $  1,738
    Unrestricted                                            1,737          2,925
Accounts receivable                                         1,317          1,327
Notes receivable, net - current portion                        64            224
Inventory                                                   2,113          2,068
Property and equipment held for sale                        2,766          2,755
Deferred loan costs - current portion                         137            793
Prepaid expenses and other current assets                   1,719            468
                                                         --------       --------
    Total current assets                                   11,270         12,298

Property and equipment, net ......................         76,994         78,390
Intangibles, net of accumulated amortization .....          9,710         10,123
Deferred loan costs - less current portion .......            419            378
Notes receivable, net-less current portion .......            243            252
Deposits and other non-current assets ............            566            658
                                                         --------       --------
                                                         $ 99,202       $102,099
                                                         ========       ========
</TABLE>


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)
                                                                             JUNE 14,      DECEMBER 28,
                                                                               1999           1998
                                                                           ------------    -------------
<S>                                                                          <C>            <C>
Current Liabilities:

Current maturities of long-term debt and capital lease obligations           $  19,373      $   1,381
Accounts payable                                                                 5,600          5,896
Accrued wages, salaries and benefits                                             2,736          2,360
Reserves for restaurant relocations and abandoned sites                          1,234          1,635
Other accrued liabilities                                                        7,545          7,133
Deferred income-current portion                                                    207            203
                                                                             ---------      ---------
    Total current liabilities                                                   36,695         18,608

Long-term debt, less current maturities                                         10,399         28,645
Obligations under capital leases, less current maturities                        1,161          1,009
Deferred income, less current portion                                              514            848
Long-term reserves for restaurant relocations and abandoned sites                  276            430
Minority interests in joint ventures                                               586            802
Other noncurrent liabilities                                                     7,246          7,149
                                                                             ---------      ---------
    Total liabilities                                                           56,877         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 June 14, 1999 and

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 June 14, 1999 and
      at December 28, 1998                                                          73             73
Additional paid-in capital                                                     121,579        121,579
Retained deficit                                                               (78,927)       (76,644)
                                                                             ---------      ---------
                                                                                42,725         45,008
Less treasury stock, at cost, 578,904 shares                                       400            400
                                                                             ---------      ---------
    Net stockholders' equity                                                    42,325         44,608
                                                                             ---------      ---------
                                                                              $ 99,202      $ 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            TWO QUARTERS ENDED
                                                       ----------------------     -----------------------
                                                       JUNE 14,      JUNE 15,     JUNE 14,       JUNE 15,
                                                         1999          1998         1999           1998
                                                       --------      --------     --------       --------
<S>                                                    <C>           <C>           <C>           <C>
REVENUES:
Restaurant sales                                       $ 32,339      $ 33,003      $ 62,479      $ 68,110
Franchise revenues and fees                               1,721         1,756         3,281         3,600
Modular restaurant packages                                   6            67            19           119
                                                       --------      --------      --------      --------
    Total revenues                                     $ 34,066      $ 34,826      $ 65,779      $ 71,829
                                                       --------      --------      --------      --------
COSTS AND EXPENSES:
Restaurant food and paper costs                           9,711        10,343        18,800        21,732
Restaurant labor costs                                   10,658        10,818        20,715        21,509
Restaurant occupancy expense                              2,785         2,582         5,193         5,219
Restaurant depreciation and amortization                  1,640         1,641         3,284         3,515
Other restaurant operating expense                        3,478         3,329         6,715         6,426
Advertising expense                                       2,153         1,587         4,066         3,463
Cost of modular restaurant package revenues                  63           113           160           183
Other depreciation and amortization                         453           518           907         1,033
General and administrative expenses                       3,225         2,768         6,142         5,935
Losses on assets to be disposed of                           22            63            22           126
                                                       --------      --------      --------      --------
    Total costs and expenses                             34,188        33,762        66,004        69,141
                                                       --------      --------      --------      --------

    Operating (loss) income                                (122)        1,064          (225)        2,688

OTHER INCOME (EXPENSE):
Interest income                                              48            64           106           143
Interest expense                                           (833)         (879)       (1,683)       (1,833)
Interest - loan cost amortization                          (335)         (414)         (667)         (829)
                                                       --------      --------      --------      --------
(Loss) income before minority interests and income
      taxes                                              (1,243)         (165)       (2,469)          169
Minority interests in operations of joint ventures          (71)           42          (186)          (18)
                                                       --------      --------      --------      --------

(Loss) income before income taxes                        (1,172)         (207)       (2,283)          187
Income taxes                                               --            --            --            --
                                                       --------      --------      --------      --------

        Net (loss) income                              $ (1,172)     $   (207)     $ (2,283)     $    187
                                                       ========      ========      ========      ========
Comprehensive (loss) income                            $ (1,172)     $   (207)     $ (2,283)     $    187
                                                       ========      ========      ========      ========
 Net loss per common share - (basic and diluted)       $  (0.02)     $   --        $  (0.03)     $   --
                                                       ========      ========      ========      ========

Weighted average number of common shares-basic           73,408        73,411        73,408        73,362
                                                       ========      ========      ========      ========
Weighted average number of common shares-diluted         73,408        73,411        73,408        74,777
                                                       ========      ========      ========      ========
</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>
                                                                                              TWO QUARTERS ENDED
                                                                                         ----------------------------
                                                                                         JUNE 14,            JUNE 15,
                                                                                           1999                1998
                                                                                         --------            --------
<S>                                                                                      <C>                   <C>
Cash flows from operating activities:
Net (loss) income                                                                        $ (2,283)             $ 187
Adjustments to reconcile net (loss) income to net cash
  provided by operating activities:
    Depreciation and amortization                                                           4,191              4,548
    Provision for losses on assets to be disposed of                                           22                126
    Reverse sales tax audit provision                                                           -               (500)
    Deferred loan cost amortization                                                           667                829
    Provision for bad debt                                                                    141                322
    Gain on debt extinguishment                                                                 -               (141)
    Loss (gain) on disposal of property & equipment                                           230                 (7)
    Minority interests in (losses) earnings                                                  (186)               (18)
Changes in assets and liabilities:
    Increase in accounts receivable                                                          (125)              (304)
    Decrease in notes receivable                                                              163                 22
    Increase (decrease) in inventory                                                          (45)               197
    Increase in prepaid expenses and other current assets                                  (1,247)              (594)
    Decrease in deposits and other                                                             92                 15
    Decrease in accounts payable                                                             (296)            (2,263)
    Increase (decrease) in accrued liabilities                                                454             (1,693)
    (Decrease) increase in deferred income                                                   (330)               179
                                                                                         --------            --------
    Net cash provided by operating activities                                               1,448                905
                                                                                         --------            --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                                                                       (2,241)              (539)
Proceeds from sale of assets                                                                   17              1,461
                                                                                         --------            --------
    Net cash (used in) provided by investing activities                                    (2,224)               922
                                                                                         --------            --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt                                                         (655)            (2,694)
Deferred loan costs incurred                                                                  (46)                 -
Distributions to minority interests                                                           (32)               (50)
                                                                                         --------            --------
    Net cash used in financing activities                                                    (733)            (2,744)
                                                                                         --------            --------
    Net decrease in cash                                                                   (1,509)              (917)
CASH AT BEGINNING OF PERIOD                                                                 4,663              3,921
                                                                                         --------            --------
CASH AT END OF PERIOD                                                                     $ 3,154            $ 3,004
                                                                                         ========            ========
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Interest paid                                                                       $ 1,622            $ 1,932
                                                                                         ========            ========
 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
      Capital lease obligations incurred                                                    $ 554                $ -
                                                                                         ========            ========
</TABLE>

                                       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 two quarters ended June 14, 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/A 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" or "Checkers") is the operation and franchising
of Checkers restaurants. At June 14, 1999, there were 468 Checkers restaurants
operating in 22 different states, the District of Columbia, Puerto Rico and West
Bank in the Middle East. Of those restaurants, 236 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 $2.4 million at June 14, 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


                                       7
<PAGE>

fair value at the inception of the lease. Depreciation and amortization are
computed on straight-line method over the estimated useful lives of the assets.
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 4).

(L)     DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS - The balance
sheets as of June 14, 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 $25.4 million at June 14,
1999. It is anticipated that the Company will continue to have a working capital
deficit since approximately 89% 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 June 14, 1999, a significant portion ($17.4 million) of the
Company's 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 June 11, 1999, Fidelity National Financial, Inc.
owned approximately 29% of the outstanding common stock of SBRG.

         See Note 7: "Merger" for discussion of the Merger with Rally's. Rally's
has a working capital deficit of $4.6 million at June 14, 1999. It is
anticipated that Rally's will continue to have a working capital deficit since
approximately 86% of

                                       8

<PAGE>

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 June 14, 1999, a significant portion ($52.2 million) of Rally's
long-term liabilities relates to the Rally's Senior Notes to mature on June 15,
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>
                                                                                   JUNE 14,    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          929         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%                                           9,929        10,000
Other, at interest rates ranging from 7.0% to 10.0%                                     902           997
                                                                                   --------      --------
Total long-term debt                                                                 29,192        29,643
Less current installments                                                           (18,793)         (998)
                                                                                   --------      --------
Long-term debt, less current maturities                                            $ 10,399      $ 28,645
                                                                                   ========      ========
</TABLE>

NOTE 4:                     INCOME TAXES

         The Company recorded an income tax benefit of $868,000 for the two
quarters ended June 14, 1999 and income tax expense of $71,000 for the two
quarters ended June 15, 1998, or 38.0% of the respective loss or income before
income taxes. The Company then recorded a valuation allowance of $868,000
against deferred income tax assets for the two quarters ended June 14, 1999
(reversed $71,000 in valuation allowances for the two quarters ended June 15,
1998). The Company's total valuation allowances of approximately $33.3 million
as of June 14, 1999 is maintained on deferred tax assets which the Company has
not determined to be more likely than not realizable at this time.

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
receives 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 two quarters ended June 14, 1999 and the two quarters ended June 15, 1998,
the Company charged Rally's $3.5 million and $2.0 million, respectively in
accordance with the Management Services Agreement. This increase in costs billed
to Rally's is primarily due to the transfer of various marketing and field
management personnel from Rally's to Checkers during the third quarter of 1998.
Effective April 6, 1999, the Company began sharing the services of the Chief
Financial Officer with Rally's.

NOTE 6:  STOCK OPTION PLANS

         In August 1991, the Company adopted the 1991 Stock Option Plan (the
1991 Stock option Plan), as amended for employees whereby incentive stock
options, nonqualified stock options, stock appreciation rights and restrictive
shares can be granted to eligible salaried individuals. The plan was amended on
August 6, 1997 to increase the number of shares subject to the Plan from
3,500,000 to 5,000,000.

                                       9

<PAGE>

         In 1994, the Company adopted a Stock Option Plan for Non-Employee
Directors, in 1994, as amended (The "Directors Plan"). The Directors Plan was
amended on August 6, 1997 by the approval of the Company's stockholders to
increase the number of shares subject to the Directors Plan from 200,000 to
5,000,000 and provides for the automatic grant to each non-employee director
upon election to the Board of Directors a non-qualified, ten-year option to
acquire shares of the Company's common stock, with the subsequent automatic
grant on the first day of each fiscal year thereafter during the time such
person is serving as a non-employee director of a non-qualified ten-year option
to acquire additional shares of common stock. One-fifth of the shares of common
stock subject to each initial option grant become exercisable on a cumulative
basis on each of the first five anniversaries of the grant of such option.
One-third of the shares of common stock subject to each subsequent option grant
become exercisable on a cumulative basis on each of the first three
anniversaries of the date of the grant of such option. Each Non-Employee
Director serving on the Board as of July 26, 1994 received options to purchase
12,000 shares. Each new Non-Employee Director elected or appointed subsequent to
that date also received options to purchase 12,000 shares. Each Non-Employee
Director has also received additional options to purchase 3,000 shares of Common
Stock on the first day of each fiscal year. On August 6, 1997, the Directors
Plan was amended to provide: (i) an increase in the option grant to new
Non-Employee Directors to 100,000 shares, (ii) an increase in the annual options
grant to 20,000 shares and (iii) the grant of an option to purchase 300,000
shares each to each Non-Employee Directors who was a Director both immediately
prior to and following the effective date of the amendment. Options granted to
Non-Employee Directors on or after August 6, 1997 are exercisable immediately
upon grant. Pursuant to the Directors' Plan, the Company issued options to
purchase 1,400,000 shares at an exercise price of $0.9375 to the existing
Directors of the Company on February 12, 1998 and issued options to purchase
100,000 shares at an exercise price of $1.375 to a new Director on June 11,
1998. Additionally, on April 27, 1998, pursuant to the 1991 Stock Option Plan,
the Company issued options to purchase 3,024,250 shares at an exercise price of
$1.00 and issued 300,000 shares at an exercise price of $0.84375 on August 18,
1998.

         On December 15, 1998, the Company repriced options granted under the
1991 Stock Option Plan and options issued outside of a plan. The new option
price is $0.375, the closing market price at December 15, 1998. As a result of
this transaction, 3,727,924 options in the 1991 Stock Option Plan and 1,250,000
issued outside of a plan were cancelled and reissued at the new price.

         On December 29, 1998 pursuant to the Stock Option Plan for Non-Employee
Directors, Checkers issued options to purchase 120,000 shares at an exercise
price of $0.313 to the existing Directors of the Company.

         The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards no. 123, "Accounting for Stock Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's stock option plan
for employees been determined based on the fair value at the grant date for
awards in the first two quarters of 1999 and the first two quarters of 1998
consistent with the provisions of SFAS No. 123, and the Company's net income
(loss) would have been reduced by $20,000 to ($2.3 million) and would have been
reduced to ($538,000) respectively, on a pro forma basis. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in the first two quarters of fiscal 1999 and the first two quarters of
1998, respectively: divided yield of zero percent for both periods: expected
volatility of 100 and 85.1 percent, risk-free interest rates of 5.0 and 5.45
percent, and expected lives of 2 years, for both periods. The compensation cost
disclosed above may not be representative of the effects on reported income in
future quarters, for example, because options vest over several years and
additional awards are made each year.

NOTE 7:  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 (5.7 million as of June 14,
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 shareholders of Checkers
and Rally's and is expected to close in the third quarter of fiscal year 1999.

         At June 14, 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.

                                      10

<PAGE>

         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 June 14, 1999:

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                             CHECKERS       RALLY'S
                                                             JUNE 14,       JUNE 14,      PRO FORMA
                                                               1999           1999        ADJUSTMENTS     MERGED
                                                           ----------     -----------     -----------   ---------
<S>                                                        <C>            <C>             <C>           <C>
Assets:
Total current assets                                          11,270         17,049           --           28,319
Property and equipment, net                                   76,994         60,277        137,271
Investment in affiliate, including net goodwill
    of $11,572 after accumulated amortization                   --           22,117    A)  (22,117)          --
Intangibles, net of accumulated amortization                   9,710         22,924    G)   20,113         52,747
Other assets, net of accumulated amortization                  1,228          2,030           --            3,258
                                                           ---------      ---------      ---------      ---------
                                                           $  99,202      $ 124,397      $  (2,004)     $ 221,595
                                                           =========      =========      =========      =========
LIABILITIES:
Current liabilities                                           36,695         21,678    B)    1,500         59,873
Senior notes, net of discount, less current maturities          --           52,184                        52,184
Long-term debt and capital lease obligations, less                                                           --
    current maturities                                        11,560         13,203                        24,763
Minority interests in joint ventures                             586           --                             586
Other long-term liabilities                                    8,036          4,061                        12,097
                                                           ---------      ---------      ---------      ---------
      Total  liabilities                                      56,877         91,126          1,500        149,503

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                                             (78,927)       (64,928)   E)   78,927        (64,928)
                                                           ---------      ---------      ---------      ---------
                                                              42,725         35,379         (6,012)        72,092
Less treasury stock, at cost                                    (400)        (2,108)   F)    2,508           --
                                                           ---------      ---------      ---------      ---------
    Net stockholders' equity                                  42,325         33,271         (3,504)        72,092
                                                           ---------      ---------      ---------      ---------
                                                           $  99,202      $ 124,397      $  (2,004)     $ 221,595
                                                           =========      =========      =========      =========
</TABLE>

A)   Pro forma adjustment to record the elimination of Rally's original
     investment of $10,545 in Checkers common stock and the reclassification to
     intangibles of $11,572 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,
     ($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.

                                       11

<PAGE>

G)   Pro forma adjustment to record goodwill of $8,541 associated with the
     Merger and the reclassification of $11,572 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, 1997:

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                     CHECKERS            RALLY'S
                                                                   TWO QUARTERS        TWO QUARTERS
                                                                      ENDED               ENDED
                                                                      JUNE 14,            JUNE 14,       PRO FORMA
                                                                       1999                1999          ADJUSTMENTS        MERGED
                                                                   ------------        ------------      -----------     ----------
<S>                                                                <C>                 <C>               <C>              <C>
Total Revenues                                                        $ 65,779            $ 66,487                        $ 132,266
                                                                   -----------         -----------       ---------        ---------
COSTS AND EXPENSES:
Restaurant operating costs                                              54,707              52,175                          106,882
Advertising expense                                                      4,066               4,097                            8,163
Other expenses                                                             160                 705                              865
Other depreciation and amortization                                        907               1,141  H)         388            2,436
General and administrative expense                                       6,142               6,056  I)        (176)          12,022
SFAS 121 provisions                                                         22                   -                               22
                                                                   -----------         -----------       ---------        ---------
          Total cost and expenses                                       66,004              64,174             212          130,390
                                                                   -----------         -----------       ---------        ---------

          Operating (loss) income                                         (225)              2,313            (212)           1,876
Other income (expense):
          Interest income                                                  106                 300                              406
          Gains on bond repurchases                                          -                 454                              454
          Loss on investment in affiliate                                    -                (884) J)         884               --
          Interest expense                                              (2,350)             (3,357)                          (5,707)
                                                                   -----------         -----------       ---------        ---------

Loss before minority interest, income taxes                             (2,469)             (1,174)            672           (2,971)
Minority interests in (losses) earnings                                   (186)                  -                             (186)
                                                                   -----------         -----------       ---------        ---------

Loss before income taxes                                                (2,283)             (1,174)            672           (2,785)
Income taxes                                                                 -                  74                               74
                                                                   ===========         ===========       =========        =========
Net (loss) earnings                                                   $ (2,283)           $ (1,248)          $ 672         $ (2,859)
                                                                   ===========         ===========       =========        =========
Comprehensive (loss) earnings                                         $ (2,283)           $ (1,248)          $ 672         $ (2,859)
                                                                   ===========         ===========       =========        =========
Net (loss) income per common share (basic and diluted)                  ($0.03)             ($0.04)                          ($0.30)
                                                                   ===========         ===========                        =========

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.

                                       12
<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.

                                       13
<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 June 14, 1999, Checkers
Drive-In Restaurants, Inc., ("Checkers" or "the Company") had an ownership
interest in 236 Company operated restaurants and an 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 June 14, 1999, there were 224 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 June 14, 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 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 actual general and administrative expenses during the second
quarter of 1999 were approximately $293,000 below the same quarter of the prior
year before the effect of the second quarter 1998 reversal of a $500,000 sales
tax audit provision. During the two quarters ended June 14, 1999 and the two
quarters ended June 15, 1998, the Company charged Rally's $3.5 million and $2.0
million, respectively in accordance with the Management Service Agreement. This
increase in costs billed to Rally's is primarily due to the transfer of various
marketing and field management personnel from Rally's to Checkers during the
third quarter of 1998. 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 for the second quarter of 1999 for Checkers were
5.0% below the same quarter of the prior year. Although this represents a
significant decrease, the promotion of the spicy chicken and double cheese
double sandwiches during the quarter reduced the negative trend that was
experienced during the first quarter and comparable store sales during the first
two quarters were 9.8% below the same quarters of the prior year. Checkers
currently has two menu expansion tests underway that will be evaluated to
determine the potential impact on sales. It has been determined that a limited
breakfast menu can be executed at minimal cost in our restaurants and this test
will be expanded to an increased number of stores in the Tampa market during the
third quarter. Checkers is also evaluating the operational and economic issues
associated with adding a limited Mexican food menu in a dual branding effort
with Green Burrito.

         Checkers and its Tampa area franchise partners entered into a sponsor
relationship with the Tampa Bay Buccaneers during the quarter. This relationship
is expected to result in numerous cross-promotional opportunities and to add
benefits during the coming five years.

         Since the second quarter of fiscal 1998, the Company, along with its
franchisees, experienced a net decrease of 15 operating restaurants. In the
second quarter of fiscal 1999, the Company acquired four restaurants from
franchisees and closed one restaurant and franchisees opened five restaurants
and transferred four 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 modular restaurant packages.
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 modular restaurant packages relates to all

                                       14

<PAGE>

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 modular restaurant packages 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. Modular restaurant
packages revenues are directly affected by the number of new franchise
restaurant openings and the number of new modular restaurant packages produced
or used modular restaurant packages refurbished for sale in connection with
those openings.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>

                                                            QUARTER ENDED          TWO QUARTERS ENDED
                                                              (UNAUDITED)              (UNAUDITED)
                                                         ---------------------  ----------------------
                                                          JUNE 14,    JUNE 15,    JUNE 14,    JUNE 15,
                                                            1999        1998        1999        1998
                                                         ---------    --------    --------    --------
<S>                                                       <C>         <C>         <C>         <C>
Revenues
    Restaurant sales                                        94.9%       94.8%       95.0%       94.8%
    Franchise revenues and fees                              5.1%        5.0%        5.0%        5.0%
    Modular restaurant packages                              0.0%        0.2%        0.0%        0.2%
                                                         -------      ------      ------      ------
        Total  revenues                                    100.0%      100.0%      100.0%      100.0%
COSTS AND EXPENSES
    Restaurant food and paper costs (1)                     30.0%       31.3%       30.1%       31.9%
    Restaurant labor costs (1)                              33.0%       32.8%       33.2%       31.6%
    Restaurant occupancy expense (1)                         8.6%        7.8%        8.3%        7.7%
    Restaurant depreciation and amortization (1)             5.1%        5.0%        5.3%        5.2%
    Other restaurant operating expense (1)                  10.8%       10.1%       10.7%        9.4%
    Advertising expense (1)                                  6.7%        4.8%        6.5%        5.1%
    Costs of modular restaurant package revenues (2)       951.5%      168.7%      829.3%      153.8%
    Other depreciation and amortization                      1.3%        1.5%        1.4%        1.4%
    General and administrative expense                       9.5%        9.4%        9.3%        9.0%
    Loss provisions                                          0.1%       (1.3)%       0.0%       (0.5)%
                                                         -------      ------      ------      ------
        Operating (loss) income                             (0.4)%       3.1%       (0.3)%       3.7%
                                                         -------      ------      ------      ------
OTHER INCOME (EXPENSE)
    Interest income                                          0.1%        0.2%        0.2%        0.2%
    Interest expense                                        (2.4)%      (2.5)%      (2.6)%      (2.6)%
    Interest - loan cost amortization                       (1.0)%      (1.2)%      (1.0)%      (1.2)%
    Minority interests in losses                             0.2%        0.1%        0.3%        0.0%
                                                         -------      ------      ------      ------
   (Loss) income before income tax expense                  (3.4)%      (0.6)%      (3.5)%       0.3%
   Income tax expense                                        0.0%        0.0%        0.0%        0.0%
                                                         -------      ------      ------      ------
        Net (loss) income                                   (3.4)%      (0.6)%      (3.5)%       0.3%
                                                         =======      ======      ======      ======
</TABLE>

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

                                       15

<PAGE>
<TABLE>
<CAPTION>
                                                                     QUARTER ENDED               TWO QUARTERS ENDED
                                                                      (UNAUDITED)                    (UNAUDITED)
                                                                 -------------------------     -----------------------
                                                                    JUNE 14,     JUNE 15,      JUNE 14,       JUNE 15,
                                                                      1999         1998          1999           1998
                                                                 ------------   ----------     ----------    ---------
<S>                                                              <C>            <C>            <C>           <C>
Operating data:
    System - wide restaurant sales (in 000's):
      Company - operated                                            $32,338       $33,003       $ 62,479       $ 68,110
      Franchised                                                     41,874        42,989         80,533         85,669
                                                                   --------       -------       --------       --------
            Total                                                   $74,212       $75,992       $143,012       $153,779
                                                                   ========       =======       ========       ========

Average annual sales per restaurant open for a full year
    (in 000's) (3):
      Company - operated                                              $ 577         $ 605
      Franchised                                                      $ 677         $ 714
      System - wide                                                   $ 626         $ 660
                                                                   --------       -------
Number of restaurants (4)
      Company - operated                                                236           230
      Franchised                                                        232           253
                                                                   --------       -------
           Total                                                        468           483
                                                                   ========       =======

</TABLE>


(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 JUNE 14, 1999 AND QUARTER ENDED
JUNE 15, 1998

         REVENUES. Total revenues decreased 2.2% to $34.1 million for the
quarter ended June 14, 1999, compared to $34.8 million for the quarter ended
June 15, 1998. Company operated restaurant sales decreased 2.0% to $32.3 million
for the quarter ended June 14, 1999, from $33.0 million for the quarter ended
June 15, 1998. Restaurant sales for comparable Company-owned restaurants for the
quarter ended June 14, 1999, decreased 5.0% compared to the quarter ended June
15, 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 continued discounting
by competitors during the current quarter.

         Franchise revenues and fees decreased 2.0% to $1.7 million for the
quarter ended June 14, 1999, from $1.8 million for the quarter ended June 15,
1998. This was a result of a net decrease of 21 franchised restaurants since
June 15, 1998.

         Modular restaurant package revenues decreased 90.1% to $6,000 for the
quarter ended June 14, 1999, from $67,000 for the quarter ended June 15, 1998
due to decreased sales volume of modular restaurant package's to the Company's
franchisees which is a result of franchisees sales by of used modular restaurant
package's and the Company's efforts to refurbish and sell its inventory of used
modular restaurant package'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 $9.7
million or 30.0% of restaurant sales for the quarter ended June 14, 1999,
compared to $10.3 million or 31.3% of restaurant sales for the quarter ended
June 15, 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 and limited price increase on
various menu items.

         Restaurant labor costs, which includes restaurant employees' salaries,
wages, benefits and related taxes, totalled $10.7 million or 33.0% of restaurant
sales for the quarter ended June 14, 1999, compared to $10.8 million or 32.8% of
restaurant sales for the quarter ended June 15, 1998. The increase in restaurant
labor costs as a percentage of restaurant sales was due to the impact of
operating at lower sales levels.

         Restaurant occupancy expense, which includes rent, property taxes,
licenses and insurance, totalled $2.8 million or 8.6% of restaurant sales for
the quarter ended June 14, 1999 compared to $2.6 million or 7.8% of restaurant
sales for the quarter ended June 15, 1998. The actual increase in restaurant
occupancy costs was due primarily to a $211,000 write-off associated with the
replacement of menu boards for all Company-owned restaurants during the second
quarter of 1999. The remaining increase as a percent of restaurant sales (0.7%)
is due to the decrease in restaurant sales for the current quarter versus the
comparable quarter of the prior year.

                                       16
<PAGE>

         Restaurant depreciation and amortization remained consistent at $1.6
million for the quarter ended June 14, 1999 and for the quarter ended June 15,
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 $3.5 million or 10.8% of restaurant sales for the quarter ended
June 14, 1999, compared to $3.3 million or 10.1% of restaurant sales for the
quarter ended June 15, 1998. The increase in the quarter ended June 14, 1999, as
a percentage of restaurant sales was primarily related to a $208,000 increase in
repair and maintenance costs and the decrease in average restaurant sales
relative to the fixed and semi-variable nature of these expenses.

         Advertising expense totalled $2.2 million or 6.7% of restaurant sales
for the quarter ended June 14, 1999, compared to $1.6 million or 4.8% of
restaurant sales for the quarter ended June 15, 1998. This increase was
primarily due to increased television and radio spending within certain markets.

         Costs of Modular restaurant package revenues totalled $63,000 or 951.5%
of modular restaurant package revenues for the quarter ended June 14, 1999,
compared to $113,000 or 169.7% of such revenues for the quarter ended June 15,
1998. The increase in these expenses as a percentage of modular restaurant
package revenues was attributable to the decline in modular restaurant package
revenues relative to the fixed and semi-variable nature of these costs.

         General and administrative expenses were $3.2 million or 9.5% of total
revenues, for the quarter ended June 14, 1999, compared to $2.8 million or 7.9%
of total revenues for the quarter ended June 15, 1998. The increase in these
expenses of $500,000 was primarily due to the reversal of a sales tax audit
provision of $500,000 during the second quarter of 1998.

         INTEREST EXPENSE. Interest expense other than loan cost amortization
decreased to $833,000 or 2.4% of total revenues for the quarter ended June 14,
1999 from $879,000 or 2.5% of total revenues for the quarter ended June 15,
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 $79,000 to $335,000 in the second quarter of 1999 from $414,000 for the
quarter ended June 15, 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 $445,000 or 38.0% of the loss before income
taxes which was completely offset by deferred income tax valuation allowances of
$445,000 for the quarter ended June 14, 1999, as compared to an income tax
benefit of $79,000 or 38.0% of earnings before income taxes offset by the
reversal of deferred income tax valuation allowances of $79,000 for the quarter
ended June 14, 1998. The effective tax rates differ from the expected federal
tax rate of 34.0% due to state income taxes and job tax credits.

COMPARISON OF HISTORICAL RESULTS - TWO QUARTERS ENDED JUNE 14, 1999 AND TWO
QUARTERS ENDED JUNE 15, 1998

         REVENUES. Total revenues decreased 8.4% to $65.8 million for the two
quarters ended June 14, 1999, compared to $71.8 million for the two quarters
ended June 15, 1998. Company operated restaurant sales decreased 8.3% to $62.5
million for the two quarters ended June 14, 1999, from $68.1 million for the two
quarters ended June 15, 1998. Restaurant sales for comparable Company-owned
restaurants for the two quarters ended June 14, 1999 decreased 9.8% compared to
the two quarters ended June 15, 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 8.9% to $3.3 million for the two
quarters ended June 14, 1999, from $3.6 million for the two quarters ended June
15, 1998. This was a result of a net decrease of 21 franchised restaurants since
June 15, 1998, and opening eight franchise restaurants during the two quarters
ended June 14, 1999 versus nine in the first two quarters of fiscal 1998.

         Modular restaurant package revenues decreased 83.7% to $19,000 for the
two quarters ended June 14, 1999, from $119,000 for the two quarters ended June
15, 1998 due to decreased sales volume of modular restaurant package's to the
Company's franchisees which is a result of franchisees sales of used modular
restaurant package's and the Company's efforts to refurbish and sell its
inventory of used modular restaurant package's from previously closed sites.

         COSTS AND EXPENSES. Restaurant food and paper costs totalled $18.8
million or 30.1% of restaurant sales for the two quarters ended


                                       17
<PAGE>

June 14, 1999, compared to $21.7 million or 31.9% of restaurant sales for the
two quarters ended June 14, 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 and limited
price increase on various menu items.

         Restaurant labor costs, which includes restaurant employees' salaries,
wages, benefits and related taxes, totalled $20.7 million or 33.2% of restaurant
sales for the two quarters ended June 14, 1999, compared to $21.5 million or
31.6% of restaurant sales for the two quarters ended June 15, 1998. The increase
in restaurant labor costs as a percentage of restaurant sales was due to the
impact of operating at lower sales levels.

         Restaurant occupancy expense, which includes rent, property taxes,
licenses and insurance, totalled $5.2 million or 8.3% of restaurant sales for
the two quarters ended June 14, 1999 compared to $5.2 million or 7.7% of
restaurant sales for the two quarters ended June 15, 1998. This increase in
restaurant occupancy costs as a percentage of restaurant sales was primarily due
to the effect of certain fixed costs while operating at a lower sales level. The
Company incurred a a $211,000 write-off associated with the replacement of menu
boards for all Company-owned restaurants during the second quarter of 1999
offset by various cost reductions achieved on other occupancy related expense
categories.

         Restaurant depreciation and amortization decreased to $3.3 million or
5.3% of net restaurant sales for the two quarters ended June 14, 1999, as
compared to $3.5 million or 5.2% of net restaurant sales for the two quarters
ended June 15, 1998, due primarily to certain assets becoming fully depreciated,
partially offset by a net increase of six Company operated restaurants from June
15, 1998 to June 14, 1999.

         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 $6.7 million or 10.7% of restaurant sales for the two quarters
ended June 14, 1999, compared to $6.4 million or 9.4% of restaurant sales for
the two quarters ended June 15, 1998. The increase in these expenses for the two
quarters ended June 14, 1999 as a percentage of restaurant sales was primarily
related to a $208,000 increase in repair and maintenance costs and the decrease
in average restaurant sales relative to the fixed and semi-variable nature of
these expenses.

         Advertising expense increased by $603,000 to 6.5% of restaurant sales
for the two quarters ended June 14, 1999 from 5.1% of restaurant sales for the
two quarters ended June 15, 1998. This increase was primarily due to increased
television and radio spending within certain markets.

         Costs of MRP revenues totalled $160,000 or 829.3% of MRP revenues for
the two quarters ended June 14, 1999, compared to $183,000 or 154.3% of such
revenues for the two quarters ended June 15, 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 $6.1 million or 9.3% of total
revenues for the two quarters ended June 14, 1999, compared to $5.9 million or
9.0% of total revenues for the two quarters ended June 15, 1998. The actual
decrease in these expenses of $293,000 before the effect of the second quarter
1998 reversal of a $500,000 sales tax audit provision 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, as well as a decrease in bad debt expenses of $176,000.

         INTEREST EXPENSE. Interest expense other than loan cost amortization
decreased to $1.7 million or 2.6% of total revenues for the two quarters ended
June 14, 1999 from $1.8 million or 2.6% of total revenues for the two quarters
ended June 15, 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 $163,000 to $667,000 for the two quarters ended June
14, 1999 from $829,000 for the two quarters ended June 14, 1998 due to
accelerated amortization of deferred loan costs associated with unscheduled
principal reductions in 1998.

         INCOME TAX EXPENSE. During 1999, the Company recorded an income tax
benefit of $868,000 or 38.0% of the loss before income taxes which was
completely offset by deferred income tax valuation allowances of $868,000 for
the two quarters ended June 14, 1999, as compared to an income tax expense of
$71,000 or 38.0% of earnings before income taxes offset by the reversal of
deferred income tax valuation allowances of $71,000 for the two quarters ended
June 14, 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

         Checkers cash and cash equivalents have decreased approximately $1.5
million during the two quarters ended June 14, 1999. Cash flow from operating
activities was negatively impacted by lower net income and the expenses
associated with the proposed merger with Rally's. Capital expenditures during
the first two quarters were $2.2 million related primarily to the installation
of new menu boards and other replacement equipment for stores ($1.6 million),

                                       18
<PAGE>

side-dining installations ($218,000), other building and leasehold improvements
($172,000) and corporate computer equipment ($211,000). The Company has also
made principal payments on long term debt of $655,000 during the first two
quarters.

         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 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 June 14, 1999, a significant portion ($17.4 million) of the
Company's 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 June
11, 1999, Fidelity National Financial, Inc. owned approximately 29% 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 June 14, 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 August 9,
1999, the proposed 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 lender group 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

                                       19
<PAGE>

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. "Granite" (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. During April and June of 1999, the Company
entered into two additional capital leases with Granite, whereby the Company
leased $554,000 of security equipment. The Company is required to make
additional monthly payments of approximately $11,000 and $8,000 at effective
interest rates of 13.82% and 13.85%, respectively, under these leases.

         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. Eight such franchise restaurants have opened as of
June 14, 1999.

         The Company has a working capital deficit of $25.4 million at June 14,
1999. It is anticipated that the Company will continue to have a working capital
deficit since approximately 89% 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. In addition, the $17.4 million due March 31, 2000
pursuant to the Restated Credit Agreement has been categorized as a current
liability and has increased the working capital deficit. The Company is
evaluating various alternatives for refinancing or repaying the debt including
the sale of certain Company-owned restaurants to new or existing franchisees and
a potential private placement

         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 $4.6 million at June 14, 1999.
It is anticipated that Rally's will continue to have a working capital deficit
since approximately 86% 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 June 14, 1999, a significant portion ($52.2
million) of Rally's long-term liabilities relates to the Rally's Senior Notes to
mature on June 15, 2000. Rally's is currently evaluating alternatives for
refinancing or repaying the outstanding Senior Notes. 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.

                                       20
<PAGE>

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
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, training and
implementation required for the next Lawson and Cyborg upgrades are underway
with targeted implementation dates during the third quarter of 1999 at a cost to
Checkers of approximately $75,000. The upgrade of corporate office systems is
approximately 75% complete and should be finalized by September 30, 1999. The
Company has assessed the computer systems utilized at the restaurant level and
determined such systems to be 100% Year 2000 compliant. Costs of replacing
certain desktop computers and other required modifications at the corporate
office are not expected to exceed $70,000.

         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 have been purchased by Rally's and the
software currently utilized by the Checkers restaurants is being installed.
Completion of the rollout is expected by September 30, 1999. The costs of
compliance of shared systems is allocated between the two companies, whereas
additional hardware costs at the restaurants are not shared.

         Checkers is continuing to identify third parties that must be Year 2000
compliant to ensure the continued success of our operations. Letters requesting
written verification of compliance have been set to companies that provide
financial services, utilities, inventory preparation and distribution and other
key services. Checkers 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 operating on January 1, 2000. The distribution centers that
deliver products to the restaurants maintain an adequate inventory to supply
items for approximately three weeks. If suppliers are unable to deliver product
to the distribution centers due to Year 2000 or other plant malfunctions,
alternative suppliers are currently identified that could deliver product that
matches Checkers specifications. Checkers has obtained verification of Year 2000
compliance from its primary distributor. If documentation of Year 2000
compliance is not received from financial institutions by November 1, 1999,
Checkers will transfer its banking relationships to other banks at an
incremental cost not expected to exceed $100,000. No contingency plans are
available if the utility services for the restaurants are interrupted due to
Year 2000 failures.

         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.

                                       21
<PAGE>

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. 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 and
this matter is scheduled for trial during August 1999. On or

                                       22
<PAGE>

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 believes the causes of action asserted in the Counterclaim against
the Company and Mr. Brown are without merit and intends to defend them
vigorously. The matter is in the pre-trial stages and no estimate of any
possible loss or range of loss resulting from the lawsuit can be made at this
time.

         FIRST ALBANY CORP., AS CUSTODIAN FOR THE BENEFIT OF NATHAN SUCKMAN V.
CHECKERS DRIVE-IN RESTAURANTS, INC. ET AL. Case No. 16667. This putative class
action was filed on September 29, 1998, in the Delaware Chancery Court in and
for New Castle County, Delaware by First Albany Corp., as custodian for the
benefit of Nathan Suckman, an alleged stockholder of 500 shares of the Company's
common stock. The complaint names the Company and certain of its current and
former officers and directors as defendants including William P. Foley, II,
James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A. Peabody, James T.
Holder, Terry N. Christensen, Frederick E. Fisher, Clarence V. McKee, Burt
Sugarman, C. Thomas Thompson and Peter C. O'Hara. The Complaint also names
Rally's Hamburgers, Inc. ("Rally's") and GIANT GROUP, LTD. ("GIANT") as
defendants. The complaint arises out of the proposed merger announced on
September 28, 1998 between the Company, Rally's and GIANT (the "Proposed
Merger") and alleges generally, that certain of the defendants engaged in an
unlawful scheme and plan to permit Rally's to acquire the public shares of the
Company's stock in a "going-private" transaction for grossly inadequate
consideration and in breach of the defendants' fiduciary duties. The plaintiff
allegedly initiated the Complaint on behalf of all stockholders of the Company
as of September 28, 1998, and seeks INTER ALIA, certain declaratory and
injunctive relief against the consummation of the Proposed merger, or in the
event the Proposed Merger is consummated, recision of the Proposed Merger and
costs and disbursements incurred in connection with bringing the action,
including attorney's fees, and such other relief as the Court may deem just and
proper. 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

                                       23

<PAGE>

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.

                                       24




<PAGE>

ITEM 2.  CHANGES IN SECURITIES

         None.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.


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

         None.

ITEM 5.   OTHER INFORMATION

          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. On June 18, 1999, the Company was
notified by NASDAQ that its listing would be continued through August 9, 1999,
the anticipated closing date of the merger.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

27       Financial Data Schedule

(b)      Reports on 8-K:


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

         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.


                                       25


<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: July 29, 1999                    By: /s/ RICHARD A. PEABODY
                                          ----------------------------------
                                       Richard A. Peabody
                                       Senior Vice President and Chief Financial
                                       Officer (Principal Financial and
                                       Accounting Officer)


                                       26


<PAGE>



                             JUNE 14, 1999 FORM 10-Q
                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                  EXHIBIT INDEX


   EXHIBIT NO.        EXHIBIT DESCRIPTION
   -----------        -------------------

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





                                       27