UNITED STATES
                    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 May 13, 2001
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 0-4377
                      ---------------------------

                             SHONEY'S, INC.
         (Exact name of registrant as specified in its charter)

          Tennessee                                         62-0799798
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                          Identification No.)


   1727 Elm Hill Pike, Nashville, TN                           37210
(Address of principal executive offices)                     (Zip Code)

   Registrant's telephone number, including area code:  (615) 391-5201


     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    .
                                                    ---    ---

     As of June 22, 2001, there were 51,709,122 shares of Shoney's, Inc. $1
par value common stock outstanding.




PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements

                       SHONEY'S, INC. AND SUBSIDIARIES
                     Consolidated Condensed Balance Sheet
                                (Unaudited)

                                                 May 13,         October 29,
                                                  2001              2000
                                            ---------------   ---------------
ASSETS
Current assets:
  Cash and cash equivalents                 $    5,968,601    $    7,974,050
  Notes and accounts receivable, less
   allowance for doubtful accounts of
   $791,000 in 2001 and $691,000 in 2000         5,823,699         6,052,524
Inventories                                      4,707,470         4,624,050
Prepaid expenses and other current assets        3,944,101         3,691,051
Net current assets of discontinued
 operations                                      8,833,491         9,721,688
Net property and equipment held for sale        14,875,269        19,932,444
                                            ---------------   ---------------
    Total current assets                        44,152,631        51,995,807

Property and equipment, at lower of
 cost or market                                520,327,050       525,898,139
Less accumulated depreciation and
 amortization                                 (304,958,305)     (300,959,463)
                                            ---------------   ---------------
    Net property and equipment                 215,368,745       224,938,676

Other assets:
  Goodwill (net of accumulated
   amortization of $8,025,000 in 2001
   and $7,318,000 in 2000)                      12,338,588        13,200,847
  Deferred charges and other intangible
   assets                                       10,986,117        13,104,142
  Net non-current assets of discontinued
   operations                                                      4,989,067
  Other assets                                   1,671,840         3,620,170
                                            ---------------   ---------------
    Total other assets                          24,996,545        34,914,226
                                            ---------------   ---------------
                                            $  284,517,921    $  311,848,709
                                            ===============   ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
  Accounts payable                          $   16,766,981    $   18,121,253
  Other accrued liabilities                     51,186,243        55,198,337
  Debt and capital lease obligations due
   within one year                             122,710,465         7,888,629
                                            ---------------   ---------------
     Total current liabilities                 190,663,689        81,208,219

Long-term debt and capital lease obligations   144,004,096       263,341,756

Other liabilities                               48,880,851        53,285,555

Shareholders' deficit:
  Common stock, $1 par value: authorized
   200,000,000; issued 51,709,122 in 2001
   and 50,659,282 in 2000                       51,709,122        50,659,282
Additional paid-in capital                     136,917,455       137,521,843
Other accumulated comprehensive loss            (1,599,239)
Accumulated deficit                           (286,058,053)     (274,167,946)
                                            ---------------   ---------------
    Total shareholders' deficit                (99,030,715)      (85,986,821)
                                            ---------------   ---------------
                                            $  284,517,921    $  311,848,709
                                            ===============   ===============

See notes to consolidated condensed financial statements


                                      2


                       SHONEY'S, INC. AND SUBSIDIARIES
               Consolidated Condensed Statement of Operations
                                 (Unaudited)

                                               Twenty-eight Weeks Ended
                                                May 13,         May 14,
                                                 2001            2000
                                            --------------   -------------
Revenues
  Net sales                                 $ 350,556,361    $ 375,056,425
  Franchise fees                                6,642,838        7,857,351
  Other income                                  6,451,881        5,526,403
                                            --------------   --------------
                                              363,651,080      388,440,179
Costs and expenses
  Cost of sales                               322,069,297      338,482,855
  General and administrative expenses          30,498,065       31,112,572
  Interest expense                             18,510,818       20,433,307
                                            --------------   --------------
    Total costs and expenses                  371,078,180      390,028,734
                                            --------------   --------------

Loss from continuing operations before
 income taxes                                  (7,427,100)      (1,588,555)

Provision for income taxes                        322,000          217,000
                                            --------------   --------------

Net loss from continuing operations            (7,749,100)      (1,805,555)

Discontinued operations, net of
 income taxes                                    (212,007)       2,705,033

Estimated loss on sale of discontinued
 operations, net of income taxes               (3,929,000)

Gain on sale of discontinued operations,
 net of income taxes                                               575,091
                                            --------------   --------------

Net income (loss)                           $ (11,890,107)   $   1,474,569
                                            ==============   ==============

Earnings per common share
  Basic:
    Net loss from continuing operations            ($0.15)          ($0.04)
    Discontinued operations, net of
     income taxes                                   (0.00)            0.05
    Estimated loss on sale of discontinued
     operations, net of income taxes                (0.08)
    Gain on sale of discontinued operations,
     net of income taxes                                              0.01
                                            --------------   --------------
    Net income (loss)                              ($0.23)           $0.03
                                            ==============   ==============
  Diluted:
    Net loss from continuing operations            ($0.15)          ($0.04)
    Discontinued operations, net of
     income taxes                                   (0.00)            0.05
    Estimated loss on sale of discontinued
      operations, net of income taxes               (0.08)
    Gain on sale of discontinued operations,
     net of income taxes                                              0.01
                                            --------------   --------------
    Net income (loss)                              ($0.23)           $0.03
                                            ==============   ==============

Weighted average shares outstanding
    Basic                                      51,413,142       50,253,402

    Diluted                                    51,413,142       50,253,402

Common shares outstanding                      51,709,122       50,594,763

Dividends per share                                  NONE             NONE

See notes to consolidated condensed financial statements


                                    3


                      SHONEY'S, INC. AND SUBSIDIARIES
               Consolidated Condensed Statement of Operations
                               (Unaudited)

                                                   Twelve Weeks Ended
                                                May 13,          May 14,
                                                 2001             2000
                                             -------------    -------------
Revenues
  Net sales                                  $ 160,268,340    $ 172,561,072
  Franchise fees                                 2,860,602        3,716,603
  Other income                                   2,749,630        1,610,462
                                             --------------   --------------
                                               165,878,572      177,888,137
Costs and expenses
  Cost of sales                                144,754,495      152,382,425
  General and administrative expenses           13,061,283       13,838,681
  Interest expense                               7,921,591        8,671,512
                                             --------------   --------------
    Total costs and expenses                   165,737,369      174,892,618
                                             --------------   --------------

Income from continuing operations before
 income taxes                                      141,203        2,995,519

Provision for income taxes                         250,000          140,000
                                             --------------   --------------

Net income (loss) from continuing operations      (108,797)       2,855,519

Discontinued operations, net of income taxes     1,239,887        2,018,696

Estimated loss on sale of discontinued
 operations, net of income taxes                (3,929,000)

Gain on sale of discontinued operations,
 net of income taxes                                                575,091
                                             --------------   --------------

Net income (loss)                            $  (2,797,910)   $   5,449,306
                                             ==============   ==============

Earnings per common share
  Basic:
    Net income (loss) from continuing
     operations                                      $0.00           $0.06
    Discontinued operations, net of
     income taxes                                     0.02            0.04
    Estimated loss on sale of discontinued
     operations, net of income taxes                 (0.08)
    Gain on sale of discontinued operations,
     net of income taxes                                              0.01
                                             --------------   -------------
    Net income (loss)                               ($0.05)          $0.11
                                             ==============   =============

  Diluted:
    Net loss from continuing operations              $0.00           $0.06
    Discontinued operations, net of
     income taxes                                     0.02            0.04
    Estimated loss on sale of discontinued
     operations, net of income taxes                 (0.08)
    Gain on sale of discontinued operations,
     net of income taxes                                              0.01
                                             --------------   -------------
    Net income (loss)                               ($0.05)          $0.11
                                             ==============   =============

Weighted average shares outstanding
    Basic                                       51,702,575      50,552,996

    Diluted                                     51,702,575      50,592,996

Common shares outstanding                       51,709,122      50,594,763

Dividends per share                                   NONE            NONE

See notes to consolidated condensed financial statements

                                    4


                       SHONEY'S, INC. AND SUBSIDIARIES
                Consolidated Condensed Statement of Cash Flows
                               (Unaudited)

                                             For the Twenty-eight Weeks Ended
                                                 May 13,           May 14,
                                                  2001              2000
                                             --------------    --------------
Operating activities
  Net income (loss)                          $ (11,890,107)    $   1,474,569
  Adjustments to reconcile net income
   (loss) to net cash provided by
   operating activities:
     Income (loss) from discontinued
      operations, net of income taxes              212,007        (2,705,033)
     Estimated loss on sale of discontinued
      operations, net of income taxes            3,929,000
     Gain on sale of discontinued
      operations, net of income taxes                               (575,091)
     Depreciation and amortization              15,250,044        18,121,705
     Amortization of deferred charges and
      other non-cash charges                     3,997,634         7,687,204
     Gain on disposal of property
      and equipment                             (5,074,608)       (4,620,346)
     Changes in operating assets
      and liabilities                           (8,442,993)      (13,233,584)
                                             --------------    --------------
        Net cash provided (used) by
         continuing operating activities        (2,019,023)        6,149,424
        Net cash provided by discontinued
         operating activities                    4,272,245           559,922
                                             --------------    --------------

        Net cash provided by operating
         activities                              2,253,222         6,709,346

Investing activities
  Cash required for property and equipment      (8,061,207)      (10,367,897)
  Proceeds from disposal of property
    and equipment                               11,681,344        19,509,471
  Cash provided (used) by other assets           2,035,074          (152,584)
                                            ---------------    --------------
        Net cash provided by continuing
         investing activities                    5,655,211         8,988,990
        Net cash provided (used) by
         discontinued investing activities        (280,318)       11,226,546
                                            ---------------    --------------

        Net cash provided by investing
         activities                              5,374,893        20,215,536

Financing activities
  Payments on long-term debt and capital
   lease obligations                           (54,208,518)      (34,291,754)
  Proceeds from long-term debt                  51,700,028        18,500,000
  Net payments on short-term debt               (2,400,000)      (10,887,000)
  Payments on litigation settlements                              (3,726,680)
  Cash required for debt issue costs            (1,225,318)         (820,212)
                                            ---------------    --------------
        Net cash used by continuing
         financing activities                   (6,133,808)      (31,225,646)
        Net cash used by discontinued
         financing activities                   (3,499,756)           (2,845)
                                            ---------------    --------------
        Net cash used by financing
         activities                             (9,633,564)      (31,228,491)
                                            ---------------    --------------

Change in cash and cash equivalents         $   (2,005,449)    $  (4,303,609)
                                            ===============    ==============

See notes to consolidated condensed financial statements


                                    5


The forward-looking statements included in this Form 10-Q relating to certain
matters involve risks and uncertainties, including the ability of management
to successfully implement its strategy for improving Shoney's Restaurants
performance, the ability of management to effect asset sales consistent with
projected proceeds and timing expectations, the results of pending and
threatened litigation, adequacy of management personnel resources, shortages
of restaurant labor, commodity price increases, product shortages, adverse
general economic conditions, adverse weather conditions that may affect the
Company's markets, turnover and a variety of other similar matters. Forward-
looking statements generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "intend," "estimate," "could,"
"anticipate," "believe," or "continue" (or the negative thereof) or similar
terminology.  Actual results and experience could differ materially from the
anticipated results or other expectations expressed in the Company's forward-
looking statements as a result of a number of factors, including but not
limited to those discussed in Management's Discussion and Analysis of
Financial Condition and Results of Operations and under the caption "Risk
Factors" therein. Forward-looking information provided by the Company
pursuant to the safe harbor established under the Private Securities
Litigation Reform Act of 1995 should be evaluated in the context of these
factors. In addition, the Company disclaims any intent or obligation to
update these forward-looking statements.







                                    6


                     SHONEY'S, INC. AND SUBSIDIARIES
            Notes to Consolidated Condensed Financial Statements
                              May 13, 2001
                              (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited Consolidated Condensed Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q.  As a
result, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
The Company, in management's opinion, has included all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation
of the results of operations.  Certain reclassifications have been made in
the Consolidated Condensed Financial Statements to conform to the 2001
presentation.  Operating results for the twelve and twenty-eight week periods
ended May 13, 2001 are not necessarily indicative of the results that may be
expected for all or any balance of the fiscal year ending October 28, 2001.
For further information, refer to the Consolidated Financial Statements and
Footnotes thereto included in the Shoney's, Inc. Annual Report on Form 10-K
for the year ended October 29, 2000.

NOTE 2 - DISCONTINUED OPERATIONS

During the second quarter of 2000, the Company sold its Pargo's restaurants
and made the decision to either close or sell its remaining Fifth Quarter
restaurants.  On May 25, 2001, the Company announced the execution of a
definitive agreement to sell its wholly-owned subsidiary, Commissary
Operations, Inc. ("COI").  As a result, the Company has presented the casual
dining and COI lines of business as discontinued operations in the
accompanying financial statements, net of any related income tax expense.
All prior periods have been restated.  These discontinued lines of business
had total revenue and net income (loss) as follows:

                           Quarter Ended           Twenty-eight Weeks Ended
($ in thousands)    May 13, 2001   May 14, 2000   May 13, 2001   May 14, 2000
                    ------------   ------------   ------------   ------------
Total revenue       $     29,523   $     35,194   $     58,280   $     76,279
Net income (loss)   $      1,240   $      2,019   $       (212)  $      2,705

On June 11, 2001, the Company sold its COI common shares for cash
consideration of $9.0 million less expenses.

NOTE 3 - ACQUISITIONS

On September 9, 1996, the Company completed the acquisition of substantially
all of the assets of TPI Enterprises, Inc. ("TPI") which, as the then largest
franchisee of the Company, operated 176 Shoney's Restaurants and 67 Captain
D's restaurants.

Twenty-eight of TPI's restaurants had been targeted for closure during the
Company's due diligence process as under-performing units. Costs to exit
these businesses were accrued as liabilities assumed in purchase accounting
and consisted principally of severance pay for certain employees and the
accrual of future minimum lease obligations in excess of anticipated sublease
rental income. The total amount of such liabilities included in the TPI
purchase price allocation was approximately $21.0 million. During the first
twenty-eight weeks of 2001, approximately $0.1 million in costs to exit
restaurants acquired were charged to this liability. Minimal costs were
charged to this liability in the second quarter.  During the second quarter
and first


                                   7


twenty-eight weeks of 2000, approximately $0.1 million and $0.4 million,
respectively, in costs were charged to this liability. Approximately $4.3
million of anticipated exit costs related to the TPI acquisition remain
accrued at May 13, 2001.


NOTE 4 -IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS HELD FOR DISPOSAL

The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121"), at the beginning of the first quarter of
1997.

At May 13, 2001, the carrying value of the 33 properties to be disposed of
was $14.9 million and is reflected on the Consolidated Condensed Balance
Sheet as net property and equipment held for sale. Under the provisions of
SFAS 121, depreciation and amortization are not recorded on assets held for
sale during the period in which such assets are being held for disposal.

If the Company's Shoney's Restaurants continue to experience declines in
comparable store sales and operating margins, the Company will incur
additional asset impairment charges in the future.

NOTE 5 - RESTRUCTURING EXPENSE

When the decision to close a restaurant is made, the Company incurs certain
exit costs generally for the accrual of the remaining leasehold obligations
less anticipated sublease income related to leased units that are targeted to
be closed.  There were no exit costs recorded in the first twenty-eight weeks
of 2001 or the first twenty-eight weeks of 2000. The Company charged
approximately $0.5 million and $1.3 million against these exit cost reserves
in the second quarter and first twenty-eight weeks of 2001, respectively.
During the second quarter and first twenty-eight weeks of 2000, approximately
$1.8 million and $3.3 million, respectively, were charged to this liability.
Approximately $5.4 million of accrued exit costs remain at May 13, 2001.

During 2000, the Company closed 13 Company-owned restaurants and sold 12
Shoney's Restaurants to franchisees. During the first twenty-eight weeks of
2001, six Shoney's and three Captain D's restaurants were closed.  Six
Captain D's restaurants were sold to franchisees during the first quarter of
2001.

Management continually evaluates the operating performance of its restaurants
and may close additional restaurants if, in management's opinion, operating
results cannot be improved within what management believes is a reasonable
time period.  In the event management elects to close additional leased
restaurants during 2001, the Company will incur additional restructuring
charges.

Below are sales and EBIT as defined, which is defined by the Company as
income before interest, taxes, asset impairment charges, restructuring
charges and litigation settlements, for the second quarter and first twenty-
eight weeks of 2001 and 2000 for restaurants closed or sold prior to May 13,
2001.

($ in thousands)
                      Quarter Ended              Twenty-eight Weeks Ended
               May 13, 2001    May 14, 2000    May 13, 2001    May 14, 2000
               ------------    ------------    ------------    ------------

                     EBIT as         EBIT as         EBIT as         EBIT as
              Sales  defined  Sales  defined  Sales  defined  Sales  defined
              -----  -------  -----  -------  -----  -------  -----  -------
Stores closed
 or sold      $330   $(166)   $7,778  $(654)  $3,006  $(715) $20,455 $(1,947)
              ====   ======   ======  ======  ======  ====== ======= ========


                                       8


NOTE 6 - EARNINGS PER SHARE

The table below presents the computation of basic and diluted income (loss)
per share in accordance with Financial Accounting Standards No. 128:

                                    Quarter Ended    Twenty-eight Weeks Ended
($ in thousands except EPS)       May 13,   May 14,     May 13,      May 14,
                                   2001      2000        2001         2000
                                  -------   -------     -------      -------
Numerator:
Income (loss) from continuing
 operations- numerator for
 Basic EPS                        $  (109)  $ 2,856    $ (7,749)   $ (1,806)
Income (loss) from continuing
 operations after assumed
 conversion of debentures -
 numerator for Diluted EPS        $  (109)  $ 2,856    $ (7,749)   $ (1,806)

Denominator:
Weighted-average shares
 outstanding - denominator for
 Basic EPS                          51,703   50,553      51,413      50,253
Dilutive potential shares -
  denominator for Diluted EPS       51,703   50,593      51,413      50,253

Basic EPS income (loss) from
 continuing operations            $   0.00  $  0.06    $  (0.15)   $  (0.04)
Diluted EPS income (loss) from
 continuing operations            $   0.00  $  0.06    $  (0.15)   $  (0.04)

As of May 13, 2001, the Company had outstanding approximately 6,718,858
options to purchase shares at prices ranging from $0.44 to $25.51.  The
Company also has outstanding subordinated zero coupon convertible debentures
and 8.25% subordinated convertible debentures which are convertible into
common stock at the option of the debenture holder. As of May 13, 2001, the
Company had reserved 537,908 and 266,581 shares, respectively, related to
these convertible debentures. The zero coupon debentures are due in April
2004 and the 8.25% debentures are due in July 2002.  The effect of
considering these potentially dilutive convertible securities was anti-
dilutive and was not included in the calculation of Dilutive EPS for the
second quarter of 2000. Because the Company reported a net loss from
continuing operations before extraordinary items for the second quarter of
2001 and the twenty-eight week periods of 2001 and 2000, the effect of
considering these potentially dilutive convertible securities was anti-
dilutive and was not included in the calculation of Diluted EPS.

NOTE 7 - INCOME TAXES

The Company has recorded an income tax provision of $0.3 million for the
twelve and twenty-eight week periods ended May 13, 2001. The Company recorded
income tax provisions of $0.1 million and $0.2 million, respectively, for the
twelve and twenty-eight week periods ended May 14, 2000. This effective tax
rate differs from the Federal statutory rate of 35% primarily due to goodwill
amortization, which is not deductible for Federal income taxes, and a change
in the valuation allowance against the gross deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.  As of May
13, 2001, the Company increased the valuation allowance for gross deferred
tax assets.  The deferred tax asset valuation adjustment is in accordance
with Statement of Financial Accounting



                                   9


Standards No. 109, which requires that a deferred tax asset valuation allowance
be established if certain criteria are not met.  If the deferred tax assets are
realized in the future, the related tax benefits will reduce income tax
expense.


NOTE 8 -DEBT AND OBLIGATIONS UNDER CAPITAL LEASES

Debt and obligations under capital leases at May 13, 2001 and October 29,
2000 consisted of the following:

                                                     2001            2000
                                                     ----            ----

Shoney's - Mortgage Financing                   $  98,026,511   $  99,000,000
Shoney's - Line of Credit                          11,217,178       6,345,000
Captain D's - Term Notes                          115,000,000     115,000,000
Captain D's - Line of Credit                        4,100,000       7,500,000
Subordinated zero coupon convertible debentures,
 due April 2004                                    14,383,809      13,753,168
Subordinated convertible debentures,
 due July 2002                                      5,160,211       5,109,530
Industrial revenue bonds                            5,765,000      10,165,000
Notes payable to others                             3,512,967       3,763,744
                                                -------------   -------------
                                                  257,165,676     260,636,442
Obligations under capital leases                    9,548,885      10,593,943
                                                -------------   -------------
                                                  266,714,561     271,230,385
Less amounts due within one year                  122,710,465       7,888,629
                                                -------------   -------------
Amounts due after one year                      $ 144,004,096   $ 263,341,756
                                                =============   =============


Senior Debt Refinancing

On September 6, 2000, the Company completed a cash tender offer (the "Tender
Offer") that resulted in the purchase of approximately 90% of the outstanding
subordinated convertible debentures (the "TPI Debentures") and zero coupon
convertible debentures (the "LYONs") for an aggregate price of approximately
$71.8 million.  In order to consummate the Tender Offer, the Company was
required to refinance the indebtedness outstanding under the Company's 1997
Credit Facility in addition to receiving financing necessary to effect the
Tender Offer (the "Refinancing").  Consummation of the Tender Offer and the
Refinancing resulted in an extraordinary gain on the early retirement of debt
of approximately $82.5 million in the Company's fourth quarter of fiscal
2000, net of expenses and taxes.

In order to complete the Refinancing, the Company restructured its restaurant
operations by separating its Shoney's and Captain D's operations (the
"Reorganization").  The Reorganization included transferring substantially
all of the assets comprising the Company's Captain D's restaurant operations
to a wholly-owned subsidiary, Captain D's, Inc. ("Captain D's").  The
Reorganization allowed each of the Company's operating segments (Shoney's and
Captain D's) to be separately financed.  As a result of the Reorganization
and the Refinancing, each operating segment is intended to operate as an
independent business unit and be responsible for its own indebtedness and
working capital needs.  The new senior lending agreements generally prohibit
the movement of cash and other assets between the operating segments except
for payments under certain tax sharing arrangements and payments for services.


                                   10


Shoney's - Mortgage Financing

In connection with the Refinancing, on September 6, 2000 the Company entered
into a $99.0 million, twenty-year mortgage financing (the "Shoney's Mortgage
Financing") which is secured by the land, buildings and equipment of 142
Shoney's Restaurants. The carrying value of the collateral for the Shoney's
Mortgage Financing was $85.7 million at May 13, 2001. Principal reductions of
approximately $1.6 million are scheduled during 2001. A portion of this debt
carries a fixed rate of interest and the remainder is at a floating rate,
which is reset monthly, based on the London Interbank Offered Rate (LIBOR).
As of May 13, 2001, the effective interest rates on this debt were as
follows:


            Principal Amount     Fixed/Floating     Interest Rate
            ----------------     --------------     -------------
             $  67,081,627           Fixed              10.23%
             $   8,669,861           Fixed              10.35%
             $  22,275,023          Floating             9.15%


Shoney's - Line of Credit

On September 6, 2000, the Company entered into an amendment and restatement
of the 1997 Credit Facility which provided Shoney's with a $40.0 million
line of credit (the "Shoney's Line of Credit"). The Shoney's Line of Credit
has a two-year term expiring on September 6, 2002 and is secured by all of
the Shoney's Restaurant properties not serving as collateral for the Shoney's
Mortgage Financing or other debt and certain surplus, office and
miscellaneous properties owned and leased by the Company. The carrying value
of the collateral for the Shoney's Line of Credit was $25.9 million at May
13, 2001. The Company has agreed to sell up to $10.0 million of certain
properties serving as collateral for the Shoney's Line of Credit, pay down
outstanding amounts under the line and permanently reduce the availability.
As of May 13, 2001, the Company had sold $5.0 million of the $10.0 million of
collateral properties and had reduced availability accordingly.  Available
credit under the Shoney's Line of Credit is also reduced by letters of
credit.  At May 13, 2001, the Company had borrowings under the Shoney's Line
of Credit of $11.2 million and had outstanding letters of credit of $19.7
million, resulting in available credit of $4.1 million. Also, pursuant to the
terms of the Shoney's Line of Credit, the Company may sell certain other
assets serving as collateral for the Shoney's Line of Credit, retain and use
in the business the first $15.0 million of the sale proceeds, and,
thereafter, use the sale proceeds to either repay drawings under the line,
which will also permanently reduce availability, or cash collateralize the
line.  As of May 13, 2001, the Company had sold and retained in the business
$9.1 million of asset sale proceeds since September 6, 2000.  The Company
pays a commitment fee of 0.50% for unused available credit under the
facility.  The interest rate for this facility is at floating rates (4.25%
over LIBOR or 3.25% over the prime rate), and at May 13, 2001 the interest
rate on the Shoney's Line of Credit was 9.79%.

Captain D's - Term Notes and Line of Credit

Captain D's, in connection with the Refinancing, entered into a credit
facility on September 6, 2000 for up to $135.0 million consisting of term
notes totaling $115.0 million and a $20.0 million line of credit (the
"Captain D's Facility").  This facility, which terminates on December 31,
2001, is secured by all of the assets owned by Captain D's including owned
land, buildings and equipment, certain leased restaurant properties, and a
pledge of certain other assets of Captain D's. The carrying value of the
collateral for the Captain D's Facility was $87.0 million at May 13, 2001. At
May 13, 2001, there was $115.0 million outstanding under the term notes and
$4.1 million outstanding under the line of credit.  There are no scheduled
payments under the term notes or the line of credit prior to the termination
date of the Captain


                                   11


D's Facility.  Available credit under the line of credit is reduced by
outstanding letters of credit.  At May 13, 2001, Captain D's outstanding
letters of credit totaled $4.0 million, resulting in available credit of
$11.9 million.  Captain D's pays a commitment fee of 0.50% for unused
available credit under the line of credit.  The interest rate on term notes
totaling $85.0 million is at floating rates (4% over LIBOR or 3% over the
prime rate) and, in respect of term notes totaling $30.0 million, the initial
interest rate was at floating rates of 4% over LIBOR or 3% over the prime
rate.  On January 1, 2001, the interest rate for the $30.0 million term notes
increased by 0.50% and is scheduled to increase by 0.50% on the last day of
each calendar quarter thereafter. The interest rate for the line of credit
ranges from 3% to 4% over LIBOR or 2% to 3% over the prime rate, based on
certain defined financial ratios. At May 13, 2001, the effective interest
rate for the term notes and the line of credit was 10.5% and 10.7%,
respectively.

Interest Rate Hedge Programs

The 1997 Credit Facility, which was amended and restated to become the
Shoney's Line of Credit, required the Company to enter into an interest rate
hedge program covering a notional amount of not less than $50.0 million and
not greater than $100.0 million within 60 days from the date of the original
loan closing. The amount of the Company's debt covered by the hedge program
was $100.0 million at October 31, 1999, which was comprised of two $40.0
million agreements, for which the interest rates were fixed at approximately
6.1% and 5.9%, respectively, plus the applicable margin, and an additional
$20.0 million agreement which fixed the interest rate on the covered amount
of debt at 5.6% plus the applicable margin. On May 11, 2000, the Company sold
$50.0 million of swap agreements for a gain of $0.3 million.  The interest
rate swap agreements which were sold consisted of notional amounts of $10.0
million and $40.0 million with fixed interest rates of 6.1% and 5.9%,
respectively, and were scheduled to terminate on January 8, 2001.  The gain
was deferred and amortized over the remaining term of the interest rate swap
agreements. Of the remaining $50.0 million of interest rate swaps, $20.0
million of the interest rate swaps with a fixed interest rate of 5.6%
terminated on October 8, 2000, and $30.0 million of the interest rate swaps
with a fixed rate of 6.1% terminated on January 8, 2001.  The Shoney's Line
of Credit does not require a hedge program.

The Captain D's credit agreement required Captain D's to enter into an
interest rate hedge program covering a notional amount of not less than 50%
of the term notes outstanding ($57.5 million) within 45 days of the date of
the loan closing.  On October 16, 2000, Captain D's entered into an interest
rate swap agreement covering $57.5 million of debt which fixed the interest
rate at 6.7% plus the applicable margin for the term of the Captain D's
credit agreement.  Additionally, on December 29, 2000 and January 2, 2001,
Captain D's entered into interest rate swap agreements covering $25.0 million
and $32.5 million of debt, respectively, which fixed the interest rate at
5.9% and 5.8%, respectively, plus the applicable margin for the term of the
Captain D's credit agreement. At May 13, 2001, the estimated cost to Captain
D's to exit the interest rate swap agreements was approximately $1.6 million.

In July and August 2000, the Company entered into forward agreements to lock
the interest rate on a portion of the Shoney's Mortgage Financing.  The
interest rate on this fixed rate debt was to be based on the ten year U.S.
Treasury Note rate between two and ten days prior to the closing of the
transaction.  Because the ten year U.S. Treasury Note rate decreased between
the date of the agreement and the date the financing was consummated
(September 6, 2000), the Company paid the interest rate differential between
the agreed upon interest rate and the market rate of the ten year U.S.
Treasury Note.  This amount is being amortized and recognized as an
adjustment to interest expense over the 20-year term of the financing.



                                   12


Loan Covenants

The Company's senior debt agreements (consisting of the Shoney's Line of
Credit, the Captain D's Facility and the Shoney's Mortgage Financing) are
secured by substantially all of the Company's assets.  These debt agreements
(1) require satisfaction of certain financial ratios and tests (some of which
become more restrictive each year); (2) impose limitations on capital
expenditures; (3) limit the ability to incur additional debt and contingent
liabilities; (4) prohibit dividends and distributions on common stock; (5)
prohibit mergers, consolidations or similar transactions; and (6) include
other affirmative and negative covenants.

Based on current operating results and forecasted operating trends, it is
probable that a covenant violation will occur in November 2001 under the
Shoney's Mortgage Financing agreements. The Company has available to it
remedies which may prevent probable covenant violations. Alternatively,
management believes that loan covenant modifications, if required, could be
obtained. Potential remedies available to the Company which may prevent
covenant violations are as follows: 1) under-performing properties may be
replaced by properties with better fixed charge coverage ratios, and 2)
properties may be sold to franchisees or converted to rental properties if
the royalty and rental income streams improve the fixed charge coverage. In
addition, the Company has had discussions with its Shoney's Mortgage
Financing lender and, in addition to the potential remedies discussed above,
has secured preliminary approval to close and sell certain restaurants within
the Shoney's Mortgage Financing and use the proceeds to reduce the
outstanding indebtedness under the Shoney's Mortgage Financing in an effort
to enable the Company to comply with the covenants contained within the
Shoney's Mortgage Financing agreements.  No assurance can be given, however,
that these potential remedies will prevent probable covenant violations. Based
on current operating results, management believes that Captain D's will be
in compliance with its financial covenants in the third quarter of 2001.
However, if Captain D's performance declines from the expected level, Captain
D's could violate certain financial covenants contained in the Captain D's
Facility. Historically, the Company has been able to secure financial covenant
modifications when needed. However, no assurance can be given that the
modifications could be obtained on terms satisfactory to the Company.  If the
Company were unable to prevent covenant violations or obtain modifications,
the Company's financial condition, results of operations and liquidity would
be materially adversely affected.  The Company was in compliance with its
financial covenants at the end of the second quarter of 2001.

Subordinated Zero Coupon Convertible Debentures, 8.5%, Due April 2004

The subordinated zero coupon convertible debentures were issued at $286.89
per $1,000 note (aggregate amount of $57.7 million). There are no periodic
cash payments of interest. The issue price represents a yield to maturity of
8.5% based on a semi-annual bond equivalent basis.  Each note is convertible
into 29.349 shares of the Company's common stock at the option of the holder.
Following completion of the Tender Offer, the Company has reserved 537,908
shares for future issuance pursuant to these debentures.

Subordinated Zero Coupon Convertible Debentures, 8.25%, Due July 2002

In connection with the acquisition of substantially all of the assets of TPI
in September 1996, the Company assumed, through a supplemental indenture,
$51.6 million (principal amount) of 8.25% subordinated convertible debentures
due July 15, 2002.  The bonds are convertible at the holder's option, subject
to compliance with the provisions of the supplemental indenture, into 50.508
shares of the Company's stock for each $1,000 debenture.  In addition, upon
conversion, debenture holders are


                                   13


entitled to a cash distribution per share equal to the cash distributions
made by TPI to its common shareholders in connection with the liquidation and
dissolution of TPI.  Interest on the bonds is due semi-annually in January
and July.  Following completion of the Tender Offer, the Company has reserved
266,581 shares for future issuance pursuant to the debentures.

Other Debt Information

The Company's industrial revenue bonds are at fixed interest rates ranging
from 9.0% to 10.0%.

NOTE 9 - LITIGATION SETTLEMENT

In 1999, the court entered final judgment approving a global settlement of
three class action cases that claimed that the Company had violated the Fair
Labor Standards Act.  Under the settlement, the Company agreed to pay $18.0
million to settle these claims.  Of this amount, $3.5 million was accrued as
a liability during the fourth quarter of 1998 following an adverse ruling in
one of the cases on the issue of liability.  In accordance with the approved
settlement, the Company made payments into a qualified settlement fund of
$11.0 million, $3.5 million and $3.5 million on July 14, 1999, October 1,
1999 and March 1, 2000, respectively.

NOTE 10 - LITIGATION

The Company is a party to other legal proceedings incidental to its business.
In the opinion of management, based upon information currently available, the
ultimate liability with respect to these other actions will not materially
affect the operating results or the financial position of the Company.

NOTE 11 - CONCENTRATION OF RISKS AND USE OF ESTIMATES

As of May 13, 2001, the Company operated and franchised a chain of 998
restaurants in 27 states, which consists of two restaurant divisions:
Shoney's Restaurants and Captain D's. The majority of the Company's
restaurants are located in the southeastern United States. The Company's
restaurant concepts are Shoney's Restaurants, which are family dining
restaurants offering full table service and a broad menu, and Captain D's
restaurants, which are quick-service restaurants specializing in seafood. The
Company also owned COI, a food service business that manufactures and
distributes food and supplies to Company-owned restaurants, certain
franchised restaurants and other customers. On June 11, 2001 the Company
completed the sale of COI.  The Company has entered into long term purchase
agreements with COI for essentially all of its food products for both the
Shoney's and Captain D's restaurant concepts.  The Company believes that
these contracts contain purchasing terms that are competitive in today's
marketplace, but the Company will be dependent on COI for essentially all of
its food products. The Company extends credit to franchisee customers for
franchise fees on customary credit terms which generally do not require
customers to provide collateral or other security to the Company.  Except for
the contracts with COI, the Company believes there is no concentration of
risk with any single customer, supplier, or small group of customers or
suppliers whose failure or nonperformance would materially affect the
Company's results of operations.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to use judgment and make estimates
that affect the amounts reported in the Consolidated Condensed Financial
Statements. Management believes that such estimates have been based on
reasonable and supportable assumptions and that the resulting estimates are
reasonable for use in the preparation of the Consolidated Condensed Financial
Statements. Changes in such estimates will


                                   14


be made as appropriate as additional information becomes available and may
affect amounts reported in future periods.

NOTE 12- LEASEHOLD INTERESTS ASSIGNED OR SUBLET TO OTHERS

Assigned Leases - The Company has assigned its leasehold interest to third
parties with respect to approximately 43 properties on which the Company
remains contingently liable to the landlord for the performance of all
obligations of the party to whom the lease was assigned in the event that
party does not perform its obligations under the lease. The assigned leases
are for restaurant sites that the Company has closed. The Company estimates
its contingent liability associated with these assigned leases as of May 13,
2001 to be approximately $13.5 million.

Property Sublet to Others - The Company subleases approximately 56 properties
to others. The Company remains liable for the leasehold obligations in the
event these third parties do not make the required lease payments. The
majority of the sublet properties are former restaurant sites that the
Company has closed or franchised. The Company estimates its contingent
liability associated with these sublet properties as of May 13, 2001 to be
approximately $6.8 million.

NOTE 13 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In May 1998, the AICPA issued Statement of Position 98-5 "Reporting on the
Costs of Startup Activities" ("SOP 98-5"). SOP 98-5 requires companies to
expense the costs of startup activities (including organization costs) as
incurred. The Company's prior accounting policy expensed costs associated
with startup activities systematically over a period not to exceed twelve
months. The Company adopted SOP 98-5 effective the first day of fiscal 2000.
The adoption of SOP 98-5 did not have a material effect on the Company's
results of operations during 2000.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") as amended. This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The Company adopted SFAS 133 effective the first day of fiscal 2001.

NOTE 14 - SEGMENT INFORMATION

The Company operates entirely in the food service industry with substantially
all revenues resulting from the sale of menu products from restaurants
operated by the Company. The Company has operations principally in two
industry segments which are restaurant concepts.  The restaurant concepts are
Shoney's and Captain D's.  Effective with the first quarter of 2001, the
Company began allocating its general corporate overhead expenses to its
operating segments.  All prior periods have been restated.  In addition,
certain asset gains or losses may be recognized in segment EBIT as defined
where previously all gains or losses had been reported in "other" revenue.
The Company's other income and expenses consist primarily of gains from the
sale of property and equipment, rental and interest and miscellaneous income
and do not constitute a reportable segment of the Company as contemplated by
SFAS No. 131. Additionally, other income and expense for the periods
presented includes an estimate of the general corporate overhead allocated to
COI that in the opinion of management will not be eliminated when COI is
sold.  EBIT, when that term is used in this Quarterly


                                  15


Report on Form 10-Q, means income before interest, taxes, asset impairment
charges, restructuring charges and litigation settlements. EBIT is not a
measure of financial performance under generally accepted accounting
principles and should not be considered as an alternative to net income (or
any other measure of performance under generally accepted accounting
principles) as a measure of performance or to cash flows from operating,
investing or financing activities as an indication of cash flows or as a
measure of liquidity. The Company evaluates performance based on several
factors, of which the primary financial measure is income before interest,
taxes, restructuring charges, litigation settlements and impairment charges
("EBIT as defined"). The accounting policies of the business segments are the
same as the Company's.


Revenue
                                 Quarter Ended       Twenty-eight Weeks Ended
($ in thousands)              May 13,     May 14,       May 13,     May 14,
                               2001        2000          2001        2000
                             ---------   ---------     ---------   ---------
Shoney's Restaurants         $  84,605   $  92,333     $ 184,722   $ 201,463
Franchise fees                   1,488       2,381         3,482       4,943
Other income                     1,652         633         3,985       1,176
                             ---------   ---------     ---------   ---------
  Total Shoney's                87,745      95,347       192,189     207,582

Captain D's Restaurants         74,684      79,249       163,983     171,662
Franchise fees                   1,373       1,335         3,161       2,914
Other income                       904          54         1,954         141
                             ---------   ---------     ---------   ---------
  Total Captain D's             76,961      80,638       169,098     174,717

Other                            1,173       1,903         2,364       6,141
                             ---------   ---------     ---------   ---------
Total consolidated revenue   $ 165,879   $ 177,888     $ 363,651   $ 388,440
                             =========   =========     =========   =========



                                    16


EBIT as Defined
                                 Quarter Ended       Twenty-eight Weeks Ended
($ in thousands)              May 13,     May 14,       May 13,     May 14,
                               2001        2000          2001        2000
                             ---------   ---------     ---------   ---------
Shoney's operations          $   (702)   $   1,848     $ (6,366)   $  (1,047)
Shoney's gains on
 asset sales                      855            -        2,335            -
                             ---------   ---------     ---------   ----------
  Total Shoney's                  153        1,848       (4,031)      (1,047)
                             ---------   ---------     ---------   ----------

Captain D's operations          6,728        8,757       12,400       15,515
Captain D's gains on
 asset sales                      699            -        1,638            -
                             ---------   ---------     ---------   ----------
  Total Captain D's             7,427        8,757       14,038       15,515
                             ---------   ---------     ---------   ----------

Other income (loss)               (76)         171          (11)         (83)
Other gains on asset sales        559          892        1,088        4,459
                             ---------   ---------     ---------   ----------
Total other income                483        1,063        1,077        4,376
                             ---------   ---------     ---------   ----------
Total EBIT as defined for
 reportable segments            8,063       11,668       11,084       18,844
Other Charges:
  Interest expense              7,922        8,672       18,511       20,433
                             ---------   ---------     ---------   ----------
Consolidated income (loss)
 from continuing operations
 before income taxes         $    141    $   2,996     $ (7,427)   $  (1,589)
                             =========   =========     =========   ==========



Depreciation and Amortization
                                 Quarter Ended       Twenty-eight Weeks Ended
($ in thousands)              May 13,     May 14,       May 13,     May 14,
                               2001        2000          2001        2000
                             ---------   ---------     ---------   ---------
Shoney's                     $   3,247   $   4,302     $   7,896   $  10,176
Captain D's                      2,787       2,757         6,511       6,369
Other                              354         670           843       1,577
                             ---------   ---------     ---------   ---------
Total consolidated
 depreciation and
 amortization                $   6,388   $   7,729     $  15,250   $  18,122
                             =========   =========     =========   =========


NOTE 15 - ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities", as amended ("SFAS 133"). This statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000, and
accordingly, the Company adopted SFAS 133 effective October 30, 2000.

SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at
fair value.  Derivatives that are not hedges must be adjusted to fair value
through income.  If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivatives will either be offset
against the change in the fair value of the hedged assets, liabilities, or


                                    17

firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings.  The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.


On October 30, 2000, the date of the Company's adoption of SFAS 133, the
cumulative effect of adoption was a credit to other comprehensive income of
$0.1 million.  At May 13, 2001, the fair value of the Company's derivatives
was $1.6 million, resulting in a charge to other comprehensive income of $1.7
million.







                                 18


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

The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the Consolidated Condensed Financial
Statements and Notes thereto. The second quarter and first two quarters of
fiscal 2001 and 2000 covered periods of twelve and twenty-eight weeks,
respectively. All references are to fiscal years unless otherwise noted.

CONSOLIDATED RESULTS OF OPERATIONS

CONSOLIDATED REVENUES

Consolidated revenue for the second quarter of 2001 and 2000 and the first
twenty-eight weeks of 2001 and 2000 is as follows:


                         Quarter Ended             Twenty-eight Weeks Ended
($ in millions)  May 13, 2001    May 14, 2000    May 13, 2001    May 14, 2000
                 ------------    ------------    ------------    ------------
Net sales          $  160.3        $  172.6        $  350.6        $  375.0
Franchise fees          2.9             3.7             6.6             7.9
Other income            2.7             1.6             6.5             5.5
                 ------------    ------------    ------------    ------------
                   $  165.9        $  177.9        $  363.7        $  388.4
                 ============    ============    ============    ============


Changes in the number of restaurants for the first twenty-eight weeks of 2001
and the first twenty-eight weeks of 2000 are as follows:


                   May 31,    Restaurants    Restaurants    October 29,
                    2001        Opened         Closed          2000
                   ----------------------------------------------------
Shoney's
  Company-owned      239           -              6             245
  Franchised         197           -             17             214
                   ----------------------------------------------------
                     436           -             23             459
                   ====================================================
Captain D's
  Company-owned      351           -              9(1)          360
  Franchised         211           7(1)           -             204
                   ----------------------------------------------------
                     562           7              9             564
                   ====================================================


                   May 14,    Restaurants    Restaurants    October 31,
                    2000        Opened         Closed          1999
                   ----------------------------------------------------
Shoney's
  Company-owned      254           -             13(2)          267
  Franchised         263          12(2)           7             258
                   ----------------------------------------------------
                     517          12             20             525
                   ====================================================
Captain D's
  Company-owned      363           1              -             362
  Franchised         204           -              1             205
                   ----------------------------------------------------
                     567           1              1             567
                   ====================================================

(1) Includes six restaurants sold to franchisees
(2) Includes twelve restaurants sold to franchisees



                                 19


Revenues for the second quarter of 2001 declined $12.0 million, or 6.8%, to
$165.9 million, as compared to revenues of $177.9 million in the second
quarter of 2000. Revenues for the first twenty-eight weeks of 2001 declined
$24.8 million, or 6.4%, to $363.7 million, as compared to revenues of $388.4
million in the first twenty-eight weeks of 2000.

The components of the change in consolidated revenues are summarized as
follows:

                           Quarter Ended    Twenty-eight Weeks Ended
($ in millions)             May 13, 2001         May 13, 2001
                            ------------         ------------
Restaurant revenue            $ (12.3)             $ (24.3)
Other sales                         -                 (0.2)
Franchise revenue                (0.8)                (1.2)
  Other income                    1.1                  0.9
                            ------------         ------------
                              $ (12.0)             $ (24.8)
                            ============         ============


The decline in restaurant revenue during the second quarter and first twenty-
eight weeks of 2001, when compared to the second quarter and first twenty-
eight weeks of 2000, was principally due to a net decline in the number of
restaurants in operation, the decline in overall comparable store sales and
the effect of unfavorable weather conditions in many of the Company's markets
in the first quarter of 2001 when compared to the first quarter of 2000.
During 2000, the Company closed 13 Company-owned restaurants, sold 12
Shoney's Restaurants to franchisees and opened one Captain D's restaurant.
During the first twenty-eight weeks of 2001, six Shoney's and three Captain
D's restaurants were closed and six Captain D's were sold to franchisees. The
table below presents comparable store sales for Company-owned restaurants for
the second quarter and first twenty-eight weeks of 2001:

                           Quarter Ended    Twenty-eight Weeks Ended
                            May 13, 2001         May 13, 2001
                            ------------         ------------
Shoney's Restaurants           (3.3)%               (2.2)%
Captain D's                    (3.9)%               (2.9)%
Combined                       (3.6)%               (2.5)%


Franchise revenues decreased $0.8 million and $1.2 million during the second
quarter and first twenty-eight weeks of 2001, respectively, when compared to
the same period last year.  The decrease in franchise revenue was primarily
the result of a net decline of 61 Shoney's franchise restaurants since the
beginning of fiscal 2000.

Other income increased $1.1 million and $0.9 million during the second
quarter and first twenty-eight weeks of 2001, respectively, when compared to
the same period in 2000.  The increase in other income during the second
quarter and first twenty-eight weeks of 2001 was primarily the result of
higher gains from asset sales when compared to the prior year and higher
rental income. The principal components of other income for the second
quarter of 2001 were net gains on asset sales ($2.1 million), interest and
other income ($0.1 million) and rental income ($0.5 million).  For the first
twenty-eight weeks of 2001, the principal components of other income were net
gains on asset sales ($5.1 million), interest and other income ($0.3 million)
and rental income ($1.1 million).




                                    20


CONSOLIDATED COSTS AND EXPENSES

Consolidated cost of sales includes food and supplies, restaurant labor and
operating expenses. A summary of cost of sales as a percentage of
consolidated revenues is shown below:

                         Quarter Ended           Twenty-eight Weeks Ended
                       May 13,    May 14,           May 13,    May 14,
                        2001       2000              2001       2000
                       -------    -------           -------    -------
Food and supplies       34.4%      34.8%             34.3%      34.7%
Restaurant labor        31.1%      29.7%             31.7%      30.5%
Operating expenses      21.8%      21.2%             22.6%      21.9%
                       -------    -------           -------    -------
 Total cost of sales    87.3%      85.7%             88.6%      87.1%
                       =======    =======           =======    =======


Food and supply costs, as a percentage of revenues, decreased 0.4% in both
the second quarter and first twenty-eight weeks of 2001 when compared to the
prior year.  The decrease in food and supply costs in the second quarter and
the first twenty-eight weeks of 2001, as a percentage of revenues, was
primarily the result of lower food and supply costs as a percentage of sales
in Captain D's. The decline in food costs in Captain D's was primarily the
result of higher menu prices.

Consolidated restaurant labor increased 1.4% and 1.2% as a percentage of
revenues in the second quarter and first twenty-eight weeks of 2001,
respectively, when compared to the prior year, primarily the result of higher
labor costs as a percentage of sales at the restaurant level. Wage rates
increased during the second quarter of 2001 because of low unemployment
conditions in many markets and a very competitive restaurant labor market.
Restaurant labor increased, as a percentage of sales, in both Shoney's and
Captain D's in the second quarter and first twenty-eight weeks of 2001 when
compared to the prior year period.  Restaurant labor, as a percentage of
sales, was also affected by the overall decline in comparable store sales.

Consolidated operating expenses increased 0.6% and 0.7% as a percentage of
total revenues in the second quarter and first twenty-eight weeks of 2001,
respectively, when compared to the prior year. The increase in consolidated
operating expenses, as a percentage of sales, was primarily caused by higher
utilities, repairs and maintenance expense and the effect of the overall
decline in comparable store revenue.

A summary of consolidated general and administrative expenses and interest
expense as a percentage of consolidated revenue is shown below:

                                  Quarter Ended     Twenty-eight Weeks Ended
                                May 13,   May 14,       May 13,    May 14,
                                 2001      2000          2001       2000
                                -------   -------       -------    -------
Consolidated general and
 administrative expenses          7.9%      7.8%          8.4%       8.0%
Consolidated interest expense     4.8%      4.9%          5.1%       5.3%


Consolidated general and administrative expenses increased 0.1% and 0.4%, as
a percentage of revenue, in the second quarter and first twenty-eight weeks
of 2001, respectively, when compared to the same period in 2000.  The
increase in general and administrative expenses, as a percentage of sales,
was primarily due to the effect of the overall decline in comparable store
revenue.



                                    21


Consolidated interest expense declined $0.8 million and $1.9 million in the
second quarter and first twenty-eight weeks of 2001, respectively, compared
to the same period of 2000.  The reduction in interest expense is primarily
due to lower debt outstanding when compared to the prior year periods,
largely offset by the effect of higher interest rates on the debt incurred in
the Refinancing.

The Company recorded an income tax provision of $0.3 million and $0.1 million
in the second quarter of 2001 and second quarter of 2000, respectively, and
recorded an income tax provision of $0.3 million and $0.2 million in the
first twenty-eight weeks of 2001 and 2000, respectively.  These effective tax
rates differ from the federal statutory rate primarily due to goodwill
amortization which is not deductible for federal income tax purposes and an
adjustment in the valuation allowance against deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.  As of May
13, 2001, the Company increased the valuation allowance for gross deferred
tax assets.  The deferred tax asset valuation adjustment is in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"), which requires that a deferred tax asset
valuation allowance be established if certain criteria are not met.  If the
deferred tax assets are realized in the future, the related tax benefits will
reduce income tax expense.

OPERATING SEGMENTS

Shoney's Restaurants
($ in thousands except comparable   Quarter Ended    Twenty-eight Weeks Ended
 store sales and operating data)  May 13,    May 14,    May 13,    May 14,
                                   2001       2000       2001       2000
                                  ------------------   --------------------
Restaurant revenue                $84,605    $92,333   $184,722   $201,463
Franchise revenue                   1,488      2,381      3,482      4,943
Other income                        1,652        633      3,985      1,176
                                  ------------------   --------------------
  Total Shoney's revenue           87,745     95,347    192,189    207,582
Expenses                           87,592     93,499    196,220    208,629
                                  ------------------   --------------------
EBIT as defined (a)               $   153    $ 1,848   $ (4,031)  $ (1,047)
                                  ==================   ====================

Comparable store sales increase
 (decrease) (b)                     (3.3)%      1.4%       (2.2)%     (1.5)%
Operating restaurants at end of
 quarter:
  Company-owned                      239        254
  Franchised                         197        263
                                   -----------------
    Total                            436        517
                                   =================

(a) EBIT, when that term is used in this Quarterly Report on Form 10-Q, means
income before interest, taxes, asset impairment charges, restructuring
charges and litigation settlements. EBIT is not a measure of financial
performance under generally accepted accounting principles and should not be
considered as an alternative to net income (or any other measure of
performance under generally accepted accounting principles) as a measure of
performance or to cash flows from operating, investing or financing
activities as an indication of cash flows or as a measure of liquidity. The
Company evaluates performance based on several factors, of which the primary
financial measure is income before interest, taxes, asset impairment charges,
litigation settlements and restructuring charges, or EBIT as defined.

(b) Prior year amounts have not been restated for comparable restaurants.



                                    22


Shoney's concept total revenue declined $7.6 million, or 8.0%, and $15.4
million, or 7.4%, in the second quarter of 2001 and first twenty-eight weeks
of 2001, respectively, when compared to the prior year.  The components of
the change in Shoney's concept revenue are summarized as follows:

                                    Quarter Ended    Twenty-eight Weeks Ended
($ in millions)                      May 13, 2001          May 13, 2001
                                     ------------          ------------
Sales from operating restaurants       $  (2.5)              $  (3.2)
Closed restaurants                        (5.2)                (13.5)
                                     ------------          ------------
  Total change in restaurant sales        (7.7)                (16.7)
Franchise revenue                         (0.9)                 (1.5)
Other income                               1.0                   2.8
                                     ------------          ------------
Total                                  $  (7.6)              $ (15.4)
                                     ============          ============

Revenues were significantly reduced by the closing of ten under-performing
Company-owned restaurants in 2000 and six additional restaurants in 2001.  In
addition, twelve Company-owned restaurants were sold to franchisees in fiscal
2000.  Sales were also affected by unfavorable weather conditions in many of
the Company's markets in the first quarter of 2001 when compared to the first
quarter of 2000 and the decline in overall comparable store sales.  Sales and
EBIT as defined for Shoney's Restaurants closed or sold are as follows:


($ in thousands)      Quarter Ended              Twenty-eight Weeks Ended
               May 13, 2001    May 14, 2000    May 13, 2001    May 14, 2000
              --------------  --------------  --------------  --------------
                     EBIT as         EBIT as         EBIT as         EBIT as
              Sales  defined  Sales  defined  Sales  defined  Sales  defined
              -----  -------  -----  -------  -----  -------  -----  -------
Stores closed
 or sold      $287   $(142)   $5,449 $(827)   $2,036 $(642)  $15,511 $(2,125)
              =====  =======  ====== =======  ====== ======= ======= ========

Shoney's Restaurants comparable store sales declined 3.3% in the second
quarter and 2.2% for the first twenty-eight weeks of 2001.  Franchise revenue
decreased $0.9 million in the second quarter and $1.5 million for the first
twenty-eight weeks of 2001 when compared to the prior year.  The decrease in
franchise revenue is primarily the result of a net decline of 61 franchise
restaurants since the beginning of the first quarter of 2000.  Other income
increased $1.0 million in the second quarter and increased $2.8 million for
the first twenty-eight weeks, primarily due to gains on asset sales of $0.8
million and $2.3 million in the second quarter and first twenty-eight weeks
of 2001, respectively, compared to no gains in the second quarter and first
twenty-eight weeks of 2000 and higher rental income in each period when
compared to the prior year.

Expenses declined $5.9 million, or 6.3%, and $12.4 million, or 5.9%, in the
second quarter and first twenty-eight weeks of 2001, respectively, when
compared to the same period in 2000.  Expenses as a percentage of revenue
were 99.8% in the second quarter of 2001 compared to 98.1% in the second
quarter of 2000.  The increase in expenses in the second quarter of 2001, as
a percentage of revenues, was the result of increases in food and supply
costs, restaurant labor and operating expenses.  For the twenty-eight week
periods, expenses as a percentage of sales were 102.1% in 2001 compared to
100.5% in 2000. The increase in expenses for the first twenty-eight weeks of
2001 when compared to the prior year, as a percentage of sales, was the
result of higher food and supply costs, higher labor costs and higher
operating expenses.

As a result of the above, EBIT as defined decreased $1.7 million and $3.0
million in the second quarter and first twenty-eight weeks of 2001,
respectively, when compared to the comparable prior year period.

Subsequent to May 13, 2001, the Shoney's concept initiated a plan designed
specifically to improve the concept's operating cash flows.  The operating
plan includes further reduction in corporate office staff,


                                   23


increasing the span of control for restaurant supervision, adjusting labor
schedules to reduce hourly labor, lower advertising expenditures and the
closure of certain under-performing restaurants.  Certain of the initiatives
above will result in severance costs that will reduce the initial benefit of
the initiatives. Management, however, believes that these initiatives will
improve cash flows for the concept in the future.

The Company continually evaluates the operating performance of each of its
restaurants.  This evaluation process takes into account the anticipated
resources required to improve the operating performance of under-performing
restaurants to acceptable standards and the expected benefit from that
improvement.  As a result of these evaluations, the Company could close
additional restaurants in the future.  In the event management elects to
close leased restaurants during 2001, the Company will incur restructuring
charges. The Company also may sell additional operating restaurants to
franchisees.


Captain D's Restaurants
($ in thousands except comparable   Quarter Ended    Twenty-eight Weeks Ended
 store sales and operating data)  May 13,   May 14,     May 13,     May 14,
                                   2001      2000        2001        2000
                                  -----------------     -------------------
Restaurant revenue                $74,684   $79,249     $163,983    $171,662
Franchise revenue                   1,373     1,335        3,161       2,914
Other income                          904        54        1,954         141
                                  -----------------     ---------------------
  Total Captain D's revenue        76,961    80,638      169,098     174,717
Expenses                           69,534    71,881      155,060     159,202
                                  -----------------     ---------------------
EBIT as defined (a)               $ 7,427   $ 8,757     $ 14,038    $ 15,515
                                  =================     =====================

Comparable store sales increase
 (decrease) (b)                    (3.9)%      3.0%       (2.9)%        1.3%
Operating restaurants at end
 of quarter:
  Company-owned                      351       363
  Franchised                         211       204
                                  ----------------
    Total                            562       567
                                  ================

(a) See Note (a) "Operating Segments - Shoney's Restaurants" on page 22
hereof.

(b) Prior year amounts have not been restated for comparable restaurants.



                                   24


Captain D's total revenue decreased $3.7 million, or 4.6%, and $5.6 million,
or 3.2%, in the second quarter and first twenty-eight weeks of 2001,
respectively, when compared with the comparable prior year period. The
components of the change in Captain D's concept revenue are summarized as
follows:


                                    Quarter Ended    Twenty-eight Weeks Ended
($ in millions)                     May 13, 2001           May 13, 2001
                                    ------------           ------------
Sales from operating restaurants      $  (2.3)               $  (3.7)
Closed or sold restaurants               (2.3)                  (4.0)
                                    ------------           ------------
  Total change in restaurant sales       (4.6)                  (7.7)
Franchise revenues                          -                    0.3
Other income                              0.9                    1.8
                                    ------------           ------------
Total                                 $  (3.7)               $  (5.6)
                                    ============           ============


Revenues were reduced by closing three under-performing Company-owned
restaurants in 2000 and three under-performing restaurants in 2001.
Restaurant revenues were also reduced by the sale of six Company-owned
restaurants to a franchisee in the first quarter of 2001, unfavorable weather
conditions in many of the Company's markets in the first quarter of 2001 when
compared to the first quarter of 2000 and a decline in comparable store sales
of 3.9% and 2.9% for the second quarter and first twenty-eight weeks of 2001,
respectively.  Management attributes part of the decline in comparable store
sales to price increases taken during fiscal 2000.  As a result of the
continued decline in customer traffic, Captain D's plans to promote certain
everyday value meals and other promotional items in an effort to reverse the
comparable store sales trends.  Sales and EBIT as defined for Captain D's
restaurants closed or sold are as follows:


($ in thousands)      Quarter Ended              Twenty-eight Weeks Ended
               May 13, 2001    May 14, 2000    May 13, 2001    May 14, 2000
               ------------    ------------    ------------    ------------

                     EBIT as         EBIT as         EBIT as         EBIT as
              Sales  defined  Sales  defined  Sales  defined  Sales  defined
              -----  -------  -----  -------  -----  -------  -----  -------
Stores closed
 or sold       $43    $(24)   $2,329  $173    $970    $(73)   $4,944   $178


Franchise revenue was basically unchanged and increased $0.3 million in the
second quarter and first twenty-eight weeks of 2001, respectively, when
compared to the same period in 2000.  The increase was primarily the result
of initial fees from the six Company-owned restaurants sold to franchisees
during the first quarter of 2001.  Other income increased $0.9 million in the
second quarter and $1.8 million in the first twenty-eight weeks of 2001,
respectively, when compared to the prior year quarter, primarily due to $0.7
million of gains on asset sales in the second quarter of 2001 compared to no
gains in the second quarter of 2000 and $1.7 million of gains on asset sales
in the first twenty-eight weeks of 2001 compared to no gains in the second
quarter and first twenty-eight weeks of 2000.

Expenses decreased $2.3 million, or 3.3%, and $4.1 million, or 2.6%, in the
second quarter and first twenty-eight weeks of 2001, respectively, when
compared to the same period in 2000. Expenses as a percentage of sales were
90.3% in the second quarter of 2001 compared to 89.1% in the second quarter
of 2000. As a percentage of sales, decreases in food and supply costs in the
second quarter were more than offset by increases in restaurant labor,
operating expenses and administrative costs. For the twenty-eight week
periods, expenses as a percentage of sales were 91.7% in 2001 compared to
91.1% in 2000.  For the first twenty-


                                    25


eight weeks, as a percentage of sales, lower food and supply costs were offset
by higher labor costs, higher operating expenses and higher administrative
costs.

As a result of the above, EBIT as defined decreased $1.3 million and $1.5
million in the second quarter and first twenty-eight weeks of 2001,
respectively, when compared to the comparable prior year period.

Liquidity and Capital Resources

The Company historically has met its liquidity requirements with cash
provided by operating activities supplemented by external borrowings. The
Company historically has operated with a substantial working capital deficit.
Management does not believe that the deficit hinders the Company's ability to
meet its obligations as they become due, as the Company's credit facilities
include lines of credit that have historically been available to cover short
term working capital requirements.  However, in 2001, current liabilities
include $122.7 million of current maturities of long-term debt.  This current
portion of long-term debt includes $119.1 million of Captain D's term notes
and revolver that mature on December 31, 2001 (see Risk Factors). Cash used
by continuing operating activities declined by $8.2 million in the first
twenty-eight weeks of 2001 compared to the first twenty-eight weeks of 2000.
The decline in cash provided by continuing operating activities in 2001, when
compared to 2000, was primarily the result of the decline in operating income
from restaurant operations, lower depreciation and amortization and the
decline in amortization of deferred charges and other non-cash charges.  The
decline in amortization of deferred charges and other non-cash charges is
primarily due to lower, non-cash interest costs in 2001 on the Company's
subordinated zero coupon convertible debentures. Cash used by continuing
operating activities was positively affected by $8.4 million use of cash by
operating assets and liabilities during the first twenty-eight weeks of 2001
compared to a use of $13.2 million in the first twenty-eight weeks of 2000.
The use of cash by operating assets and liabilities in the first twenty-eight
weeks of 2001 was primarily the result of cash required for a reduction of
accrued expenses and other long-term liabilities.  The use of cash by
operating assets and liabilities in the first twenty-eight weeks of 2000 was
primarily the result of cash required for a reduction in accounts payable,
accrued expenses and other long-term liabilities. Cash provided by
discontinued operating activities improved by $3.7 million in 2001 when
compared to 2000.  The increase in cash provided by discontinued operating
activities was primarily the result of reduced inventory levels and an
increase in accounts payable.

Cash provided by continuing investing activities in the first twenty-eight
weeks of 2001 was $5.7 million.  During 2001, the Company received $11.7
million in cash proceeds from the sale of closed and operating restaurant
properties. Cash used for property and equipment additions was $8.1
million.  Cash provided by other assets of $2.0 million was primarily the
result of the redemption of certain insurance policies for their cash
surrender values. Cash provided by continuing investing activities in the
first twenty-eight weeks of 2000 was $9.0 million. During the first twenty-
eight weeks of 2000, the Company received $19.5 million in cash proceeds from
the sale of closed and operating restaurant properties. Cash used for
property and equipment additions in the first twenty-eight weeks of
2000 was $10.4 million and cash used for other assets was $0.1 million.

Cash used by discontinued investing activities was $0.3 million in 2001
compared to cash provided by discontinued investing activities of $11.2
million in 2000.  Cash provided by discontinued investing activities in 2000
of $11.2 million was primarily the result of the sale of the casual dining
concept during the second quarter of 2000.

The Company balances its capital spending plan throughout the year based on
operating results and may from time to time decrease capital spending to
balance cash from operations and debt service



                                   26


requirements. Since the beginning of 2000, the Company has closed or sold 40
under-performing restaurants. These properties, as well as real estate from
prior restaurant closings, other surplus properties, rental properties and
leasehold interests, have been sold or are being actively marketed.

Cash used by continuing financing activities was $6.1 million in the first
twenty-eight weeks of 2001 compared to a use of cash of $31.2 million in the
first twenty-eight weeks of 2000. On June 28, 2000, the Company announced its
intention to commence the Tender Offer to purchase all of its outstanding
subordinated Debentures and LYONs for an aggregate price of approximately $80
million.  The Tender Offer was subject to the satisfaction of certain terms
and conditions including receipt of financing and the valid tender of at
least 90% of the aggregate principal amount of each of the debenture issues.
In order to consummate the Tender Offer, the Company was required to effect
the Refinancing.  In order to accommodate the timing of the Refinancing, the
Tender Offer was extended until September 6, 2000, at which time the
Refinancing was completed and the Tender Offer was consummated.  Upon
completion of the Tender Offer the Company repurchased approximately 90% of
each of the Debentures and the LYONS.  Consummation of the Tender Offer and
the Refinancing resulted in an extraordinary gain on the early retirement of
debt of approximately $82.5 million in the fourth quarter of 2000, net of
expenses and income taxes.

Proceeds from long-term debt in 2001 included $47.7 million of long-term
borrowings under the Shoney's Line of Credit and $4.0 million of borrowings
under the Captain D's revolver. Payments on long-term debt included $42.8
million of payments under the Shoney's Line of Credit, $6.4 million of
payments on Industrial Revenue Bonds and other debt and $5.0 million of
payments under the Captain D's revolver. Financing activities for 2001 also
included $1.2 million of payments for debt issue costs. Cash used by
discontinued financing activities was $3.5 million in 2001.

In order to complete the Refinancing, the Company restructured its restaurant
operations by separating its Shoney's and Captain D's operations (the
"Reorganization"). In the Reorganization, all of the assets comprising the
Company's Captain D's restaurant operations were transferred to Captain D's,
Inc., a wholly-owned subsidiary of the Company.  The Reorganization of the
Company's operations allowed each of the Company's operating segments
(Shoney's and Captain D's) to be separately financed.  As a result of the
Reorganization and the Refinancing, each operating segment is intended to
operate as an independent business unit and be responsible for its own
indebtedness and working capital needs.  The new senior lending agreements
generally prohibit the movement of cash and other assets between the
operating segments, except for payments under certain tax sharing
arrangements and payments for services.

The Company's senior loan agreements (consisting of the Shoney's Line of
Credit, the Captain D's Facility and the Shoney's Mortgage Financing) are
secured by substantially all of the Company's assets.  The debt agreements
(1) require satisfaction of certain financial ratios and tests (some of which
become more restrictive each year); (2) impose limitations on capital
expenditures; (3) limit the ability to incur additional debt and contingent
liabilities; (4) prohibit dividends and distributions on common stock; (5)
prohibit mergers, consolidations or similar transactions; and (6) include
other affirmative and negative covenants.

The Company's senior debt structure requires that working capital sources be
available for each operating segment.  The Shoney's Restaurant segment's
liquidity is provided by a $40.0 million working capital line of credit (the
"Shoney's Line of Credit").  The Company has agreed to sell during fiscal
2001 up to $10.0 million of properties serving as collateral for the Shoney's
Line of Credit, pay down outstanding amounts under the line and permanently
reduce the availability. As of May 13, 2001, the Company had sold $5.0
million of the $10.0 million of collateral properties resulting in $35.0
million of aggregate availability under


                                    27


the Shoney's Line of Credit. Availability under the Shoney's Line of Credit is
further reduced by outstanding letters of credit of approximately $19.7
million, resulting in approximately $15.3 million of availability of which
$11.2 million was drawn at May 13, 2001. Subsequent to the Refinancing,
liquidity for the Shoney's segment was enhanced by proceeds of up to $15.0
million from certain asset sales that the Company was allowed to retain for
its working capital needs. The terms of Shoney's Line of Credit allowed the
Company to use the cash proceeds from the sale of COI towards the $15.0 million
retention for working capital and required the Company, at its option, to apply
the excess ($2.8 million) to either repay debt and permanently reduce the
Shoney's Line of Credit or cash collateralize the line. As of June 15, 2001,
subsequent to the retention of the COI proceeds and the funding of the cash
collateral account, the Company had sold $5.6 million of the $10.0 million of
collateral properties resulting in $12.0 million of aggregate availability
(after letters of credit) under the Shoney's Line of Credit of which $1.6
million was drawn. Following the Company's retention of $15.0 million from
asset sales, the Company may sell certain other properties serving as
collateral for the Shoney's Line of Credit and use the cash proceeds to
either repay drawings under the line (which will also permanently reduce
availability) or cash collateralize the line. Also, following retention of
$15.0 million from asset sales, the Company's only current sources of
liquidity for the Shoney's concept will be from the availability under the
Shoney's Line of Credit, operating cash flows, payments under the tax sharing
agreement with Captain D's and payments for administrative services from
Captain D's. If the Shoney's segment's operating trends vary from those
forecasted, or if anticipated timing and levels of asset sales are not met by
the Company, the liquidity, financial condition and results of operations
will be materially adversely affected.

Liquidity for the Captain D's segment is provided by a $20.0 million line of
credit (the "Captain D's Line of Credit").  Availability under the Captain
D's Line of Credit is reduced by outstanding letters of credit of
approximately $4.0 million resulting in availability of approximately $16.0
million, of which $4.1 million was drawn at May 13, 2001.

Financing activities in the first twenty-eight weeks of 2000 included $34.3
million of payments on long-term debt and capital lease obligations, long-
term borrowings under the Company's line of credit of $18.5 million, net
payments on short-term debt of $10.9 million and cash required for debt issue
costs and litigation settlements of $4.5 million.

Risk Factors

The Company's business is highly competitive with respect to food quality,
concept, location, service and price. In addition, there are a number of
well-established food service competitors with substantially greater
financial and other resources compared to the Company. The Company's Shoney's
Restaurants have experienced declining customer traffic during the past eight
years as a result of intense competition and a decline in operational focus
occasioned by high management turnover. The Company has initiated a number of
programs to address the decline in customer traffic. However, performance
improvement efforts for the Shoney's Restaurants during the past four years
have not resulted in improvements in sales and margins, and there can be no
assurance that the current programs will be successful. The Company has
experienced increased costs for labor and operating expenses at its
restaurant concepts which, coupled with a decrease in average restaurant
sales volumes in its Shoney's Restaurants, have reduced its operating
margins. The Company does not expect to be able to significantly improve
Shoney's Restaurants operating margins until it can consistently increase its
comparable restaurant sales.

The Company is highly leveraged and, under the terms of its credit
agreements, generally is not permitted to incur additional debt and is
limited to annual capital expenditures of approximately $18.5 million.
Management believes the annual capital expenditures permitted under the
credit agreements are sufficient for the execution of its business plan. The
Captain D's indebtedness, incurred as part of the Refinancing, matures


                                   28


on December 31, 2001.  The Company expects to refinance this indebtedness prior
to maturity.  However, no assurance can be given that the refinancing can be
obtained on terms satisfactory to the Company.  If the Company were unable to
refinance the Captain D's indebtedness on terms satisfactory to the Company,
the Company's financial condition, results of operations and liquidity would
be materially adversely affected.

Based on current operating results and forecasted operating trends, it is
probable that a covenant violation will occur in November 2001 under the
Shoney's Mortgage Financing debt agreements.  The Company has available to it
remedies which may prevent probable covenant violations. Alternatively,
management believes that loan covenant modifications, if required, could be
obtained. Potential remedies available to the Company which may prevent
covenant violations are as follows: 1) under-performing properties may be
replaced by properties with better fixed charge coverage ratios, and 2)
properties may be sold to franchisees or converted to rental properties if
the franchise and rental income streams improve the fixed charge coverage. In
addition, the Company has had discussions with its Shoney's Mortgage
Financing lender and has secured preliminary approval to close and sell
certain restaurants in the Shoney's Mortgage Financing and use the proceeds
to reduce the outstanding indebtedness under the Shoney's Mortgage Financing
in an effort to enable the Company to comply with the covenants contained in
the Shoney's Mortgage Financing agreements.  No assurance can be given,
however, that these potential remedies will prevent probable covenant
violations. Based on current operating results, management believes that
Captain D's will be in compliance with its financial covenants in the third
quarter of 2001.  However, if Captain D's performance declines from the
expected level, Captain D's could violate certain financial covenants
contained in the Captain D's Facility. Historically, the Company has been able
to secure financial covenant modifications when needed. However, no assurance
can be given that the modifications could be obtained on terms satisfactory to
the Company. If the Company were unable to prevent covenant violations or
obtain modifications, the Company's financial condition, results of operations
and liquidity would be materially adversely affected. The Company was in
compliance with its financial covenants at the end of the second quarter of
2001.

The Company continues to focus on improving its comparable store sales,
controlling food and labor costs, reducing general and administrative
expenses, selling closed restaurant properties, and increasing operating cash
flows.  Despite its efforts to improve operating results, especially in the
Shoney's Restaurant concept, the Company's operating cash flows have
continued to decline.  Unless the Company's efforts to increase comparable
store sales in its Shoney's concept and to stop the decline in Shoney's
operating margins are successful, the Company could experience negative
operating cash flows from the Shoney's concept in the near future.



                                      29


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Item 7A of the Company's Annual Report on Form 10-K, filed with the
Commission on January 29, 2001 (as amended by Form 10-K/A, filed with the
Commission on February 26, 2001), is incorporated herein by this reference.

PART II--OTHER INFORMATION

ITEM 5.  OTHER INFORMATION


      As previously disclosed in the Company's Quarterly Report on Form 10-Q
for the quarter ended February 18, 2001, the Company's 2001 Annual Meeting of
Shareholders (the "2001 Annual Meeting") has been delayed to a date more than
30 calendar days beyond the corresponding date of the 2000 Annual Meeting of
Shareholders. Therefore, rules of the Securities and Exchange Commission  (the
"SEC") require extension of the deadlines for submission of shareholder
proposals set forth under the heading "Shareholder Proposals for 2001 Annual
Meeting" in the Company's Proxy Statement for the 2000 Annual Meeting of
Shareholders (which was filed with the Commission on Schedule 14A on February
24, 2000). Accordingly, the Company extended such deadlines to April 15, 2001.

      Because the Company has not yet determined the date for the 2001 Annual
Meeting, the Company again is extending such deadlines beyond April 15, 2001.
Once the Company determines the date of the 2001 Annual Meeting, notice of
the new deadlines promptly will be set forth in a Current Report on Form 8-K.
Any eligible shareholder wishing to submit for consideration a proposal for
inclusion in the Company's proxy materials relating to the 2001 Annual
Meeting must submit such proposal for receipt by the Company's Secretary no
later than such deadline, as well as comply with relevant regulations of the
SEC.  In addition, if the Company is not notified of a shareholder proposal
by such deadline, then the proxies held by the Company's management may
provide the discretion to vote against such shareholder proposal, even though
the proposal is not discussed in the proxy materials sent in connection with
the 2001 Annual Meeting.  Shareholder proposals should be mailed to F. E.
McDaniel, Jr., Secretary, Treasurer and General Counsel, Shoney's, Inc., 1727
Elm Hill Pike, Nashville, Tennessee 37210.

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

      (a)   Exhibits. See Exhibit Index immediately following the
            signatures hereto.


      (b)   Reports on Form 8-K. None




                                   30


                              SIGNATURES


     Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized both on behalf of the registrant and in
his capacity as principal financial officer of the registrant.


                                            SHONEY'S, INC.



Date:   June 27, 2001                       By: /s/ V. Michael Payne
                                                -------------------------
                                                V. Michael Payne
                                                Chief Financial Officer,
                                                Principal Financial and Chief
                                                Accounting Officer





                                    31


                             EXHIBIT INDEX

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

3                 Restated Bylaws of Shoney's, Inc.














                                    32