UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549
                                   FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 [NO FEE REQUIRED]

     For the fiscal year ended December 30, 1997
                                      OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                        Commission file number 1-10725
                         Furr's/Bishop's, Incorporated
            (Exact name of Registrant as specified in its charter)

               DELAWARE                                     75-2350724
     (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                    Identification No.)

     6901 QUAKER AVE., LUBBOCK, TX                            79413
     (Address of principal executive office)                (Zip Code)

     Registrant's telephone number, including area code    (806) 792-7151

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

                                                     Name of each exchange
       Title of each class                            on which registered
       -------------------                           ---------------------
     Common Stock, par value                        New York Stock Exchange
         $.01 per share

     Securities registered pursuant to Section 12(g) of the Act:  None

     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
filing requirements for the past 90 days.

                               Yes  X   No ____
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]

     The aggregate market value of the Voting Stock held by non-affiliates of
the Registrant, based upon the closing price of the registrant's Common Stock
on March 25, 1998 was $36,468,781.

     The number of shares outstanding of each of the registrant's classes of
stock as of the latest practicable date are as follows:

                                                        Shares Outstanding
                  Class                                as of March 23, 1998
     --------------------------------------            --------------------
     Common Stock, par value $.01 per share                 48,675,168

                      DOCUMENTS INCORPORATED BY REFERENCE
                                     NONE

<PAGE>


                         FURR'S/BISHOP'S, INCORPORATED
                                   FORM 10-K
                                 ANNUAL REPORT

                               TABLE OF CONTENTS
                                                                       Page

                                    PART I


Item 1.  Business.........................................................3
Item 2.  Properties.......................................................7
Item 3.  Legal Proceedings................................................8
Item 4.  Submission of Matters to a Vote of Security Holders..............9

                                    PART II


Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters.........................................................10
Item 6.  Selected Financial Data.........................................10
Item 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations.............................11
Item 8.  Financial Statements and Supplementary Data.....................18
Item 9.  Changes In and Disagreements With Accountants on
         Accounting and Financial Disclosure.............................20

                                   PART III


Item 10. Directors and Executive Officers of the Registrant..............20
Item 11. Executive Compensation..........................................23
Item 12. Security Ownership of Certain Beneficial
         Owners and Management...........................................30
Item 13. Certain Relationships and Related Transactions..................32

                                    PART IV


Item 14. Exhibits, Financial Statement Schedule and Reports
         on Form 8-K.....................................................34


Signatures...............................................................40

















<PAGE>


                                    PART I

Item 1.  Business

General

Furr's/Bishop's, Incorporated (the "Company") was organized in 1991 and,
through its subsidiaries, is one of the largest operators of family-style
cafeteria restaurants in the United States.  The Company believes that its
cafeterias and buffet, which are operated under the "Furr's" and "Bishop's"
names, are well recognized in their regional markets for their value,
convenience, food quality and friendly service.  The Company's 102 cafeterias
and one buffet are located in twelve states in the Southwest, West and Midwest.
In addition, the Company operates Dynamic Foods, its food preparation,
processing and distribution division, in Lubbock, Texas.  Dynamic Foods
provides in excess of 85% of the food and supply requirements of the Company's
cafeteria and buffet restaurants.  Dynamic Foods also sells bakery items and
various prepared foods to the restaurant, food service and retail markets.

Family Dining Division

The Family Dining Division consists of 102 cafeterias and one pay-at-the-door
buffet-style restaurant operated by Cafeteria Operators, L.P., an indirect
wholly owned partnership subsidiary of the Company ("Cafeteria Operators").

Cafeterias.  Cafeterias occupy a long standing niche in the food service
industry, providing the customer with a pleasant, moderately-priced alternative
to fast-food chains and conventional full-service restaurants.  The Company's
cafeterias offer a wide variety of meals appealing to a broad range of personal
tastes, including chicken, beef, fish and pasta entrees; soup, salad and
vegetable choices; non-alcoholic beverages; and freshly baked pies and cakes.
The food is prepared for serving by the individual cafeteria.  The Company's
cafeterias are generally characterized by quick service and modest prices per
guest.  Guest tickets for the fiscal years ended December 30, 1997 and December
31, 1996 averaged approximately $5.62 and $5.38, respectively.  The Company's
cafeterias average approximately 10,000 square feet in size and have average
seating capacity for approximately 300 guests.  Virtually all of the Company's
cafeterias feature "All-You-Can-Eat" at a fixed price all day, every day, as
well as the traditional "a la carte" pricing alternative, which allows
customers to choose the pricing and dining format which they find the most
attractive.

Management believes that the "Furr's" and "Bishop's" names are widely
recognized in their regional markets.  Management's emphasis on consistent food
quality, variety, cleanliness and service has led to a loyal guest base.  The
Company's customer base consists principally of people over 45 years of age,
shoppers, working people and young families.

Buffet.  The Company's buffet-style restaurant features traditional American
and ethnic foods at a fixed price that entitles each guest to unlimited
servings of all menu items and beverages.  Food items are served in a "scatter
bar" format at buffet islands centrally located in the restaurant's food
service area. The "scatter-bar" buffet format emphasizes customer choice by
allowing customers to select at their own pace in self selected portions,
thereby improving the restaurant experience for the guest.  The buffet unit is
approximately 10,000 square feet in size and has seating capacity for
approximately 300 guests.  Guest tickets for the fiscal year ended December 30,
1997 averaged approximately $5.80.

                                       3

<PAGE>


Marketing and Advertising

The Company's marketing program utilizes a variety of media to attract
customers to the Company's restaurants and to create a targeted image for the
Company's restaurants.  The Company utilizes point of sale advertising within
its restaurants to focus customers on the various food items and promotions
being offered at the restaurant.  Television advertisements are used by the
Company to enhance its image with respect to food quality and value pricing.
Also, billboard advertising, newspaper and direct mail programs within the
communities in which the Company has a large presence are used to direct
customers to the Company's restaurants and to promote specific programs,
including the one-price "All-You-Can-Eat" concept.  The Company frequently uses
all of its marketing tools together to promote the concept.  In addition, store
managers and other personnel are encouraged to participate in local public
relations and promotional efforts.


Dynamic Foods

The Company operates Dynamic Foods, a food preparation, processing and
distribution facility in Lubbock, Texas that supplies in excess of 85% of the
food and supply requirements of the Company's family dining restaurants,
providing the Company with uniform quality control and the ability to make
volume purchases.  In addition, management believes that there is significant
potential for utilizing the available excess capacity at Dynamic Foods by
increasing sales to third parties.  In fiscal 1997, third party sales by
Dynamic Foods aggregated $1.2 million.

Dynamic Foods has approximately 140 separate food items available under the
"Dynamic Foods" label for distribution to the Company's restaurants and for
sale to third parties.  Currently, approximately 90% of Dynamic Food's
manufacturing output is used at the Company's restaurants and the remainder is
sold to third parties.


Restaurant Management

The success of each restaurant's operation is largely dependent upon the
quality of in-store management and mid-level supervisory management.
Experienced and well trained in-store management is important to assure good
service, quality food and the cleanliness of each restaurant, to control costs,
and to monitor local eating habits and traffic.

Each cafeteria and buffet is operated under the supervision of a general
manager, an assistant general manager and one or two assistant managers.  Each
cafeteria generally employs between 40 and 70 workers of whom approximately 20%
are part-time workers.  The buffet-style restaurant typically employs fewer
persons as the "scatter-bar" concept reduces service staffing requirements.

The general managers of the Company's family dining restaurants report to
twelve regional managers who, in turn, report to the Vice President of Field
Operations.  The general managers have responsibility for day-to-day
operations, including food ordering, labor scheduling, menu planning, customer
relations and personnel hiring and supervision.  The regional managers visit
each restaurant regularly  and work with the in-store managers to evaluate and
maintain overall operating standards.  They also make quality control checks,
train personnel in operating procedures and evaluate procedures developed by


                                       4

<PAGE>


cafeteria and buffet personnel for possible use in all Company owned family
dining units.


Service Marks and Trademarks

The Company utilizes and is dependent upon certain registered service marks,
including "Furr's Cafeterias," "Bishop Buffets" and "Dynamic Foods," and a
stylized "F" trademarked by the Company.  These and other trademarks are
current and are renewable on dates ranging from June 1998 to February 2008.
The Company is not aware of any party who could prevail in a contest of the
validity of such service marks and trademarks.


Seasonality

Customer volume on a Company-wide basis at most established restaurants is
generally somewhat lower in the winter months, due primarily to weather
conditions in certain of the markets for the Company's restaurants.  As a
consequence, the first and fourth quarters of the year historically produce
lower sales.  A harsh winter season has a negative effect on the Company's
revenues, results of operations and liquidity.


Working Capital Requirements

The Company's restaurants are a cash business.  Funds available from cash sales
are not needed to finance receivables and are generally not needed immediately
to pay for food, supplies and certain other expenses of the restaurants.
Therefore, the business and operations of the Company have not historically
required proportionately large amounts of working capital, which is generally
common among similar restaurant companies.  Should Dynamic Foods expand its
sales to third parties, the accounts receivables and inventory related to such
sales could require it to maintain additional working capital.  See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Liquidity and Capital Resources."


Competition

The food service business is highly competitive in each of the markets in which
the Company's restaurants operate and is often affected by changes in consumer
tastes, economic conditions and demographic and local traffic patterns.  In
each area in which the Company's restaurants operate, there is a large number
of other food service outlets including other cafeterias, buffets and fast-food
and limited-menu restaurants which compete directly and vigorously with the
Company's restaurants in all aspects, including quality and variety of food,
price, customer service, location and the quality of the overall dining
experience.

Neither the Company nor any of its competitors has a significant share of the
total food service market in any area in which the Company competes.  The
Company believes that its principal competitors are other cafeterias and
buffets, moderately-priced, conventional restaurants, fast-food outlets, and
eat-at-home alternatives.  Many of the Company's competitors, including its
primary cafeteria and buffet competitors, have greater financial resources and
lower total debt-to-equity ratios than the Company.  The Company competes with


                                       5

<PAGE>


other food service outlets for management personnel based on salary,
opportunity for advancement and stability of employment.  The Company believes
it offers existing and prospective management personnel an attractive
compensation and benefits package with opportunity for advancement in a stable
segment of the food service industry.

The food manufacturing and distribution business is highly competitive and many
of Dynamic Foods' competitors are large regional or national food processors
and distributors with significantly greater financial resources than the
Company.  Accordingly, there can be no assurance that Dynamic Foods will be
able to generate significantly higher revenue or increase the profitability of
the Company.

Capital Expenditure Program

During the fiscal years ended December 30, 1997, December 31, 1996 and January
2, 1996, the Company expended $5.6 million, $10.1 million and $8.0 million,
respectively, principally to maintain and remodel existing cafeterias, upgrade
its computer and information systems, construct one new unit and improve the
facility operated by Dynamic Foods.  The Company believes that the aggregate
level of capital expenditures over such period has been below that required to
expand the Company's cafeteria operations and to remodel existing cafeterias as
required by competitive conditions in the restaurant industry.  The Company's
capital expenditure program is necessary to enable the Company and its
subsidiaries to increase their revenue and profitability.

Subject to its ability to generate necessary funds from operations or to obtain
funds from other sources, the Company intends to pursue a program of remodeling
existing restaurants and opening new restaurants. The Company anticipates
expending approximately $7 to $11 million in fiscal year 1998 to open new
restaurants, remodel existing cafeterias and make other capital expenditures.
No assurance can be given that the Company will generate sufficient funds from
operations or obtain alternative financing to enable it to make the desired
capital expenditures.  The Company's ability to open new restaurants will also
depend, among other things, upon its ability to secure appropriate store
locations on favorable terms and to identify, hire and train personnel for
expansion.  See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Liquidity and Capital Resources."

Employees

As of March 3, l998, the Company employed approximately 5,400 persons, of whom
approximately 4,300 were employed on a full-time basis.  The Company employed
approximately 375 persons as managers or assistant managers of its restaurants,
twelve persons as regional managers and approximately 80 persons in executive,
administrative or clerical positions in the corporate office.  None of the
Company's employees are covered by collective bargaining agreements.  The
Company believes that its relations with its employees are satisfactory.

The majority of the Company's restaurants pay average wages in excess of the
current minimum wage standards.  However, any future increase in the federal
minimum wage could have the effect of increasing the Company's labor costs.  In
recent years, the market for those employees who have traditionally been
employed in the restaurant industry has become increasingly competitive due to
fewer persons entering this category of wage earner and the increased
government regulation of immigrants entering and working in the United States.
In response to this decrease in the available labor pool, the Company has
increased its average hourly wage and expanded its hiring and training efforts.

                                       6

<PAGE>

Regulation

The Company's restaurants are subject to numerous federal, state and local laws
affecting health, sanitation, waste water, fire and safety standards.  The
Company believes that it is in substantial compliance with applicable laws and
regulations governing its operations.

The Federal Americans With Disabilities Act, which became effective as to
public accommodations and employment in 1992, prohibits discrimination on the
basis of disability.  As the Company proceeds with remodeling existing
restaurants, it could be required to expend funds to modify its restaurants in
order to provide service to, or make reasonable accommodations for the
employment of, disabled persons.

Recent Events

Effective January 2, 1996, the Company's stockholders approved a
reclassification of all outstanding shares of each class of common stock and
convertible preferred stock into the right to receive shares of a new class of
common stock, as well as the restructuring of certain financial obligations, as
more fully described below in the footnotes to the Company's financial
statements.  See "Item 8. Financial Statements and Supplemental Data, Note 2
Restructuring and Note 4 Long-term Debt."

Item 2.  Properties

Restaurant Locations.  The following table sets forth the number of restaurants
operated by the Company in certain states as of February 28, 1998.

<TABLE>
<CAPTION>

               State                Number Of Restaurants
               -----                ---------------------
               <S>                  <C>
               Arizona                         8
               Arkansas                        2
               California                      2
               Colorado                       10
               Illinois                        1
               Iowa                            5
               Kansas                          7
               Missouri                        2
               Nevada                          2
               New Mexico                     15
               Oklahoma                       10
               Texas                          38
                                             ---
                                             102
</TABLE>

Site Selection.  The Company generally intends to reposition existing
restaurants or open new restaurants in markets in which the Company's
restaurants are presently located and in adjacent markets, in order to improve
the Company's competitive position and increase operating margins by obtaining
economies of scale in merchandising, advertising, distribution, purchasing and
supervision.  The primary criteria considered by the Company in selecting new
locations are a high level of customer traffic, convenience to both lunch and


                                       7

<PAGE>


dinner customers in demographic groups that tend to favor the Company's
restaurants, and the occupancy cost of the proposed restaurant.  The ability of
the Company to open new restaurants depends on a number of factors, including
its ability to find suitable locations and negotiate acceptable leases, its
ability to attract and retain a sufficient number of qualified restaurant
managers, and the availability of sufficient financing.

Properties.  Forty-seven of the Company's restaurants are leased from third
parties, another 34 are subleased under a master sublease agreement, 12 are
owned and are situated on land leased from third parties and nine are owned in
fee simple.  Most of the leases have initial terms of from 10 to 20 years and
contain provisions permitting renewal for one or more specified terms at
specified rental rates.  Some leases provide for fixed annual rent plus rent
based on a percentage of sales.  The average restaurant contains approximately
10,000 square feet and seats approximately 300 guests.

Dynamic Foods' food manufacturing and distribution facility contains
approximately 175,000 square feet and is situated on approximately 24 acres
owned in fee simple by the Company in Lubbock, Texas.  In addition, a grocery
warehouse of approximately 36,000 square feet, a truck terminal of
approximately 7,200 square feet and a sales office of approximately 4,000
square feet are located adjacent to the distribution facility.

The Company's executive offices in Lubbock, Texas consist of approximately
34,000 square feet situated on approximately three acres of land owned in fee
simple by the Company.  The Company believes that its properties will be
adequate to conduct its current operations for the foreseeable future.

The Company leases eight properties under a master sublease, owns ten buildings
situated on land leased from third parties and owns two buildings on land owned
in fee simple, which are not used in the Company's restaurant business and are
periodically leased to third parties.

Item 3.  Legal Proceedings

(1)  The Internal Revenue Service (the "Service") has examined the federal
income tax returns of certain subsidiaries of the Company, including (i)
Cavalcade Holdings, Inc. ("Holdings") (for each of the tax years ended June 30,
1985 through June 30, 1990), (ii) Cavalcade Foods, Inc. ("Foods") as successor
in interest to Bishop Buffets, Inc. (for the tax period ended December 27,
1986), and (iii) Foods as successor in interest to Furr's Cafeterias, Inc. (for
the tax period ended December 27, 1986).

The Service has accepted a negotiated settlement with Holdings of $153 thousand
in tax, plus interest from the date such amount was deemed payable, and has
initiated the collections process.  The Service has accepted a negotiated
settlement with Foods of $781 thousand in tax, plus interest from the date such
amount was deemed payable, and has initiated the collections process.  Holdings
and Foods have each submitted offers in compromise to the Service and will
attempt to negotiate payment of a lesser amount.

(2)  On August 11, 1995, a complaint was filed in the District Court of Travis
County, Texas by the former Chairman of the Board of the Company, Michael J.
Levenson, both individually and on behalf of his minor son Jonathan Jacob
Levenson, James Rich Levenson, Benjamin Aaron Levenson, S.D. Levenson, General
Consulting Group, Inc. and Cerros Morado.  The complaint named as defendants
the Company, Cafeteria Operators, Furr's/Bishop's Cafeterias, L.P., Cavalcade &


                                       8

<PAGE>


Co. Inc. ("Cavalcade"), individual members of the Board of Directors, Houlihan,
Lokey, Howard & Zukin, Inc.,  KL Park Associates, L.P. ("KL Park"), KL Group,
Inc. ("KL Group"), Skadden, Arps, Slate, Meagher & Flom, certain of the then
current and former holders of the 11% Senior Secured Notes ("11% Notes"),
Deloitte & Touche LLP, Kmart Corporation ("Kmart") and certain partners and
employees of the foregoing, alleging, among other things, that the Company and
certain defendants conspired to wrest control of the Company away from the
Levensons by fraudulently inducing them to transfer their working control of
the Company through a series of transactions in which the Levensons transferred
Class B Common Stock and stock options in the Company to KL Park and KL Group.
Plaintiffs initially sought actual damages of approximately $16.4 million, as
well as punitive damages.

On October 6, 1995, the Levensons filed a Notice of Non-Suit as to certain of
the defendants, including the Company, Cafeteria Operators, Furr's/Bishop's
Cafeterias, L.P., Cavalcade and the individual members of the Board of
Directors (other than William E. Prather and Kevin E. Lewis) and amended their
complaint.  As a result of such Notice of Non-Suit, the named entities and
individuals were no longer defendants in the Levenson litigation.  In addition,
Deloitte & Touche LLP settled with the plaintiffs and were voluntarily
dismissed from the case.

In a Fifth Amended Petition filed on or about February 3, 1997, plaintiffs
sought an unspecified amount of actual damages, alleging only that their actual
damages claim was "no more than $400 million."  In July 1997, the Company
reached a settlement of the litigation, in which all settling defendants,
including its current and former directors and officers, Cafeteria Operators,
Furr's/Bishop's Cafeterias, L.P. and Cavalcade received mutual releases with
respect to all matters alleged in the litigation and Cafeteria Operators made a
payment to the plaintiffs of a net amount of approximately $275 thousand.

The Company was required to indemnify certain of the defendants originally
named in the Levensons' complaint, including the individual members of the
Board of Directors and certain of their affiliated entities, pursuant to the
Company's Certificate of Incorporation and otherwise, for any and all damages
resulting from such complaint.  As part of the restructuring of the 11% Notes,
the Company also agreed to indemnify certain parties named as defendants in the
Levensons' complaint, including the holders of the 11% notes, KL Group, KL Park
and Kmart, from and against all claims, actions, suits and other legal
proceedings, damages, costs, interest, charges, counsel fees and other expenses
and penalties which such entity may sustain or incur to any person whatsoever
(excluding judgments in the case of KL Group and KL Park) by reason of or
arising out of the Levenson litigation.  Under no circumstances was the Company
to be obligated to indemnify any party for any liability resulting from such
party's willful misconduct or bad faith.  During 1997, the Company recorded
special charges aggregating $4.9 million against results of operations to
recognize the estimated cost of such indemnification.  The Company has
negotiated agreements with each of the parties whose indemnity claim was
outstanding at year end and has either made cash payments or issued 10.5%
unsecured notes in settlement of such claims.  See "Item 13 Certain
Relationships and Related Transactions."

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

None




                                       9

<PAGE>


                                    PART II

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

Common Stock

The Common Stock, par value $.01 per share ("Common Stock"), is traded on the
New York Stock Exchange ("NYSE") under the symbol "CHI."  As of March 23, 1998,
there were 48,675,168 shares of Common Stock outstanding and approximately
2,000 record holders.

As of March 23, 1998, no cash dividends had been declared on the Common Stock.
The terms of the indebtedness of Cafeteria Operators limits its ability to
distribute funds to the Company for the payment of dividends on the Common
Stock, and accordingly, the Company does not anticipate paying dividends in the
foreseeable future.


The following table provides the high and low closing prices for each quarter
of the last two fiscal years:

<TABLE>
<CAPTION>
                             1997                  1996
                             ----                  ----
                          High    Low           High    Low
                          -----  -----          -----  -----
     <S>                  <C>    <C>            <C>    <C>
     First Quarter        $1.75  $1.12          $4.69  $1.50
     Second Quarter        1.50   1.00           1.88   1.12
     Third Quarter         1.06   0.75           1.50   0.81
     Fourth Quarter        0.81   0.50           1.38   0.88

</TABLE>

At March 23, 1998, the Company had outstanding an aggregate of 40,134,548
warrants to purchase shares of Common Stock.  Following the reverse stock split
that became effective on March 22, 1996, and subject to the adjustments
thereby, such warrants were adjusted and thereafter evidence the right to
purchase one-fifteenth of one share of Common Stock at an exercise price of
$1.11 per share, for an aggregate of 2,675,637 shares.  Such warrants are
exercisable at any time and expire on January 2, 2001.  Such warrants are not
listed for trading on any public exchange.

Item 6.  Selected Financial Data(in thousands, except per share data)

See Chart On Next Page












                                      10
<PAGE>


<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------------------------------------------
                        Dec 30,    Dec 31,    Jan 2,     Jan 3,     Dec 28,
                         1997       1996       1996       1995       1993
                      ---------  ---------  ---------  ---------  ---------
<S>                   <C>        <C>        <C>        <C>        <C>
Sales (1)             $ 193,530  $ 197,196  $ 209,769  $ 224,819  $ 253,490
Income (loss) Before
 Extraordinary Item      (5,396)     8,363    (38,863)   (21,342)  (166,140)(2)
Income (loss)
 Per Common Share,
  Basic (3):
  Before Extraordinary
   Item                   (0.11)      0.17      (0.80)     (0.44)     (3.42)
  Extraordinary Item         -          -        3.50 (4)     -          -
Total Assets             65,801     75,259     78,038     95,917    105,052


Long Term Obligations
 and Redeemable Pre-
 ferred Stock (5)        78,974     82,905     90,590    215,595    220,575

Mandatorily Redeemable
  Common Stock               -          -          -       8,000      8,000


(1) The Company closed eight restaurants in 1997, five restaurants in 1996,
    fourteen restaurants in 1995 and fourteen in 1994.
(2) Includes a write-off of goodwill of approximately $135,479 in the fourth
    quarter of the fiscal year ended December 28, 1993.
(3) All years based on Common Stock outstanding after giving effect to the
    reverse stock split and after giving retroactive effect to the adoption of
    Statement of Financial Accounting Standards No. 128, "Earnings per Share."
(4) Includes a net extraordinary gain of $170,239 from financial restructuring
    transactions in the fourth quarter of the fiscal year ended January 2,
    1996.
(5) Includes $23,374, $28,867 and $33,413 of interest accrued to maturity on
    long-term debt in fiscal year ended December 30, 1997, December 31, 1996
    and January 2, 1996, respectively and $202,453 of long-term debt that was
    classified as current in the fiscal years ended January 3, 1995 and
    December 28, 1993.


</TABLE>

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

The Company's fiscal year is a 52-53 week year.  Each of the last three fiscal
years included 52 weeks.







                                      11

<PAGE>


The following table sets forth certain statement of operations data and
restaurant data for the fiscal years indicated (dollars in thousands, except
sales per unit):

<TABLE>
<CAPTION>
                                            1997        1996        1995
                                          ---------   ---------   ---------
<S>                                       <C>         <C>         <C>
Statement of operations data:
Sales                                     $ 193,530   $ 197,196   $ 209,769

Costs and expenses:
  Cost of sales (excluding depreciation)     58,292      61,327      67,409
    As a percent of sales                     30.12%      31.10%      32.13%
  Selling, general and administrative       118,979     118,233     127,359
    As a percent of sales                     61.48%      59.96%      60.71%
  Depreciation and amortization              10,889      10,168      14,002
  Special charges (credits)                  10,477      (1,138)     12,273
                                          ---------   ---------   ---------
     Total costs and expenses               198,637     188,590     221,043
                                          ---------   ---------   ---------
Operating income (loss)                      (5,107)      8,606     (11,274)
Interest expense                                289         243      27,589
                                          ---------   ---------   ---------
Income (loss) before extraordinary credit $  (5,396)  $   8,363   $ (38,863)
                                          =========   =========   =========
Restaurant Units in Operation:
     Beginning of year                          110         115         129
     Opened                                       1          -           -
     Closed                                      (8)         (5)        (14)
                                          ---------   ---------   ---------
  End of Year                                   103         110         115
                                          =========   =========   =========
Restaurant units reserved to be closed
  at the end of year                              0           0           2
                                          =========   =========   =========
Year over Year Comparable Store sales
  change (for units open at year end and
  which operated the full year)                0.31%       0.04%       (2.2)%
                                          =========   =========   =========
Average weekly sales per restaurant unit
  (for units open at year end and which
  operated the full year)                 $  34,426   $  33,449   $  32,916
                                          =========   =========   =========

     On January 2, 1996, stockholders approved a series of financial
restructuring transactions resulting in the recognition of a $170,239
extraordinary credit in the 1995 fiscal year ended January 2, 1996.

</TABLE>








                                      12

<PAGE>


Fifty-two Weeks Ended December 30, 1997 Compared To Fifty-two Weeks Ended
December 31, 1996

      Results of operations.  Sales for the fifty-two week fiscal year ended
December 30, 1997 were $193.5 million, a decrease of $3.7 million from the
fiscal year ended December 31, 1996.  The operating loss for the 1997 fiscal
year was $5.1 million compared to operating income of $8.6 million in fiscal
1996.  The operating results of fiscal 1997 included net special charges of
$10.5 million and the results of fiscal 1996 included net special credits of
$1.1 million.  The net loss for fiscal 1997 was $5.4 million, compared to net
income of $8.4 million for fiscal 1996.

      Sales.  Comparable store sales were 0.31% higher in fiscal 1997 than
1996.  Sales in 1997 were lower than the prior year by $4.9 million as a result
of nine fewer units being included in the results of operations in the current
year.  Sales in fiscal 1997 included $1.7 million of Dynamic Foods sales to
third parties.

      Cost of sales.  Excluding depreciation, cost of sales was 30.1% of sales
for fiscal year 1997 compared to 31.1% for fiscal year 1996.  The decrease in
the percentage of sales was primarily the result of higher ticket averages from
changes in the menu mix and price increases, combined with flat to slightly
lower product costs.

      Selling, general and administrative.  Selling, General and Administrative
("SG&A") expense was $746 thousand higher than the prior fiscal year.  The
change over the prior year included increases of $1.4 million in marketing
expense, $473 thousand in corporate expense, and $231 thousand in hourly labor,
which were partially offset by decreases of $1.1 million in salaries and labor
related costs.  The remaining change was primarily due to there being nine
fewer units included in operating results.

      Special credits and charges.  The operating results for fiscal 1997
include net special charges aggregating $10.5 million, compared to net special
credits of $1.1 million in the prior fiscal year.  The charges in the current
year were to recognize $6.9 million of property, plant and equipment write
downs and closed store reserves and $4.9 million related to the Levenson
litigation and related indemnity, which were partially offset by a credit of
$1.3 million related to the settlement of a lawsuit.  The credits in the prior
fiscal year resulted primarily from the sale of certain trademarks and
insurance proceeds for a 1994 claim.

      Depreciation and amortization.  Depreciation and amortization expense was
$721 thousand higher than the prior fiscal year, due to depreciation on newly
acquired property, plant and equipment, along with the use of shorter
depreciation periods.

      Interest expense.  Interest expense for fiscal year 1997 was $289
thousand, compared to $243 thousand in the prior fiscal year.  In accordance
with Statement of Financial Accounting Standards No. 15, the restructured debt
was recorded at the sum of all future principal and interest payments and there
is no recognition of interest expense thereon.







                                      14

<PAGE>


Fifty-two Weeks Ended December 31, 1996 Compared To Fifty-two Weeks Ended
January 2, 1996.

      Results of operations.  Sales for the fifty-two week fiscal year ended
December 31, 1996 were $197.2 million, a decrease of $12.6 million from the
fiscal year ended January 2, 1996. The operating income for the 1996 fiscal
year was $8.6 million compared to a loss of $11.3 million in fiscal year 1995.
The operating results of fiscal 1996 included net special credits of $1.1
million compared to special charges of $12.3 million in the prior year.  Net
income for fiscal 1996 was $8.4 million, compared to a net loss before
extraordinary items of $38.9 million for fiscal 1995.

      Sales.  Restaurant sales in comparable units were 0.04% higher in fiscal
1996 than 1995.  Sales in 1996 were lower than the prior year by $10.9 million
as a result of sixteen fewer units being included in the results of operations
in the current year.  Revenues in fiscal year 1996 included $2.9 million of
Dynamic Foods sales to third parties and $1.9 million from the two Zoo-Kini's
Soups, Salads and Grill restaurants.

      Cost of sales.  Excluding depreciation, cost of sales was 31.1% of sales
for fiscal year 1996 compared to 32.1% for fiscal year 1995.  The decrease in
the percentage of sales was principally the result of lower product costs that
were partially offset by changes in the menu mix.

      Selling, general and administrative.  Selling, General and Administrative
expense was lower in the aggregate by $9.1 million in fiscal year 1996.  Of the
decrease, $7.6 million was due to operating results including sixteen fewer
units.  SG&A expense includes decreases of $1.9 million in marketing expense,
including discounts, $339 thousand in repair and maintenance, $283 thousand in
utility expenses and $234 thousand in supplies expenses.  SG&A expense includes
an increase of $601 thousand in professional service expenses.

      Special credits and charges.  The operating results for fiscal 1996
include net special credits aggregating $1.1 million.  Included in the total
are credits of $699 thousand for the insurance proceeds related to a fire loss,
$709 thousand for the termination of a trademark royalty agreement and the
modification and extension of a lease related to the Company's former El Paso
Bar-B-Que Company restaurants and a charge of $270 thousand related to the
search for a new Chief Executive Officer and a consulting agreement with Kevin
E. Lewis, Chairman of the Board.  The loss from operations for the fiscal year
ended January 2, 1996 includes special charges of $12.3 million, which includes
charges to reserves of $4.5 million related to the closing of fourteen units,
including two units to be closed in future periods, and adjustments to the
units previously reserved.  Also included is $7.8 million to recognize the
write-down of certain assets to estimated fair values in accordance with the
adoption of SFAS 121.

      Depreciation and amortization.  Depreciation and amortization expense was
$3.8 million lower than the prior year, due to the reduction of certain
depreciable assets in 1995 in accordance with SFAS 121 partially offset by the
reduction in the useful lives of certain depreciable assets in the prior year.

      Interest expense.  Interest expense was lower than the prior year by
$27.3 million as a result of the Restructuring.  In accordance with SFAS 15,
the restructured debt was recorded at the sum of all future principal and
interest payments and there is no recognition of interest expense thereon.



                                      15

<PAGE>


      Extraordinary credit.  The results of fiscal year 1995 include an
extraordinary credit of $170.2 million relating to the reduction of debt in a
series of financial restructuring transactions.

New Accounting Pronouncements

In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"), which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December 31,
1996.  SFAS 125 has been amended by Statement of Financial Accounting Standards
No. 127 which amends the effective date of certain provisions for these
transactions occurring after December 31, 1997.  Management of the Company
believes that the impact from adopting the provisions of SFAS 125 in fiscal
1998 will not be material.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), effective for periods
beginning after December 15, 1997.  The purpose of this standard is to disclose
disaggregated information which provides information about the operating
segments an enterprise engages in consistent with the way management reviews
financial information to make decisions about the enterprise's operating
matters.  The Company will comply with the requirements of SFAS 131 for fiscal
year 1998.

LIQUIDITY AND CAPITAL RESOURCES:

During fiscal 1997, cash provided from operating activities of the Company was
$10.2 million compared to $17.6 million in 1996.  Cash used for the payment of
interest was approximately $5.5 million in 1997 compared to $3.8 million
during 1996.  The Company made capital expenditures of $5.6 million during 1997
compared to $10.1 million during 1996.  Cash, temporary investments and
marketable securities were $4.5 million at December 30, 1997 compared to $3.7
million at December 31, 1996.  The current ratio of the Company was .48:1 at
December 30, 1997 compared to .41:1 at December 31, 1996.  The Company's total
assets at December 30, 1997 aggregated $65.8 million compared to $75.3 million
at December 31, 1996.

The Company's restaurants are a cash business.  Funds available from cash sales
are not needed to finance receivables and are not generally needed immediately
to pay for food, supplies and certain other expenses of the restaurants.
Therefore, the business and operations of the Company have not historically
required proportionately large amounts of working capital, which is generally
common among similar restaurant companies.  Should Dynamic Foods expand its
sales to third parties, the accounts receivable and inventory related to such
sales could require the Company to maintain additional working capital.

Cafeteria Operators has outstanding $69.1 million of 12% Notes due December 31,
2001, including $23.4 million of accrued interest.  Under the terms of the 12%
Notes, a semi-annual cash interest payment of approximately $2.7 million is due
on each March 31 and September 30.  The obligations of Cafeteria Operators
under the 12% Notes are secured by a security interest in and a lien on all of
the personal property of Cafeteria Operators and mortgages on all fee and
leasehold properties of Cafeteria Operators (to the extent such properties are
mortgageable).


                                      16

<PAGE>


Cafeteria Operators has outstanding $2.6 million of 10.5% Notes due December
31, 2001.  Under the terms of the 10.5% Notes, a semi-annual cash interest
payment of approximately $133 thousand is due on each June 30 and December 31.
These notes were issued as payment of a portion of the indemnification
obligation related to the Levenson litigation.  See "Item 13. Certain
Relationships and Related Transactions."

The Company intends to pursue a program of remodeling existing cafeterias and
opening new restaurants.  The Company anticipates expending approximately $7 to
$11 million in fiscal year 1998 to remodel existing cafeterias and open new
restaurants and to make other capital expenditures.  No assurance can be given
that the Company will generate sufficient funds from operations or obtain
alternative financing sources to enable it to make the anticipated capital
expenditures.

The Company, from time to time, considers whether disposition of certain of its
assets, including its food processing and distribution operations, real estate
owned in fee simple and leasehold interests, or potential acquisitions of
assets would be beneficial or appropriate for the long-term goals of the
Company and in order to increase shareholder value.

Cafeteria Operators, the sponsor of the Cavalcade Pension Plan, has agreed to
provide for funding at least two-thirds of the $4.6 million of the unfunded
current liability which existed at the end of fiscal 1992 by the end of 1998.
If the agreed upon funding is not satisfied by the minimum required annual
contributions, as adjusted for the deficit reduction contribution and
determined under Section 412 of the Internal Revenue Code, the Company intends
to  make contributions in excess of the minimum annual requirement.

On November 15, 1993, the Company entered into the Amendment to Master Sublease
Agreement, dated as of December 1, 1986, with Kmart pursuant to which, among
other things, the aggregate monthly rent for the period September 1, 1993
through and including December 31, 1996 was reduced by 25%, or approximately
$1.6 million annually, and the aggregate monthly rent for the period January 1,
1997 through and including December 31, 1999 was reduced by 20%, or
approximately $1.2 million annually; provided that, during such period, among
other things, Kevin E. Lewis remains as Chairman of the Board of the Company.
The current one-year term of Mr. Lewis will expire in  1998, and there can be
no assurance that Mr. Lewis will be reelected to another term, or if reelected,
would serve as Chairman of the Board through December 31, 1999.  As a
consequence, the Company has entered into negotiations with Kmart to modify the
amendment to remove the provisions requiring Mr. Lewis to remain as Chairman of
the Board until the end of 1999.  To date, Kmart has been unwilling to make
such modification.

In February 1998, the Company developed a plan to identify and evaluate year
2000 problems resulting from computer programs being written using two digits
to define the applicable year rather than four.  The plan provides for the
conversion of computer systems or the modification of existing programs to be
completed by the end of 1999 at an estimated cost of $350 thousand, which will
be funded through operating cash flows.








                                      17



Item 8.  Financial Statements and Supplementary Data

The Company's fiscal year is a 52-53 week year.  Each of the 1997, 1996 and
1995 Fiscal years included 52 weeks.

Index to Consolidated Financial Statements and Financial Schedule

                                                                       Page
                                                                        No.
                                                                       ----
     Independent Auditors' Reports                                      F-1

     Consolidated Balance Sheets--
       December 30, 1997 and December 31,1996                           F-3

     Consolidated Statements of Operations --
       Years ended December 30, 1997, December 31, 1996
        and January 2, 1996                                             F-5

     Consolidated Statements of Changes in Stockholders' Deficit --
       Years ended December 30, 1997, December 31, 1996
        and January 2, 1996                                             F-6

     Consolidated Statements of Cash Flows --
       Years ended December 30, 1997, December 31, 1996
        and January 2, 1996                                             F-7

     Notes to Consolidated Financial Statements --
       Years ended December 30, 1997, December 31, 1996
        and January 2, 1996                                             F-9

     Financial Statement Schedule --
       The Financial Statement Schedule filed as a part of this
       report is listed in "Index to Financial Statement Schedules"
       at Item 14                                                       S-1

























                                      18

<PAGE>

























                  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                    Comprising Item 8 of the Annual Report
                              on Form 10-K to the

                      SECURITIES AND EXCHANGE COMMISSION

                         FURR'S/BISHOP'S, INCORPORATED
                     Fiscal Years Ended December 30, 1997,
                              December 31, 1996,
                              and January 2, 1996

























                                      19

<PAGE>


                         INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
Furr's/Bishop's, Incorporated:

We have audited the accompanying consolidated balance sheets of
Furr's/Bishop's, Incorporated and subsidiaries as of December 30, 1997 and
December 31, 1996, and the related consolidated statements of operations,
changes in stockholders' deficit and cash flows for the 52-week years then
ended.  In connection with our audits of the consolidated financial statements,
we have also audited the financial statement schedule for the 52-week years
ended December 30, 1997 and December 31, 1996.  These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Furr's/Bishop's,
Incorporated and subsidiaries as of December 30, 1997 and December 31, 1996 and
the results of their operations and their cash flows for the 52-week years then
ended, in conformity with generally accepted accounting principles.  Also in
our opinion, the related financial statement schedule for the 52-week years
ended December 30, 1997 and December 31, 1996, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects, the information set forth therein.

As discussed in Notes 1 and 12 to the consolidated financial statements,
effective January 2, 1996, the Company changed its method of accounting for
impairment of long-lived assets and for long-lived assets to be disposed of to
conform to Statement of Financial Accounting Standards No. 121.





                                                   KPMG Peat Marwick LLP
Dallas, Texas
February 6, 1998









                                      F-1

<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
Furr's/Bishop's, Incorporated
Lubbock, Texas

We have audited the accompanying consolidated statement of operations, changes
in stockholders' deficit and cash flows of Furr's/Bishop's, Incorporated and
subsidiaries (the "Company") for the 52-week year ended January 2, 1996.  Our
audit also included the financial statement schedule for the 52-week year ended
January 2, 1996 listed in the Index at Item 14 (a)(2).  These financial
statements and the financial statement schedule are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations, stockholders' deficit and cash
flows of Furr's/Bishop's, Incorporated and subsidiaries, for the 52-week year
ended January 2, 1996, in conformity with generally accepted accounting
principles.  Also, in our opinion, such financial statement schedule for the
52-week year ended January 2, 1996, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective
January 2, 1996, the Company changed its method of accounting for impairment of
long-lived assets and for long-lived assets to be disposed of to conform to
Statement of Financial Accounting Standards No. 121.





DELOITTE & TOUCHE LLP

Dallas, Texas
March 28, 1996











                                      F-2

<PAGE>
<TABLE>

FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1997 AND DECEMBER 31, 1996
(Dollars in Thousands, Except Per Share Amounts)
------------------------------------------------
<CAPTION>
                                                December 30,      December 31,
                                                   1997              1996
                                                ------------      ------------
<S>                                             <C>               <C>
ASSETS
------
CURRENT ASSETS:
   Cash and cash equivalents                    $      4,516      $      3,696
   Accounts and notes receivable (net
       of allowance for doubtful accounts
       of $29 and $20, respectively)                     882             1,186
   Inventories                                         6,038             5,722
   Prepaid expenses and other                          1,122               380
                                                ------------      ------------
          Total current assets                        12,558            10,984

PROPERTY, PLANT AND EQUIPMENT:
   Land                                                9,119             9,119
   Buildings                                          32,667            39,619
   Leasehold improvements                             18,590            21,247
   Equipment                                          41,340            48,195
   Construction in progress                              797             1,340
                                                ------------      ------------
                                                     102,513           119,520
   Less accumulated depreciation and
       amortization                                  (49,729)          (55,714)
                                                ------------      ------------
          Property, plant and equipment, net          52,784            63,806

OTHER ASSETS                                             459               469
                                                ------------      ------------
TOTAL ASSETS                                    $     65,801      $     75,259
                                                ============      ============
















                                                                    (Continued)

</TABLE>
                                      F-3

<PAGE>
<TABLE>

FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1997 AND DECEMBER 31, 1996
(Dollars in Thousands, Except Per Share Amounts)
------------------------------------------------
<CAPTION>
                                                December 30,      December 31,
                                                   1997              1996
                                                ------------      ------------
<S>                                             <C>               <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
   Current maturities of long-term debt         $      5,493      $      5,493
   Trade accounts payable                              4,287             5,498
   Other payables and accrued expenses                15,126            14,882
   Reserve for store closings - current portion        1,344             1,078
                                                ------------      ------------
          Total current liabilities                   26,250            26,951

RESERVE FOR STORE CLOSINGS, NET OF
  CURRENT PORTION                                      3,331             2,470

LONG-TERM DEBT, NET OF CURRENT PORTION                66,205            69,147

OTHER PAYABLES                                         7,276             8,265

EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE,
   NET OF AMORTIZATION                                 2,837             3,482
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
   Preferred Stock, $.01 par value;
       5,000,000 shares authorized,
            none issued
   Common Stock, $.01 par value;
       65,000,000 shares authorized,
            48,675,168 and 48,671,343
              issued and outstanding
                  in 1997 and 1996                       487               487
   Additional paid-in capital                         55,870            55,866
   Pension liability adjustment                       (2,504)           (2,854)
   Accumulated deficit                               (93,951)          (88,555)
                                                ------------      ------------
          Total stockholders' deficit                (40,098)          (35,056)
                                                ------------      ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT     $     65,801      $     75,259
                                                ============      ============







See accompanying notes to consolidated financial statements.

</TABLE>
                                      F-4
<PAGE>
<TABLE>

FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 30, 1997, DECEMBER 31, 1996 AND JANUARY 2, 1996
(Dollars in Thousands, Except Per Share Amounts)
------------------------------------------------
<CAPTION>
                                    December 30,    December 31,    January 2,
                                       1997            1996            1996
                                    ------------    ------------   ------------
<S>                                 <C>             <C>            <C>
Sales                               $   193,530     $   197,196    $   209,769
Costs and Expenses:
   Cost of sales (excluding
        depreciation)                    58,292          61,327         67,409
   Selling, general and
        administrative                  118,979         118,233        127,359
   Depreciation and amortization         10,889          10,168         14,002
   Special charges (credits)             10,477          (1,138)        12,273
                                    ------------    ------------   ------------
                                        198,637         188,590        221,043
                                    ------------    ------------   ------------

Operating income (loss)                  (5,107)          8,606        (11,274)

   Interest expense                         289             243         27,589
                                    ------------    ------------   ------------
Income (loss) before extraordinary
        item                             (5,396)          8,363        (38,863)
Extraordinary item - net gain
     on financial restructuring                                        170,239
                                    ------------    ------------   ------------
Net income (loss)                   $    (5,396)    $     8,363    $   131,376
                                    ============    ============   ============
Income (loss) per common share:
    Basic:
       Income (loss) before
         extraordinary item         $     (0.11)    $      0.17          (0.80)
       Extraordinary item                                                 3.50
                                    ------------    ------------   ------------
       Net income (loss)            $     (0.11)    $      0.17    $      2.70
                                    ============    ============   ============
       Weighted average shares        48,674,134      48,664,862     48,648,955
                                    ============    ============   ============

    Diluted:
       Net income (loss) before
         extraordinary item         $     (0.11)    $      0.17    $     (0.76)
       Extraordinary item                                                 3.32
                                    ------------    ------------   ------------
       Net income (loss)            $     (0.11)    $      0.17    $      2.56
                                    ============    ============   ============
       Weighted average shares        48,674,134      48,665,826     51,350,817
                                    ============    ============   ============


See accompanying notes to consolidated financial statements.

</TABLE>
                                      F-5
<PAGE>
<TABLE>

FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FISCAL YEARS ENDED JANUARY 2, 1996, DECEMBER 31, 1996 AND DECEMBER 30, 1997
(Dollars in Thousands)
----------------------
<CAPTION>         Convertible       Additional Pension
                   Preferred Common  Paid-In  Liability  Accumulated
                     Stock   Stock   Capital  Adjustment   Deficit     Total
                  ---------- ------ --------- ---------- ----------- ---------
<S>               <C>        <C>    <C>       <C>        <C>          <C>
BALANCE,
 JANUARY 3, 1995  $       64 $   94 $  38,090 $  (3,291) $ (228,294)$(193,337)

  Exchange of new
   common stock
   for outstanding
   equity                (64)   (82)    8,227                            8,081

  Exercise of put
   option to
   acquire 95% of
   Common Stock                 462     9,280                            9,742

  Exercise of
   option to
   acquire 2.5% of
   Common Stock                  12       244                              256

  Net income                                                131,376    131,376

  Pension liability
   adjustment                                    (1,992)                (1,992)
                   --------- ------ --------- ---------- ----------- ---------
BALANCE,
 JANUARY 2, 1996           0    486    55,841    (5,283)    (96,918)   (45,874)

 Warrants exercised               1        25                               26

 Net income                                                   8,363      8,363

 Pension liability
  adjustment                                      2,429                  2,429
                   --------- ------ --------- ---------- ----------- ---------
BALANCE,
 DECEMBER 31, 1996         0    487    55,866    (2,854)    (88,555)   (35,056)

 Warrants exercised                         4                                4

 Net loss                                                    (5,396)    (5,396)

 Pension liability
  adjustment                                        350                    350
                   --------- ------ --------- ---------- ----------- ---------
BALANCE,
 DECEMBER 30, 1997 $       0 $  487 $  55,870 $  (2,504) $  (93,951) $ (40,098)
                   ========= ====== ========= ========== =========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
                                      F-6

<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 30, 1997, DECEMBER 31, 1996 AND JANUARY 2, 1996
(Dollars in Thousands)
----------------------
<CAPTION>                              December 30,  December 31,   January 2,
                                          1997          1996           1996
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                     $     (5,396) $      8,363  $   131,376
  Adjustments to reconcile net income
   (loss) to net cash provided by
    operating activities:
     Depreciation and amortization           10,889        10,168       14,002
     Loss on sale of property,
      plant and equipment and
      other assets                               75           373          203
     Provision for (reversal of)
      closed store reserves                     150           226         (339)
     Special charges (credits)                5,567          (699)      12,273
     Deferred charges                           495           808          499
     Net gain on financial restructuring                              (170,239)
     Changes in operating assets
      and liabilities:
       Decrease in restricted cash                            800
       (Increase) decrease in accounts
         and notes receivable                   304          (440)         155
       (Increase) decrease in
         inventories                           (316)          109          647
       (Increase) decrease in prepaid
         expenses and other                    (741)          975       (3,501)
       Increase (decrease) in trade
         accounts payable                    (1,211)          424       (1,138)
       Increase (decrease) in other
         payables and accrued expenses          241        (3,359)      26,163
       Increase (decrease) in other
         payables, including accrued
          pension cost                          142          (123)        (547)
       Other                                                               (56)
                                       ------------  ------------  ------------
          Net cash provided by
            operating activities             10,199        17,625        9,498
                                       ------------  ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property, plant and
  equipment                                  (5,638)      (10,133)      (8,019)
 Expenditures charged to reserve for
  store closings                               (982)       (2,517)      (1,795)
 Proceeds from the sale of property,
  plant and equipment and other assets          199         3,378           41
 Other, net                                      15            61           (2)
                                       ------------  ------------  ------------
          Net cash used in investing
            activities                       (6,406)       (9,211)      (9,775)
                                       ------------  ------------  ------------
                                                                    (Continued)
</TABLE>
                                      F-7
<PAGE>
<TABLE>

FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 30, 1997, DECEMBER 31, 1996 AND JANUARY 2, 1996
(Dollars in Thousands)
----------------------
<CAPTION>
                                       December 30,  December 31,   January 2,
                                          1997          1996           1996
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Payment of indebtedness             $     (5,493) $     (5,170) $      (150)
   Issuance of indebtedness                   2,551
   Other, net                                   (31)          266          (79)
                                       ------------  ------------  ------------
          Net cash used in financing
            activities                       (2,973)       (4,904)        (229)
                                       ------------  ------------  ------------

INCREASE (DECREASE) IN UNRESTRICTED
   CASH AND CASH EQUIVALENTS                    820         3,510         (506)

UNRESTRICTED CASH AND CASH
   EQUIVALENTS AT BEGINNING OF YEAR           3,696           186          692
                                       ------------  ------------  ------------
UNRESTRICTED CASH AND CASH
   EQUIVALENTS AT END OF YEAR          $      4,516  $      3,696  $       186
                                       ============  ============  ============

SUPPLEMENTAL DISCLOSURE OF
   CASH FLOW INFORMATION:
   Interest paid, including $5,493
     and $3,753 of interest classified
     as payment of indebtedness during
     the fiscal years ended
     December 30, 1997 and
     December 31, 1996, respectively   $      5,500  $      3,774  $        48
                                       ============  ============  ============
   Income tax paid (refunded)          $        (60) $         60  $
                                       ============  ============  ============
   Stock warrants issued               $             $             $        81
                                       ============  ============  ============
   Pension liability adjustment        $      (350)  $     (2,429) $     1,992
                                       ============  ============  ============
   GEPT judgment settlement            $             $             $    (5,408)
                                       ============  ============  ============








See accompanying notes to consolidated financial statements.

</TABLE>

                                      F-8

<PAGE>


FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 1997, DECEMBER 31, 1996 AND JANUARY 2, 1996
(Dollars in Thousands, Except Per Share Amounts)
------------------------------------------------

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - Furr's/Bishop's, Incorporated (the "Company"), a
Delaware corporation, operates cafeterias and a buffet through its subsidiary
Cafeteria Operators, L.P., a Delaware limited partnership (together with its
subsidiaries, the "Partnership").  The financial statements presented herein
are the consolidated financial statements of Furr's/Bishop's, Incorporated and
its majority owned subsidiaries.  All material intercompany transactions and
account balances have been eliminated in consolidation.

The financial statements reflect the results of a series of transactions
relating to the financial restructuring of the Company at January 2, 1996, as
described in Note 2.

Fiscal Year - The Company operates on a 52-53 week fiscal year ending on the
Tuesday nearest December 31. Each of the fiscal years ended December 30, 1997,
December 31, 1996 and January 2, 1996 represents a 52-week year.

Business Segments - The Company operates in a single business segment, namely
the operation of cafeterias which includes food purchasing, processing,
warehousing and distribution of products, real estate and retailing in twelve
states in the Southwest, West and Midwest areas of the United States.

Cash and Cash Equivalents - The Company has a cash management program which
provides for the investment of excess cash balances in short-term investments.
These investments have original or remaining maturities of three months or less
at date of acquisition, are highly liquid and are considered to be cash
equivalents for purposes of the consolidated balance sheets and consolidated
statements of cash flows.

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

Prepaid Expenses and Other - As of December 30, 1997 and December 31, 1996,
this account balance included prepaid rent of $580 and $3, respectively, along
with other assets recorded in the ordinary course of business.

Property, Plant and Equipment - Property, plant and equipment is generally
recorded at cost, while certain assets considered to be impaired are recorded
at the estimated fair value.  All property, plant and equipment is depreciated
at annual rates based upon the estimated useful lives of the assets using the
straight-line method.  Restaurant equipment is generally depreciated over a
period of 1 to 5 years, while the useful life of manufacturing equipment is
considered to be 5 to 10 years.  Buildings are depreciated over a 30 year
useful life, while improvements to owned buildings have estimated useful lives
of 3 to 5 years.  Provisions for amortization of leasehold improvements are
made at annual rates based upon the estimated useful lives of the assets or
terms of the leases, whichever is shorter.

Valuation of Long-Lived Assets - Effective January 2, 1996, the Company adopted


                                      F-9

<PAGE>


the provisions of 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") and recorded a special charge of $7,772 for the
year ended January 2, 1996 and $2,139 for the year ended December 30, 1997 to
recognize the write-down of certain assets in property, plant and equipment to
estimated fair value, based on expected future cash flows.  SFAS 121 requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.

Other Assets - As of January 2, 1996, a subsidiary of the Company owned a
parcel of land held for sale, which was sold during the year ended December 31,
1996.

Start-Up and Closing Costs of Restaurants - Start-up and preopening costs
incurred in connection with a new restaurant becoming operational are expensed
as incurred.

When the decision to close a restaurant is made, the present value of all fixed
and determinable costs to be incurred after operations cease is accrued.  These
fixed and determinable costs consist primarily of obligations defined in lease
agreements such as rent and common area maintenance, reduced by sublease
income, if any.

Advertising Costs - Advertising costs are expensed as incurred.  Total
advertising expense was $3,455, $2,085 and $4,455 for the years ended December
30, 1997, December 31, 1996 and January 2, 1996, respectively.

Stock-Based Compensation - The Company has adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") which permits the recognition as expense over the vesting period the fair
value of all stock based awards on the date of grant.  Alternatively, under the
provisions of SFAS 123, the Company is allowed to continue accounting for such
compensation as provided by Accounting Principles Board ("APB") Opinion No. 25.
The Company has elected to continue to apply the provisions of APB Opinion No.
25 and provide proforma disclosure provisions of SFAS 123.

Unfavorable Leases - For leases acquired through purchase, the net excess of
future lease payments over the fair value of these payments is being amortized
over the lives of the leases to which the differences relate.

Income Taxes - The company recognizes income taxes under the asset and
liability method.  Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.  Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.  The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

Income Per Share - In fiscal year 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"), which requires the calculation of basic and diluted earnings per
share.  Basic earnings per share is computed by dividing earnings available to
common shareholders by the weighted average number of shares outstanding during
the year.  Diluted earnings per share is computed by dividing earnings


                                     F-10
<PAGE>


available to common shareholders by the weighted average number of shares
outstanding plus the number of additional shares that would have been
outstanding if potentially dilutive securities had been issued.  All prior
period earnings per share amounts have been restated to reflect the
requirements of SFAS 128.

The following table reconciles the denominators of basic and diluted earnings
per share for the fiscal years ended December 30, 1997, December 31, 1996 and
January 2, 1996.

<TABLE>
<CAPTION>
                                   December 30,  December 31,   January 2,
                                      1997          1996           1996
                                    ----------    ----------    ----------
   <S>                              <C>           <C>           <C>
   Denominator
      Weighted average common
         shares outstanding         48,674,134    48,664,862    48,648,955
      Warrants                                       780,964     2,701,862
                                    ----------    ----------    ----------
      Total shares                  48,674,134    49,445,826    51,350,817
                                    ==========    ==========    ==========
</TABLE>

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of certain assets, liabilities,
revenues and expenses as of and for the reporting periods and actual results
may differ from such estimates.

Reclassification - Certain amounts in the prior year financial statements have
been reclassified to conform with
current year classification.

2.  RESTRUCTURING

On January 25, 1995, the Company announced that it had entered into an
Agreement in Principle dated as of January 24, 1995 (the "Agreement in
Principle") among the Company, its subsidiaries, the holders of the 11% Notes
of the Partnership (the "11% Noteholders"), the holder of the 9% Note of
Cavalcade Foods (both as defined below), the Trustees of General Electric
Pension Trust ("GEPT"), and Kmart Corporation ("Kmart").

The Agreement in Principle provided for (i) the exchange of an aggregate of
approximately $249,344 of debt of the Partnership for the issuance of $40,000
principal amount of new senior secured notes of the Partnership due 2001
pursuant to a new indenture and 95% of the limited partner interest of the
Partnership, (ii) the exchange of warrants to purchase an aggregate of
approximately 21.5% of the Company's common stock for options to acquire an
aggregate of 95% of a new class of common stock of the Company ("Common Stock")
and new five year warrants to purchase an aggregate of 1% of the fully diluted
Common Stock, (iii) the exchange of $6,117 of other obligations of the
Partnership for the issuance of $1,700 principal amount of new senior secured
notes of the Partnership due 2001 pursuant to a new indenture, (iv) the
exchange of $11,737 of debt of Cavalcade Foods, Inc., an indirect subsidiary of
the Company ("Foods"), for options to acquire 2.5% of the Common Stock and an


                                     F-11
<PAGE>


interest in certain land owned by a subsidiary of the Company and (v) the
exchange of the Company's outstanding shares of Class A Common, Class B Common
and Convertible Preferred Stock for an aggregate of 2.5% of the Common Stock
and five year warrants to purchase an aggregate of 4% of the fully diluted
Common Stock (together, the "Restructuring").

On March 2, 1995, the Company announced that the Independent Committee of the
Board and the full Board of Directors had unanimously determined to recommend
the following allocation of the aggregate consideration offered to existing
equity holders in the Agreement in Principle: Holders of Convertible Preferred
Stock would receive 1.15 shares of Common Stock (representing a 39% premium to
the conversion ratio for the Convertible Preferred Stock) and 2.04 warrants to
purchase Common Stock for each share of Convertible Preferred Stock held by
them; holders of Class A Common Stock would receive 1.00 share of Common Stock
and 1.78 warrants to purchase Common Stock for each share of Class A Common
Stock held by them; and holders of Class B Common Stock would receive 0.95
shares of Common Stock (representing a 5% discount to the conversion ratio for
the Class B Common Stock) and 1.69 warrants to purchase Common Stock for each
share of Class B Common Stock held by them.  All dividend arrearages on the
Convertible Preferred Stock and the self tender offer obligation (as described
in Note 5) would be eliminated in the proposed restructuring.  The Board
members also informed the Company that they intended to vote their shares in
favor of the proposed restructuring.  The proposed restructuring was subject
to, among other things, the approvals of the Company's Board of Directors,
shareholders and creditors and the negotiation and execution of definitive
documentation.

The Restructuring became effective upon approval of the stockholders at a
meeting held January 2, 1996.

The Restructuring has been accounted for in accordance with Statement of
Financial Accounting Standards No. 15 "Accounting by Debtors and Creditors for
Troubled Debt Restructurings" ("SFAS 15"), under which the transactions include
both a partial settlement and modification of terms.  The fair value of the
Common Stock and warrants issued in connection with the Restructuring was
estimated based upon discounted cash flows anticipated from the reorganized
business and was recorded as partial settlement of the indebtedness.  The
remaining indebtedness was recorded at the sum of all future principal and
interest payments and, accordingly, interest expense is no longer recognized on
the restructured debt.  The amounts of indebtedness subject to modification in
excess of the amount recorded in accordance with SFAS 15 was recorded as an
extraordinary gain, net of all expenses associated with the Restructuring.

The amount of par value that was previously recorded for the Class A Common
Stock, Class B Common Stock and Convertible Preferred Stock was reclassified to
additional paid-in capital and the Common Stock issued upon conversion of such
shares was recorded at their aggregate par value.  The Company's obligation to
make the $8.0 million self tender offer was eliminated and this amount was
reclassified to additional paid-in capital.

As of the consummation of the Restructuring, the Company owned less than 50% of
the limited partnership interests of the Partnership at January 2, 1996, and as
a result, the Partnership would no longer be included in the Company's
consolidated financial statements.  However, subsequent to year end, the
holders of the limited partnership interests exercised their put option and, on
March 28, 1996, exchanged their limited partnership interests for Common Stock
of the Company.  On March 22, 1996, the Company effected a 15-to-1 reverse


                                     F-12
<PAGE>


stock split.  As a result of the materiality of this series of financial
restructuring transactions, the Partnership is included in the consolidated
financial statements for all years presented.

The Company recognized a net extraordinary gain of $170,239 in the year ended
January 2, 1996, as a result of the above described financial restructuring
transactions.  The extraordinary item is made up of the following:

<TABLE>
<CAPTION>
     <S>                                                       <C>
     Long-term debt reclassified as current                    $   202,453
     Accrued interest subject to restructuring                      62,409
     Mandatorily Redeemable Common Stock                             8,000
     Other liabilities subject to restructuring                      5,408
     Accrued interest on liability subject to restructuring            710
     Minority interest in subsidiary                                   563
     Deferred warrant costs                                             81
     Par value of common and preferred stock canceled                  158
     Par value of common stock issued                                 (486)
     Long-term debt, issued for payment of interest                 (3,781)
     Expenses related to series of financial transactions          (10,415)
     Additional Paid-in Capital                                    (17,751)
     Long-term debt, including accrued interest                    (77,110)
                                                               -----------
                                                               $   170,239
                                                               ===========
</TABLE>

3.  OTHER PAYABLES AND ACCRUED EXPENSES

Included in other payables and accrued expenses are the following:
<TABLE>
<CAPTION>
                                              December 30,      December 31,
                                                 1997              1996
                                              ------------      ------------
        <S>                                   <C>               <C>
        Salaries, wages and commissions       $      3,642      $      4,092
        Rent                                         1,019             1,031
        Taxes other than income taxes                3,999             3,632
        Restructuring expenses                       1,215             1,783
        Insurance                                    3,137             2,003
        Gift certificates outstanding                  918               926
        Utilities                                      621               701
        Other payables and accrued expenses            575               714
                                              ------------      ------------
                                              $     15,126      $     14,882
                                              ============      ============
</TABLE>

4.  LONG-TERM DEBT

Effective January 2, 1996, as part of the series of financial restructuring
transactions described in Note 2, the Partnership issued $41,700 of 12% Senior
Secured Notes, due December 31, 2001 (the "12% Notes"), to replace $40,000 of
11% Senior Secured Notes, due June 30, 1998 (the "11% Notes") and the interest


                                     F-13
<PAGE>


accrued thereon and to terminate a $5,408 judgment and the interest accrued
thereon.  In January 1996, the Partnership also issued $4,073 of 12% Notes as
payment in kind for all interest accrued as of January 23, 1996.  All of the
assets of the Partnership are pledged as collateral security on behalf of the
holders of the 12% Notes.  The Partnership also issued limited partner
interests equal to 95% of the outstanding partnership interests in exchange for
and in full satisfaction of the remaining $152,854 of 11% Notes, together with
all interest accrued thereon.

Payments of interest on the 12% Notes are due each March 31 and September 30.
However, for financial accounting reporting purposes, no interest expense will
be recorded under SFAS 15, as all of the interest through maturity has been
recorded as a liability.

Effective January 2, 1996, as part of the Restructuring, Foods issued a 10%
Non-recourse Note in the amount of $2,000, due December 31, 2001 (the
"Non-recourse Note"), a $6,100 note payable (the "Option Note") and a $1,500
note payable (the "Remaining Note") to Wells Fargo Bank in exchange for and in
full satisfaction of the $9,599 outstanding under the 9% Note, due June 30,
1998 (the "9% Note") together with all interest accrued thereon.  Certain land
pledged as collateral on the Non-recourse Note was sold during 1996 and the
proceeds were used to retire the Non-recourse Note.  An option to purchase 2.5%
of the Common Stock of the Company was pledged as collateral on the Option
Note.  Wells Fargo foreclosed on the Option Note and exercised its option to
purchase 2.5% of the Common Stock of the Company by transferring the Remaining
Note to the Company as payment.

Effective December 30, 1997, as part of the payment of the cost of
indemnification related to the litigation described in Note 8, the Partnership
issued $2,551 of 10.5% Notes, due December 31, 2001.  Payments of interest on
these notes are due each June 30 and December 31.

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                      Stated
                                     Maturity   December 30,   December 31,
                                      Date         1997           1996
                                     --------   ------------   ------------
<S>                                  <C>        <C>            <C>
12% Notes, including interest
  accrued through maturity of
  $23,374 and $28,867, respectively      2001   $     69,147   $     74,640
10.5% Notes                              2001          2,551            -
                                                ------------   ------------
                                                      71,698         74,640
Current maturities of long-term debt                  (5,493)        (5,493)
                                                ------------   ------------
Long-term debt                                  $     66,205   $     69,147
                                                ============   ============

</TABLE>






                                     F-14
<PAGE>


At December 31, 1996, the scheduled aggregate amount of all maturities of
long-term debt and interest classified as long-term debt for the next five
years and thereafter is as follows:

<TABLE>
<CAPTION>
             <S>        <C>
             1998       $  5,493
             1999          5,493
             2000          5,493
             2001         55,219
                        --------
                        $ 71,698
                        ========

</TABLE>

5.  STOCKHOLDERS' EQUITY

Common Stock Options and Warrants - In 1992, the 11% Noteholders received
warrants to purchase an aggregate of 1,400,000 shares of Class B Common Stock
at $.75 per share.  The fair value of these warrants at the date of grant was
estimated to approximate their exercise price.  These warrants were terminated
in connection with the Restructuring effective January 2, 1996.

On November 15, 1993, in connection with the amendment to the master sublease
agreement discussed in Note 8, Kmart received warrants to purchase 1,700,000
shares of Class A Common Stock at $.75 per share.  These warrants were
terminated in connection with the Restructuring effective January 2, 1996.
Kmart received new warrants to purchase 8,108,159 shares of Common Stock at
$0.074 per share, and following the reverse stock split, Kmart retained
warrants to purchase 540,544 shares at $1.11 per share.

The 1995 Stock Option Plan - The Board of Directors adopted, and on January 2,
1996, the stockholders approved, the 1995 Stock Option Plan authorizing an
aggregate of 40,540,795 shares of Common Stock (the "1995 Option Plan").  The
number of shares reserved under the 1995 Option Plan, subject to equitable
adjustment for the reverse stock split approved by stockholders on March 14,
1996, is 2,702,720.  A Committee of the Board of Directors administers the 1995
Option Plan, including determining the employees to whom awards will be made,
the size of such awards and the specific terms and conditions applicable to
awards, such as vesting periods, circumstances of forfeiture and the form and
timing of payment.  Grants including stock options, stock appreciation rights
and restricted stock may be made to selected employees of the Company and its
subsidiaries and non-employee directors of the Company.  On November 22, 1996
and May 30, 1997, options to purchase 6,666 shares of Common Stock were issued
to each non-employee director of the Company pursuant to the provisions of the
1995 Option Plan.  The fair value of the options is not significant and,
accordingly, pro forma presentation of operating results required by SFAS 123
has not been presented.  On December 30, 1997, a total of 53,328 options were
outstanding.

On March 27, 1997, the Company granted 500,000 stock options, pursuant to the
1995 Option Plan, to Theodore J. Papit at an exercise price of $1.375 per
share.  Such options vested over a period of five years with a scheduled
termination after ten years.  These options were terminated on December 15,
1997 by agreement between Mr. Papit and the Company.


                                     F-15
<PAGE>


6.  INCOME TAXES

Following is a reconciliation of the expected tax expense (benefit) at the
statutory tax rate of 35% to the actual tax expense (benefit) for the fiscal
years ended December 30, 1997, December 31, 1996 and January 2, 1996:

<TABLE>
<CAPTION>
                                    December 30,   December 31,    January 2,
                                       1997           1996           1996
                                    ------------   ------------   ------------
<S>                                 <C>            <C>            <C>
   Expected tax (benefit) at the
      statutory tax rate            $     (1,889)  $      2,927   $     45,982
   Net income allocable to
      nonaffiliated partners                               (401)
   Tax credit                                                (6)
   Earnings from subsidiary sold
      in 1997                               (501)
   Interest expense recorded as
      debt reduction per SFAS 15          (1,922)        (1,794)
   Restructuring credit                                                (59,584)
   Other                                     133             28              8
   Correction of prior year's
      estimated taxes                                     5,084
   Increase (decrease) in
      valuation allowance                  4,179         (5,838)        13,594
                                    ------------   ------------   ------------
   Actual tax (benefit)             $        -     $        -     $        -
                                    ============   ============   ============
</TABLE>




























                                     F-16

<PAGE>


Following is a summary of the types and amounts of existing temporary
differences and net operating loss carry forwards at the statutory tax rate of
35% and tax credits:

<TABLE>
<CAPTION>
                                     December 30, 1997      December 31,1996
                                       Deferred Tax           Deferred Tax
                                   Assets   Liabilities   Assets   Liabilities
                                  --------- -----------  --------- -----------
  <S>                             <C>       <C>          <C>       <C>
  Net operating loss carryforward $  38,116              $  34,896
  Tax credits carryforward            1,377                  1,405
  Reserve for store closing for
   financial statement purposes
   and not for tax purposes           2,162                  1,241
  Excess of future lease payments
   over fair values, net of
   amortization                         793                  1,002
  Property, plant and
   equipment, net                    10,154                 11,135
  Other temporary differences           900         -         (126)        230
                                  --------- -----------  --------- -----------
  Deferred tax assets and
   liabilities                       53,502         -       49,553         230
                                            ===========            ===========
  Deferred tax liabilities
   allowance                            -                     (230)
  Valuation allowance               (53,502)               (49,323)
                                  ---------              ---------
  Deferred tax asset, net         $     -                $     -
                                  =========              =========
</TABLE>

As of December 30, 1997, the Company has consolidated net operating loss
carryforwards of $108,902 for income tax reporting purposes that expire from
2000 through 2012.  For financial reporting purposes, the income tax benefit
associated with the loss carryforwards has not been recognized since, in the
opinion of management, the full benefit of these deferred tax assets will
likely not be realized.  Approximately $3,700 and $8,600 of the operating loss
carryforwards for income tax reporting purposes, which are subject to limited
use, relate to the subsidiary operations of Cavalcade Holdings, Inc.
("Holdings") and its subsidiary, Cavalcade Foods, Inc. ("Foods"), respectively,
for periods prior to their inclusion in this Company-affiliated group.

Current tax laws and regulations relating to specified changes in ownership
limit the availability of the Company's utilization of Holdings' and Foods' net
operating loss and tax credit carryforwards (collectively, tax attributes).  A
change in ownership of greater than 50% of a corporation within a three-year
period causes such annual limitations to be placed into effect.  Such a change
in ownership is deemed to have occurred on June 24, 1993, when KL Group
acquired 1,119,151 Class B Common shares and an option to purchase nearly all
of the remaining Class B Common shares of the Company.  This ownership change
limits the utilization of the Company-affiliated group tax attributes incurred
during the period March 28, 1991 through June 24, 1993 to approximately $1,200
annually.  Additionally, a second change of ownership is deemed to have
occurred on March 28, 1996, when the holders of 95% of the limited partner


                                     F-17
<PAGE>


interest of the Partnership exchanged such interest for 95% of the outstanding
Common Stock of the Company.  As a result, net operating losses of $45,000
incurred during the period June 25, 1993 through March 28, 1996 will be limited
to approximately $4,900 annually.  As of December 30, 1997, the
Company-affiliated group tax attributes not subject to limitation are
approximately $14,388.

As of December 30, 1997, the Company has general business credit carryforwards
of approximately $1,377 which have expiration dates through 2010.
Approximately $74 of the general business credit carryforwards relate to Foods
for periods prior to its inclusion in the Company-affiliated group.  These
credits are subject to limited use.

While the Restructuring transactions were intended to result in no income tax
expense to the Company, the transactions result in a substantial restriction on
the ability of the Company to utilize certain net operating loss carryforwards.
In addition, no assurance can be given that the Internal Revenue Service will
not successfully assert that the Recapitalization results in a substantial
reduction of certain tax attributes (such as the net operating losses and tax
basis of property) of the Company and the other partners of the partnership.

The Internal Revenue Service (the "Service") and the Company settled litigation
related to the federal income tax liabilities of certain of the Company's
subsidiaries for the years prior to 1990.  The Company agreed to total tax
deficiencies of approximately $934, plus interest from the date such amounts
are deemed payable.  The Company had previously accrued liabilities to cover
such amounts.

7.  EMPLOYEE BENEFIT PLANS

The Company has a noncontributory defined benefit pension plan for which
benefit accruals were frozen effective June 30, 1989.  The funding policy is to
make the minimum annual contribution required by applicable regulations.
Pension expense was $250, $590 and $592 for the years ended December 30, 1997,
December 31, 1996 and January 2, 1996, respectively.

The Partnership is required to recognize the additional minimum liability
aspects of Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions" ("SFAS 87").  SFAS 87 requires the recognition of an
additional pension liability in the amount of the Partnership's unfunded
accumulated benefit obligation in excess of accrued pension cost with an equal
amount to be recognized as either an intangible asset or a reduction of equity.
Based upon plan actuarial and asset information as of December 30, 1997 and
December 31, 1996, the Company recorded a decrease to the noncurrent pension
liability and a corresponding offset to stockholders' deficit of $350 and
$2,429, respectively.













                                     F-18

<PAGE>


The funded status of the plan amounts recognized in the balance sheets and
major assumptions used to determine these amounts are as follows:

<TABLE>
<CAPTION>
                                                   Years Ended
                                    ------------------------------------------
                                    December 30,   December 31,    January 2,
                                       1997           1996           1996
                                    ------------   ------------   ------------
<S>                                 <C>            <C>            <C>
Components of pension expense:
     Interest cost                  $        859   $        903   $        966
     Actual return on plan assets         (1,848)          (864)        (1,475)
     Net amortization and deferral         1,239            551          1,101
                                    ------------   ------------   ------------
Net pension expense                 $        250   $        590   $        592
                                    ============   ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                                  December 30,   December 31,
                                                     1997           1996
                                                  -----------    -----------
<S>                                               <C>            <C>
Actuarial present value of projected benefit
     obligations: Vested                          $   (12,603)   $   (11,947)

Plan assets at fair value (primarily money
     market cash investments, corporate equities,
     and corporate bonds)                              11,808         10,803
                                                  -----------    -----------
Projected benefit obligation in excess
     of plan assets                                      (795)        (1,144)

Net loss                                                2,523          2,871

Additional liability for unfunded
     accumulated benefit obligation                    (2,523)        (2,871)
                                                  -----------    -----------
Accrued pension cost                              $      (795)   $    (1,144)
                                                  ===========    ===========
Major assumptions at beginning of year:

Discount rate                                            7.00%          7.75%
Expected long-term rate of return on
     plan assets                                         9.00%          9.00%

</TABLE>

Effective December 30, 1997, for purposes of calculating benefit obligations,
the assumed discount rate decreased from 7.75% to 7.00% to reflect the current
financial market for high-quality debt instruments.  There have been no other
changes in the plan's major actuarial assumptions for the two years ended
December 30, 1997.



                                     F-19
<PAGE>


The Company also has a voluntary savings plan (the "401(k) plan") covering all
eligible employees of the Company and its subsidiaries through which it may
contribute discretionary amounts as approved by the Board of Directors.
Administrative expenses paid by the Company for the years ended December 30,
1997, December 31, 1996, and  January 2, 1996  amounted to $8, $7 and $2,
respectively.

8.  COMMITMENTS AND CONTINGENCIES

The Partnership leases restaurant properties under various noncancelable
operating lease agreements which expire between 1997 and 2015 and require
various minimum annual rentals.  Certain leases contain escalation clauses.
Further, many leases have renewal options ranging from one five-year period to
ten five-year periods.  Certain of the leases also require the payment of
property taxes, maintenance charges, advertising charges, insurance and parking
lot charges, and additional rentals based on percentages of sales in excess of
specified amounts.

On November 15, 1993, the Partnership entered into an amendment of a master
sublease agreement pursuant to which it leased 43 properties from Kmart.
Pursuant to the amendment and subject to the terms and conditions thereof, two
properties were removed from the master sublease, and the aggregate monthly
rent for the period  January 1, 1997 through and including December 31, 1999
has been reduced by 20%.  The reductions in rent are subject to termination by
Kmart if Kevin E. Lewis ceases to be Chairman of the Board of Directors of the
Company.  The one-year term of Mr. Lewis expires in 1998, and there can be no
assurance that he will be reelected at that time, or if reelected, would serve
as Chairman of the Board through December 31, 1999.  As a consequence, the
Company has entered into negotiations with Kmart to modify the amendment to
remove the provisions requiring Mr. Lewis to remain as Chairman of the Board
until the end of 1999.  To date, Kmart has been unwilling to make such
modification.  In consideration for these lease term modifications, the Company
granted Kmart warrants to purchase 1.7 million shares of Class A Common Stock
of the Company on or before September 1, 2003, at $0.75 per share.  As a part
of the Restructuring, effective January 2, 1996, these warrants were terminated
and replaced with warrants to purchase 8,108,159 shares of Common Stock on or
before January 2, 2001, at $0.074 per share, and following the reverse stock
split, Kmart retained warrants to purchase 540,544 shares at $1.11 per share.

The total minimum annual rental commitment and future minimum sublease rental
income under noncancelable operating leases are as follows as of December 30,
1997:
<TABLE>
<CAPTION>
                                           Minimum       Sublease
                                             Rent         Income
                                           -------       --------
   <S>                                     <C>           <C>
                   1998                    $ 9,273       $   942
                   1999                      8,730           951
                   2000                      9,320           862
                   2001                      8,909           904
                   2002                      8,511           715
   For the remaining terms of the leases    33,914         2,188

</TABLE>



                                     F-20
<PAGE>


Total rental expense included in the statements of operations is $11,036,
$10,916 and $11,929, which includes $1,029, $1,077 and $1,187 of additional
rent based on net sales, for the years ended December 30, 1997, December 31,
1996 and January 2, 1996, respectively.  The results of operations include
sublease rent income of $800, $760 and $717 for the years ended December 30,
1997, December 31, 1996 and January 2, 1996, respectively.

The Company, in the ordinary course of business, is a party to various legal
actions.  In the opinion of management, these actions ultimately will be
disposed of in a manner which will not have a material adverse effect upon the
Company's equity, results of operations, and liquidity and capital resources
after consideration of the applicable amounts previously accrued.

On August 11, 1995, a complaint was filed in the District Court of Travis
County, Texas by the former Chairman of the Board of the Company, Michael J.
Levenson, both individually and on behalf of his minor son Jonathan Jacob
Levenson, James Rich Levenson, Benjamin Aaron Levenson, S.D. Levenson, General
Consulting Group, Inc. and Cerros Morado.  The complaint named as defendants
the Company, the Partnership, Furr's/Bishop's Cafeterias, L.P., Cavalcade &
Co., Inc. ("Cavalcade"), individual members of the Board of Directors,
Houlihan, Lokey, Howard & Zukin, Inc., KL Park Associates, L.P. ("KL Park"), KL
Group, Inc. ("KL Group"), Skadden, Arps, Slate, Meagher & Flom, certain of the
then current and former 11% Noteholders, Deloitte & Touche LLP, Kmart and
certain partners and employees of the foregoing, alleging, among other things,
that the Company and certain defendants conspired to wrest control of the
Company away from the Levensons by fraudulently inducing them to transfer their
working control of the Company through a series of transactions in which the
Levensons transferred Class B Common Stock and stock options in the Company to
KL Park and KL Group.  Plaintiffs initially sought actual damages of
approximately $16,425, as well as punitive damages.

On October 6, 1995, the Levensons filed a Notice of Non-Suit as to certain of
the defendants, including the Company, the Partnership, Furr's/Bishop's
Cafeterias, L.P., Cavalcade, and specific individual members of the Board of
Directors (other than William E. Prather and Kevin E. Lewis) and amended their
complaint.  As a result of such Notice of Non-Suit, the named entities and
individuals were no longer defendants in the Levenson litigation.  In addition,
Deloitte & Touche LLP settled with the plaintiffs and were voluntarily
dismissed from the case.

In a Fifth Amended Petition filed on or about February 3, 1997, plaintiffs
sought an unspecified amount of actual damages, alleging only that their actual
damages claim was "no more than $400 million."  In July 1997, the Company
reached a settlement of the litigation, in which all settling defendants,
including its current and former directors and officers, the Partnership,
Furr's/Bishop's Cafeterias, L.P. and Cavalcade, received mutual releases with
respect to all matters alleged in the litigation and the Partnership made a
payment to the plaintiffs of a net amount of approximately $275.

The Company was required to indemnify certain of the defendants originally
named in the Levensons' complaint, including the individual members of the
Board of Directors and certain of their affiliated entities pursuant to the
Company's Certificate of Incorporation and otherwise, for any and all damages
resulting from such complaint.  As part of the restructuring of the 11% Notes,
the Company also agreed to indemnify certain parties named as defendants in the
Levensons' complaint, including the holders of the 11% Notes, KL Group, KL Park
and Kmart, from and against all claims, actions, suits and other legal


                                     F-21
<PAGE>


proceedings, damages, costs, interest, charges, counsel fees and other expenses
and penalties which such entity may sustain or incur to any person whatsoever
(excluding judgments in the case of KL Group and KL Park) by reason of or
arising out of the Levenson litigation.  Under no circumstances was the Company
to be obligated to indemnify any party for any liability resulting from such
party's willful misconduct or bad faith.  During 1997, the Company recorded
special charges against results of operations aggregating $4.9 million to
recognize the estimated cost of such indemnification.  The Company has
negotiated agreements with each of the parties whose indemnity claim was
outstanding at year end and has either made cash payments or issued 10.5%
unsecured notes (see Note 4) in satisfaction of such claims.

9.  QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                           Thirteen Weeks Ended
                             ------------------------------------------------
                              April 1      July 1     Sept 30    December 30
                             ---------    --------    --------   -----------
<S>                          <C>          <C>         <C>          <C>
Year ended December 30, 1997:
      Sales                  $ 47,353     $ 49,787    $ 49,376     $ 47,014
      Gross profit (1)         32,747       34,523      34,268       32,680
      Net Income (loss)        (1,671) (2)   1,328      (6,167) (2)   1,114 (2)
      Net income per
        common share            (0.03)        0.03       (0.13)        0.02

</TABLE>
<TABLE>
<CAPTION>
                                           Thirteen Weeks Ended
                             ------------------------------------------------
                              April 1      July 1     Sept 30    December 30
                             ---------    --------    --------   -----------
<S>                          <C>          <C>         <C>          <C>
Year ended December 31, 1996:
     Sales                     $ 48,747   $ 50,611    $ 49,953     $ 47,885
     Gross profit (1)            33,332     34,576      33,831       32,780
     Net income                   2,025      3,301 (2)   2,194 (2)      843
     Net income per
       common share                0.04       0.07        0.04         0.02

  (1)  Gross profit is computed using cost of sales including depreciation
       expense.
  (2)  See Note 12 Special Charges and Credits

</TABLE>

10. OTHER RELATED PARTY TRANSACTIONS

On June 7, 1996, the Company, the Partnership and Kevin E. Lewis entered into
the Consulting and Indemnity Agreement and General Release (the "Consulting
Agreement") pursuant to which, among other things, Mr. Lewis would resign as
President and Chief Executive Officer effective September 30, 1996 and would
resign his position as Chairman of the Board on December 31, 1996, unless
requested by the Board of Directors to continue until December 31, 1997.  On


                                     F-22
<PAGE>


September 17, 1996, at the request of the Board of Directors, Mr. Lewis agreed
to remain President and Chief Executive Officer beyond September 30, 1996 with
no change to the financial terms of the Consulting Agreement.  On December 24,
1996, Mr. Lewis resigned as President and Chief Executive Officer effective
December 31, 1996 and was requested by the Board to continue as Chairman of the
Board into 1997.  After his resignation as President and Chief Executive
Officer, Mr. Lewis served as a consultant to the Company until December 31,
1997.  Pursuant to the Consulting Agreement, Mr. Lewis received an annual base
salary of $350 pro-rated through the end of 1996 and $250 through the end of
1997.  Mr. Lewis received $75 upon the execution of the Consulting Agreement,
$75 on September 30, 1996 and $100 on December 31, 1997.  Furthermore, the
Company agreed to pay, among other things, certain legal expenses of Mr. Lewis
incurred in connection with the negotiation of the Consulting Agreement and
certain travel and moving related expenses.  On October 29, 1997, the Board
requested that Mr. Lewis agree to remain Chairman of the Board beyond December
31, 1997, until at least May 31, 1998 (the "Chairman Extension Request") and on
November 12, 1997, Mr. Lewis received $50 in consideration for his agreement to
remain Chairman of the Board through at least May 31, 1998 at the pleasure of
the Board.  Also, effective as of December 31, 1997, Mr. Lewis, the Company and
Cafeteria Operators entered into a general release that effected the mutual
releases contemplated by the Consulting Agreement.

Effective January 1, 1997, Kenneth Reimer assumed the duties of President and
Chief Executive Officer of the Company on an interim basis.  Mr. Reimer
received $100 for serving in this capacity until March 27, 1997, at which time
the Board named Theodore J. Papit as his permanent replacement.

Since February 1996, Cactus Enterprises, Inc., a company wholly owned by
Kenneth Reimer, has performed certain management consulting services for the
Board.  Compensation for such services has been paid by the Company at a rate
of $2 per day.  Total fees and expenses paid were approximately $4 and $68 in
1997 and 1996, respectively.

Pursuant to a President and Chief Executive Officer Agreement (the "CEO
Agreement") effective as of December 15, 1997, between Theodore J. Papit and
the Company, Mr. Papit agreed to remain as President and Chief Executive
Officer through the first quarter of 1998.  Mr. Papit had previously announced
his resignation from these positions, effective October 29, 1997, but, at the
request of the Board of Directors of the Company, agreed to remain through
December 15, 1997.  In connection with the CEO Agreement, Mr. Papit agreed to
terminate, effective December 15, 1997, all then existing compensation and
contractual obligations of the Company regarding his employment, including
termination of all stock options.  Pursuant to the CEO Agreement, the Company
has compensated Mr. Papit at a flat rate of $50 per month and reimbursed Mr.
Papit for normal out-of-pocket expenses.  On March 23, 1998, the Board voted to
retain Mr. Papit as President and Chief Executive Officer, and Mr. Papit agreed
to continue in those positions.

In settlement of the Company's indemnification obligations to the persons
listed below (the "Affiliated Indemnitees") with respect to the Affiliated
Indemnitees' Levenson litigation expenses, the Company has entered into release
agreements with, and made the additional payments noted below to, each of the
Affiliated Indemnities.  The Company (i) delivered to Teachers Insurance and
Annuity Association of America as payee a promissory note dated January 14,
1998 in the principal sum of $756, (ii) delivered to The Northwestern Mutual
Life Insurance Company as payee a promissory note dated February 24, 1998 in
the principal sum of $488 and made a cash payment to The Northwestern Mutual


                                     F-23
<PAGE>


Life Insurance Company of $6, (iii) delivered to John Hancock Mutual Life
Insurance Company as payee a promissory note dated March 4, 1998 in the
principal sum of $476, (iv) made a cash payment to the Mutual Life Insurance
Company of New York of $218, (v) made a cash payment to Principal Mutual Life
Insurance Company of $175 and (vi) delivered to the Equitable Life Assurance
Society of the United States ("Equitable") as payee a promissory note dated
March 23, 1998 in the principal sum of $830.  Each of the promissory notes is
due on December 31, 2001 and bears interest at the rate of 10.5% per annum.
Except for Equitable, each of the Affiliated Indemnitees owns more than five
percent of the Common Stock.  Equitable is an affiliate of EQ Asset Trust 1993,
a business trust that owns more than five percent of the outstanding Common
Stock.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" ("SFAS 107").  The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.  However, considerable judgment is necessarily
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.  The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.

At December 30, 1997 and December 31, 1996, the carrying amount and the fair
value of the Company's financial instruments, as determined under SFAS 107,
were as follows:
<TABLE>
<CAPTION>
                                               December 30,     December 31,
                                                  1997             1996
                                               -----------      -----------
<S>                                            <C>              <C>
Long-term debt, including current portion
and interest accrued through maturity:

Carrying amount                                $    71,684       $   74,640
Estimated fair value                                48,324           45,773

</TABLE>

The Company's long-term debt is held by a limited number of holders and is not
actively traded, and as a result, market quotes are not readily available.  The
fair value of the long-term debt at December 30, 1997 and December 31, 1996 is
based upon the face amount of the debt resulting from the Restructuring
described in Note 2, as management believes that this is most indicative of the
fair value.  The carrying values of accounts receivable and accounts payable
approximate fair value due to the short maturity of these financial
instruments.

12. SPECIAL CHARGES AND CREDITS

Operating income for the thirteen week period ended December 30, 1997 includes
special charges aggregating $486, which includes $376 of charges related to


                                     F-24
<PAGE>


closed stores and $110 of charges related to the indemnification of legal
expenses related to the Levenson litigation.

Operating loss for the thirteen week period ended September 30, 1997 includes
special charges aggregating $7,560, including $4,800 related to the
indemnification of legal expenses related to the Levenson litigation and $2,760
of charges related to closed stores and the write-down of property, plant and
equipment.

Operating loss for the thirteen week period ended April 1, 1997 includes net
special charges of $2,431, including $3,723 of charges related to closed stores
and the write-down of property, plant and equipment, which was partially offset
by credits of $1,292 related to the settlement of a lawsuit.

Operating income for the thirteen week period ended October 1, 1996 includes a
special credit of $709 for the proceeds received from the sale of certain
trademarks and the termination of a trademark royalty agreement and the
modification and extension of a lease related to the Company's former El Paso
Bar-B-Que Company restaurants.  In addition, the Company recognized $174 of
charges related to the Consulting Agreement and the search for a new President
and Chief Executive Officer for the thirteen week period ended October 1, 1996
and $96 for the thirteen week period ended July 2, 1996.  Operating income for
the thirteen week period ended July 2, 1996 includes a special credit of $699
for insurance proceeds received related to a fire loss incurred in 1994.






                                  * * * * * *




























                                     F-25

<PAGE>


Item 9.  Changes In and Disagreements With Accountants On Accounting and
         Financial Disclosure

None

                                   PART III

Item 10.  Directors and Executive Officers of the Registrant

The names and ages of all current directors and executive officers of the
Company are set forth below.  The Board of Directors (the "Board") currently
consists of six persons, each with one-year terms and has been expanded to
eight persons effective April 1, 1998.  The business address of each of the
directors and executive officers listed below is c/o Furr's/Bishop's,
Incorporated, 6901 Quaker Avenue, Lubbock, Texas 79413.

<TABLE>

Directors and Executive Officers of Furr's/Bishop's, Incorporated
-----------------------------------------------------------------
<CAPTION>

     Name                            Age   Position
     ----                            ---   --------
     <S>                             <C>   <C>
     Donald M. Dodson                60    Vice President, Operations Services
     Jim H. Hale                     56    Vice President, Field Operations
     William C. Hale                 56    Director (4)
     Suzanne Hopgood (1)             48    Director
     Kevin E. Lewis (1)(2)(3)        32    Director, Chairman of the Board
     Danny K. Meisenheimer           38    Vice President, Marketing
     Gilbert C. Osnos (2)            68    Director
     Theodore J. Papit               53    Director, President and
                                           Chief Executive Officer
     Kenneth F. Reimer (1)(3)        58    Director
     Arnold Sheiffer                 66    Director
     Alton R. Smith                  45    Executive Vice President, Secretary
     E.W. Williams, Jr. (2)(3)       70    Director
     _______________

     (1)  Member of Audit Committee.
     (2)  Member of Compensation Committee.
     (3)  Member of Nominating Committee.
     (4)  Appointed to become a director effective April 1, 1998.

</TABLE>

E.W. Williams, Jr. has been a member of the Board of Directors since 1991;
Kevin E. Lewis was elected to the Board of Directors and appointed Chairman in
June 1993; Theodore J. Papit was elected to the Board of Directors in May 1997;
Suzanne Hopgood, Gilbert C. Osnos and Kenneth F. Reimer were elected to the
Board of Directors in January 1996 and William C. Hale and Arnold Sheiffer were
appointed to the Board of Directors, effective April 1998.

The business experience during the past five years of each director, and each
person appointed to be a director as of March 23, 1998, is summarized below.



                                      20
<PAGE>


William C. Hale has served as President of The Hale Group, Ltd. since founding
the company in 1986.  The company provides consulting services to the chain
restaurant and multi-unit food service industry.  Prior to founding The Hale
Group, he provided consulting services through Arthur D. Little and Technomic
Consultants.

Suzanne Hopgood has served as President of the Hopgood Group since founding the
company in 1985.  The company provides consulting, development and brokerage
services to clients interested in hotel investments.  Prior to founding the
Hopgood Group, she served as Second Vice President at Aetna Realty Investors
where she oversaw one-third of the corporation's multi-billion dollar real
estate equity portfolio.  Before joining Aetna, she was Vice President and
Senior Loan Officer of the Lowell Institution for Savings in Lowell,
Massachusetts.  Ms. Hopgood serves on the board of directors of the Greater
Hartford Arts Council and The Hartford Ballet, and is a director emerita of the
Connecticut Business & Industry Association.  She holds memberships in the Real
Estate Exchange, Real Estate Finance Association and the Urban Land Institute.
She is a senior fellow of the American Leadership Forum and a recognized
speaker at Pension Real Estate Association and Commercial Real Estate Finance &
Securitization conferences.

Kevin E. Lewis was elected Chairman of the Board of the Company on June 24,
1993 and served as President and Chief Executive Officer of the Company from
July 1994 to December 1996.  Prior to serving as Chairman of the Board of the
Company, Mr. Lewis was a Managing Director in the New York office of Houlihan,
Lokey, Howard & Zukin, Inc., a specialty investment banking firm, where he had
previously served as a Senior Vice President (January 1992 - March 1993), Vice
President (January 1990 - December 1991) and Associate (June 1988 -December
1989).  Mr. Lewis was a director of the LVI Group, Inc. from December 1991 to
May 1993 and was a director of Robertson-Ceco Corporation from July 1993 to May
1997.  Mr. Lewis has been a director of Norton Drilling Services, Inc. since
April 1997.

Gilbert C. Osnos has been Chief Executive Officer of the consulting firm Osnos
& Company, Inc. since 1983 and a partner in Grisanti Galef & Osnos Associates
since 1981, providing consulting and interim management services.  Gilbert C.
Osnos & Co., Inc. was formed in 1981 and the name changed to Osnos & Company,
Inc. in 1994.  Mr. Osnos is a founder of the Turnaround Management Association
and served as a director from 1988 to 1993 and Chairman in 1990-1991.  Mr.
Osnos has served on the Board of Directors of American Mirrex Corp. from 1996
to 1997, Mrs. Fields, Inc. from 1993 to 1998, Mrs. Fields Original Cookie
Company since 1996, and Dunham's Athleisure Corp. since 1997.  He serves on the
New York Advisory committee of Business Executives for National Security.

Theodore J. Papit has served as President and Chief Executive Officer of the
Company since March 1997.  Prior to joining the Company, Mr. Papit served as
President and Chief Executive Officer of Black-Eyed Pea Restaurants, Inc. from
1988 to 1996.  Prior to that, Mr. Papit served with Jerrico, Inc., an operator
of over 1,400 Long John Silver's Seafood Restaurants and 79 Jerry's Coffee
Shops, from 1975 to 1988 where his most recent position was that of Senior
Executive Vice President and Chief Operating Officer.

Kenneth F. Reimer, Ph.D. has been Chairman and Chief Executive Officer of
Reimer Enterprises, Inc. and Cactus Enterprises, Inc. engaging in management
consulting activities and investment in child care centers since 1993.  Mr.
Reimer was President and Chief Executive Officer of the Company from January
1997 until March 1997.  Mr. Reimer was a director of S. A. Telecommunications,


                                      21
<PAGE>


Inc. from 1993 to 1995.  Prior to that, Mr. Reimer was Chief Executive Officer,
President and a director of Roma Corporation from 1984 to 1993.  Mr. Reimer is
past Chairman of the Board of Trustees of St. Edward's University.

Arnold Sheiffer is a Managing Director of Shenkman Capital Management, High
Yield Money Managers, and has held this position since 1995.  Prior to that, he
served as Chief Operating Officer and Director of Katz Media Corporation from
1991 to 1994 and as Chief Financial Officer from 1990 to 1991.  Mr. Sheiffer
currently serves on the Board of Directors of Spanish Broadcasting Systems and
North Atlantic Trading Company.

E.W. Williams, Jr. is Chairman of the Board of the Citizens Bank in Slaton,
Texas and Bank of Commerce in McLean, Texas; Chairman of the Executive
Committee of the Hale County State Bank, Plainview, Texas and First National
Bank in Clayton, New Mexico.  Mr. Williams is also Chairman of LubCo
BancShares, Inc., HaleCo BancShares, Inc., GrayCo BancShares, Inc. and Union
BancShares, Inc. and is Chairman of the Board of Coyote Lake Feedyard, Inc.,
Muleshoe, Texas.  Mr. Williams has held each of these positions for longer than
five years.  Mr. Williams was previously a director and executive committee
member of the Texas Tech University President's Council; founder of the West
Texas A&M University President's Council, and was previous director of the
Southern Methodist University Foundation and Alumni Association.  Mr. Williams
also served as Chairman of the Amarillo Hospital District.  Mr. Williams
currently has farming and ranching interests in Garza County and Bailey County,
Texas.

The business experience during the past five years of each executive officer
not outlined above is summarized below.

Donald M. Dodson has been Vice President of Operations Services since 1993 and
was formerly Vice President Food and Beverage from 1990 until 1993.  He was
Vice President of Operations from 1987 to 1990.  Mr. Dodson joined the Company
in 1958 and managed several cafeterias before becoming a District Manager in
1968.

Jim H. Hale has been Vice President of Field Operations since April 1996 and
was formerly a Regional Vice President since 1975.  Mr. Hale joined the Company
in 1964 and managed several cafeterias before being promoted to regional
management.

Danny K. Meisenheimer has been Vice President of Marketing since January 1995.
Prior to this, he held various positions with the Company, including Director
of Marketing in 1994 and Senior Marketing Manager from 1991 to 1993.  Mr.
Meisenheimer joined the Company in 1991.

Alton R. Smith has been Executive Vice President of the Company since 1993,
Secretary since 1995 and was formerly Executive Vice President and Chief
Financial Officer from 1989 until 1993.  He was Vice President and Controller
of the Company between 1986 and 1989.  Prior to 1986, Mr. Smith held various
positions with the Company, including Controller and Assistant Secretary from
1985 until 1986, Assistant Controller and Assistant Secretary from 1982 to
1985, Director of Taxation from 1978 to 1982 and Tax Manager from 1974 to 1978.
He is a certified public accountant and joined the Company in 1974.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's


                                      22
<PAGE>


officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the NYSE.  Officers, directors and greater than ten-percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.  Based solely on its review of the copies
of such forms received by it, or written representations from certain reporting
persons that no Forms 5 were required for those persons, the Company believes
that during fiscal 1997 all filing requirements were complied with by its
officers, directors, and greater than ten-percent beneficial owners, except
that the Form 3 that Theodore J. Papit, President and Chief Executive Officer
of the Company, filed with the Securities and Exchange Commission on April 10,
1998, to report the event by which Mr. Papit became an officer of the Company,
was not filed in a timely manner.

Item 11. Executive Compensation

There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company and its subsidiaries
for the fiscal years ended December 30, 1997, December 31, 1996 and January 2,
1996 of those persons who were, at December 30, 1997 (i) the chief executive
officer, (ii) the former interim chief executive officer, (iii) the four other
most highly compensated executive officers of the Company and its subsidiaries
serving as executive officers at the end of the 1997 fiscal year and (iv) a
person for whom disclosure would have been provided but for the fact he was not
serving as an executive officer of the Company at December 30, 1997 fiscal year
(the "Named Officers"):
































                                      23

<PAGE>
<TABLE>
<CAPTION>
                        Summary Compensation Table

                                            Long Term Compensation
                                               Awards   Payouts
                                              ------- ----------
                         Annual Compensation   Stock   Long-Term
                         -------------------  Options  Incentive   All Other
Name and Principle Year  Salary  Bonus  Other (Shares) Payouts   Compensation
------------------ ---- ------- ------- ----- -------  --------- --------------
<S>                <C>  <C>     <C>     <C>   <C>      <C>        <C>
Theodore J. Papit
 President and     1997 243,462       -     - 500,000(4)       -          -
  Chief Executive  1996       -       -     -       -          -          -
   Officer         1995       -       -     -       -          -          -

Kevin E. Lewis
 Chairman, former  1997 250,000       -     -       -          -    189,500 (2)
  President and    1996 383,654 151,050     -       -          -    160,500 (2)
   Chief Executive 1995 406,539  50,000     -       -          -          -
    Officer (1)

Kennth F. Reimer   1997 100,000       -     -       -          -      4,000 (3)
 Former Interim    1996       -       -     -       -          -     68,000 (3)
  President,Chief  1995       -       -     -       -          -          -
   Executive
    Officer

Alton R. Smith     1997 125,000  20,188     -       -          -          -
 Executive         1996 129,808  41,125     -       -          -          -
  Vice President   1995 120,994   5,000     -       -          -          -

Jim H. Hale        1997 120,000  19,380     -       -          -          -
 Vice President    1996 121,731  39,480     -       -          -          -
  Field Operations 1995 106,474  19,000     -       -          -          -

Donald M. Dodson   1997 125,000  13,688     -       -          -          -
 Vice President    1996 129,808  27,875     -       -          -          -
  Operation        1995 106,474  19,000     -       -          -          -
   Services

Danny Meisenheimer 1997  95,000  15,343     -       -          -          -
 Vice President    1996  93,462  29,610     -       -          -          -
  Marketing        1995  86,781   4,000     -       -          -          -

(1) Mr. Lewis resigned as President and Chief Executive Officer effective
    December 31, 1996.
(2) Payments made to Mr. Lewis in 1996 and 1997 pursuant to the Consulting
    Agreement and Chairman Extension Request defined below.
(3) Payments made to Mr. Reimer in 1996 and 1997 for consulting services as
    described below.
(4) All of these options were terminated on December 15, 1997 by agreement
    between Mr. Papit and the Company.







                                      24
<PAGE>


Option Grants

There is shown below information concerning the options to purchase stock of
the Company granted in the 1997 fiscal year to the Named Officers:

</TABLE>
<TABLE>
<CAPTION>
                                                           Potential Realizable
                                                           at Assumed Rates of
                    Number    Percent                      Annual Appreciation
                  of Options    of    Exercise Expiration ---------------------
Name               Granted     Total   Price      Date        5%        10%
----------------- ----------  ------- -------- ---------- ---------- ----------
<S>               <C>         <C>     <C>      <C>        <C>        <C>
Theodore J. Papit  500,000 (1)  100%    $1.375  3/26/2007 $  433,500 $1,095,500

(1) These options were terminated on December 15, 1997 by agreement between
    Mr. Papit and the Company.

</TABLE>

None of the Named Officers had any stock options outstanding as of the end of
the 1997 fiscal year.  None of the Named Officers exercised any stock options
or stock appreciation rights during fiscal 1997.  No stock appreciation rights
were granted during fiscal 1997.

Option Exercises and Fiscal Year-End Values

At December 30, 1997, there were no options outstanding to the Named Officers.
All options that had been granted to executive officers had terminated either
by the termination of the employee or by agreement between the Company and the
holders of the options.

Certain Compensation Plans

The Company has a qualified defined benefit pension plan (the "Pension Plan")
covering employees and former employees of the Partnership and its affiliates,
including those who were participants in the Kmart Corporation Employees'
Retirement Pension Plan (the "Kmart Pension Plan").  The Pension Plan assumed
all of the obligations of the Kmart Pension Plan relating to benefits that
accrued for employees and former employees of certain of the Company's
subsidiaries before the consummation of the acquisition of such subsidiaries
from Kmart.  Kmart agreed to transfer an amount of plan assets equal to the
actuarially computed accumulated benefits applicable to the Furr's and Bishop's
employees in the Kmart Pension Plan.

Benefits for service prior to 1987 were based on the provisions of the Kmart
Pension Plan and are frozen for such service.  Effective December 31, 1988,
benefit accruals were frozen for highly compensated participants in the Pension
Plan and effective June 30, 1989 benefit accruals of all participants in the
Pension Plan were frozen indefinitely.

The Pension Plan covers all employees who are at least 21 years old and have
one year or more of participation service and is integrated with Social
Security.  A participant's benefit under the Pension Plan will be the greater
of (i) a benefit provided by the participant's "cash balance account" defined
below, or (ii) the sum of (x) the participant's accrued benefit under the Kmart
Pension Plan plus (y) for each year of service after 1986, 0.75% of the


                                      25
<PAGE>


participant's "considered pay" for the year plus (z) 0.75% of considered pay
exceeding the Social Security integration level for the year.  "Considered pay"
is comprised of total W-2 compensation, excluding extraordinary items, such as
moving expenses and imputed income, and including pre-tax amounts deferred
under the Employees' Savings Plan described below.  The Social Security
integration level is one-half of the Social Security Taxable Wage Base for the
year, rounded to the next highest $1,000.  A participant's cash balance account
will contain an amount equal to the sum of (i) 2% of 1986 considered pay
multiplied by the number of years of benefit service prior to 1987, plus (ii)
2% of considered pay for each year thereafter, plus (iii) 6% interest per
annum.  The normal form of benefit under the Pension Plan will be a life
annuity for an unmarried participant and a 50% joint and survivor annuity in
the case of a married participant.  Alternatively, participants may elect an
optional form of payment which is the actuarial equivalent of the life annuity.
Participants are fully vested in accrued benefits under the Pension Plan after
five years of vesting service.  Unreduced benefits are payable at age 65, or,
if earlier, when age plus years of service equals ninety.

The following table shows the amounts payable using the pension plan formula
and the benefits accrued under the predecessor plans.

Approximate Annual Pension at Age 65*
-------------------------------------
<TABLE>
<CAPTION>
                                      Total Service As of 12/31/88
     Current                 --------------------------------------------
     Compensation             5 Years    15 Years    25 Years    35 Years
     ------------            --------    --------    --------    --------
     <S>                     <C>         <C>         <C>         <C>
     $ 75,000                $  3,700    $  9,500    $ 15,400    $ 21,400
      100,000                   5,000      13,500      21,800      30,100
      125,000                   6,300      17,300      28,000      38,600
      150,000                   7,700      21,100      34,200      47,200
      175,000                   9,000      25,000      40,300      55,700
      200,000                  10,400      28,800      46,500      64,200
      225,000                  11,700      32,600      52,700      72,800
      325,000                  17,000      48,300      77,800      94,023

*  Estimates of frozen pension plan benefits.

</TABLE>

The total plan years of service at June 30, 1989 (the date benefit accruals
were frozen) of the seven Named Officers of the Company and its subsidiaries
are Theodore J. Papit 0, Kevin E. Lewis 0, Kenneth F. Reimer 0, Alton R. Smith
15, Donald M. Dodson 31, Jim H. Hale 26 and Danny Meisenheimer 0.  If Mr.
Smith, Mr. Dodson, and  Mr. Hale  were to retire on their respective retirement
dates, they would receive monthly payments of $832, $3,265 and $2,027,
respectively.  The Pension Plan does not cover any compensation reported in the
Summary Compensation Table.

Cafeteria Operators established an Employees 401(k) Plan which is qualified
under Sections 401(a) and 401(k) of the Code (the "401(k) Plan").  Under the
401(k) Plan, participants may elect to make pre-tax contributions, in an amount
equal to from 1% to 12% of "considered pay", which consists of total W-2
compensation for personal services, excluding extraordinary pay, such as moving


                                      26
<PAGE>


expenses and imputed income.  Pre-tax contributions were limited to $9,500 in
1997.  Additionally, Cafeteria Operators may make discretionary contributions
to the 401(k) Plan.  Employees are eligible to participate in the 401(k) Plan
at age 21 with one year of participation service.

Participants' contributions are always fully vested.  The Board of Directors of
the Company will either designate Cafeteria Operators and the Company
contributions as fully vested when made, or Cafeteria Operators and the Company
contributions will be subject to a vesting schedule under which 100% of the
Cafeteria Operators and the Company contributions are vested after seven years.
Employee contributions may be invested either in a fixed income fund,
consisting of guaranteed interest contracts and government securities, or five
different equity funds with various growth and income objectives.  Loans from
participants' pre-tax accounts are permitted after two years of participation.

Participants may generally receive their vested account balances at the earlier
of retirement or separation from service.

Non-employee directors of the Company receive a fee of $1,500 per month and
$1,000 per board meeting attended as compensation for their services.  In
addition, non-employee directors who are members of any Committee of the Board
receive $500 for each meeting attended.  In addition to these fees, effective
January 1, 1998, the Chairman of the Board received $7,500 per month (the
"Chairman Stipend").  Effective April 1, 1998, the Chairman Stipend will be
reduced to $2,500 per month.

The Board of Directors adopted, and on January 2, 1996 the stockholders
approved, the 1995 Stock Option Plan authorizing an aggregate of 40,540,795
shares of Common Stock (the "1995 Option Plan").  After giving effect to the
reverse stock split, there are 2,702,720 shares of Common Stock reserved for
issuance pursuant to the 1995 Option Plan.  A Committee of the Board of
Directors administers the 1995 Option Plan, including determining the employees
to whom awards will be made, the size of such awards and the specific terms and
conditions applicable to awards, such as vesting periods, circumstances of
forfeiture and the form and timing of payment.  Grants including stock options,
stock appreciation rights and restricted stock may be made to selected
employees of the Company and its subsidiaries and non-employee directors of the
Company.  On November 22, 1996 and May 30, 1997, options to purchase 6,666
shares of Common Stock were issued to each non-employee director of the Company
pursuant to the provisions of the 1995 Option Plan.  On March 27, 1997, the
Company granted 500,000 stock options, pursuant to the 1995 Option Plan, to
Theodore J. Papit at an exercise price of $1.375 per share.   Mr. Papit's
options were terminated on December 15, 1997 by agreement between Mr. Papit and
the Company.  On December 30, 1997, a total of 53,328 options were outstanding.

On June 7, 1996, the Company, Cafeteria Operators and Kevin E. Lewis entered
into the Consulting and Indemnity Agreement and General Release (the
"Consulting Agreement") pursuant to which, among other things, Mr. Lewis would
resign as President and Chief Executive Officer effective September 30, 1996
and would resign his position as Chairman of the Board on December 31, 1996,
unless requested by the Board of Directors to continue until
December 31, 1997.  On September 17, 1996, at the request of the Board of
Directors, Mr. Lewis agreed to remain President and Chief Executive Officer
beyond September 30, 1996 with no change to the financial terms of the
Consulting Agreement.  On December 24, 1996, Mr. Lewis resigned as President
and Chief Executive Officer effective December 31, 1996 and was requested by
the Board to continue as Chairman of the Board into 1997.  After his


                                      27
<PAGE>


resignation as President and Chief Executive Officer, Mr. Lewis served as a
consultant to the Company until December 31, 1997.  Pursuant to the Consulting
Agreement, Mr. Lewis received an annual base salary of $350,000, pro-rated
through the end of 1996 and $250,000 through the end of 1997.  Mr. Lewis
received $75,000 upon the execution of the Consulting Agreement, $75,000 on
September 30, 1996 and $100,000 on December 31, 1997. Furthermore, the Company
agreed to pay, among other things, certain legal expenses of Mr. Lewis incurred
in connection with the negotiation of the Consulting Agreement and certain
travel and moving related expenses.  On October 29, 1997, the Board requested
that Mr. Lewis agree to remain Chairman of the Board beyond December 31, 1997,
until at least May 31, 1998 (the "Chairman Extension Request") and on November
12, 1997, Mr. Lewis received $50,000 in consideration for his agreement to
remain Chairman of the Board through at least May 31, 1998 at the pleasure of
the Board.  Also, effective as of December 31, 1997, Mr. Lewis, the Company and
Cafeteria Operators entered into a general release that effected the mutual
releases contemplated by the Consulting Agreement.

Pursuant to a president and Chief Executive Officer Agreement (the "CEO
Agreement") effective as of December 15, 1997, between Theodore J. Papit and
the Company, Mr. Papit agreed to remain as President and Chief Executive
Officer through the first quarter of 1998.  Mr. Papit had previously announced
his resignation from these positions, effective October 29, 1997, but, at the
request of the Board of Directors of the Company, agreed to remain through
December 15, 1997.  In connection with the CEO Agreement, Mr. Papit agreed to
terminate, effective December 15, 1997, all then existing compensation and
contractual obligations of the Company regarding his employment, including
termination of all stock options.  Pursuant to the CEO Agreement, the Company
has compensated Mr. Papit at a flat rate of $50,000 per month and reimbursed
Mr. Papit for normal out-of-pocket expenses.  On March 23, 1998, the Board
voted to retain Mr. Papit as President and Chief Executive Officer, and Mr.
Papit agreed to continue in those positions.  Mr. Papit's compensation will
include a base salary of $30,000 per month, participation in the Company's
executive bonus plan and other executive benefit programs and stock options to
purchase 500,000 shares of the Company's common stock.  He will also be
entitled to eighteen months of base salary in the event he is terminated
without cause or in the event he is terminated or resigns after a change of
control of the Company.

Kenneth Reimer served as interim President and Chief Executive Officer of the
Company from January through March 1997 and received $100,000.  Cactus
Enterprises, Inc., a company owned by Mr. Reimer, has performed certain
management consulting services for the Company and received payment for total
fees and expenses of $4,000 and $68,000 in 1997 and 1996, respectively.


Compensation Committee Interlocks and Insider Participation in Compensation
Decisions

Gilbert C. Osnos and E.W. Williams, Jr. served on the Compensation Committee
throughout the 1997 fiscal year.  Kevin E. Lewis has served on the Compensation
Committee of the Board of Directors since September 2, 1997.  Mr. Lewis had
previously served as President and Chief Executive Officer of the Company,
until his resignation effective December 31, 1996.

On June 7, 1996, the Company, Cafeteria Operators and Kevin E. Lewis entered
into the Consulting and Indemnity Agreement and General Release (the
"Consulting Agreement") pursuant to which, among other things, Mr. Lewis would


                                      28

<PAGE>


resign as President and Chief Executive Officer effective September 30, 1996
and would resign his position as Chairman of the Board on December 31, 1996,
unless requested by the Board of Directors to continue until
December 31, 1997.  On September 17, 1996, at the request of the Board of
Directors, Mr. Lewis agreed to remain President and Chief Executive Officer
beyond September 30, 1996 with no change to the financial terms of the
Consulting Agreement.  On December 24, 1996, Mr. Lewis resigned as President
and Chief Executive Officer effective December 31, 1996 and was requested by
the Board to continue as Chairman of the Board into 1997.  After his
resignation as President and Chief Executive Officer, Mr. Lewis served as a
consultant to the Company until December 31, 1997.  Pursuant to the Consulting
Agreement, Mr. Lewis received an annual base salary of $350,000, pro-rated
through the end of 1996 and $250,000 through the end of 1997.  Mr. Lewis
received $75,000 upon the execution of the Consulting Agreement, $75,000 on
September 30, 1996 and $100,000 on December 31, 1997. Furthermore, the Company
agreed to pay, among other things, certain legal expenses of Mr. Lewis incurred
in connection with the negotiation of the Consulting Agreement and certain
travel and moving related expenses.  On October 29, 1997, the Board requested
that Mr. Lewis agree to remain Chairman of the Board beyond December 31, 1997,
until at least May 31, 1998 (the "Chairman Extension Request") and on November
12, 1997, Mr. Lewis received $50,000 in consideration for his agreement to
remain Chairman of the Board through at least May 31, 1998 at the pleasure of
the Board.  Also, effective as of December 31, 1997, Mr. Lewis, the Company and
Cafeteria Operators entered into a general release that effected the mutual
releases contemplated by the Consulting Agreement.


































                                      29

<PAGE>


Item 12. Security Ownership of Certain Beneficial Owners and Management

Principal Stockholders

To the best knowledge of management of the Company, no person owned
beneficially, as of March 23, 1998 more than five percent of the outstanding
shares of the Company's Common Stock, except as follows:

<TABLE>
<CAPTIONS
                                                Amounts and
                                                 Nature of      Percent
Name and Address of                             Beneficial      of Total
Beneficial Owner                                Ownership        Common
-------------------------------                 -----------     --------
<S>                                             <C>             <C>
Teachers Insurance and Annuity                  8,607,637       17.7%
Association of America
730 Third Avenue
New York, NY  10011

EQ Asset Trust 1993                             8,499,857 (1)   17.5%
1345 Avenue of the Americas
New York, NY  10105

John Hancock Mutual Life                        5,477,994       11.3%
  Insurance Company
P.O. Box 111
Boston, MA  02117

The Northwestern Mutual Life                    5,471,679       11.2%
  Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI  53202

The Mutual Life Insurance                       4,105,339        8.4%
  Company of New York
1740 Broadway
New York, NY  10019

Principal Mutual Life                           3,286,701        6.8%
  Insurance Company
711 High Street
Des Moines, IA  50392

Mr. Peter Collery                               3,186,842 (2)    6.6%
Mr. Gary Siegler
c/o Siegler, Collery & Co.
712 5thAvenue
New York, NY 10019

Rock Finance, L.P.                              2,998,860        6.2%
1560 Sherman Avenue
Evanston, IL  60201

(1) These shares of the Common Stock (the "Equitable Shares") are held of
    record by EQ Asset Trust 1993, a Delaware business trust (the "Trust"). The


                                      30
<PAGE>


    Equitable Companies Incorporated ("Equitable") is the beneficiary and owner
    of the Trust.  The Trust is managed by Alliance Capital Management, L.P.
    ("Alliance") pursuant to a Collateral Management Agreement.  A wholly-owned
    subsidiary of Equitable is the general partner of Alliance; through
    wholly-owned subsidiaries, Equitable owns a majority of the equity interest
    in Alliance.  The Equitable Shares and such Collateral Management Agreement
    have been pledged to The Chase Manhattan Bank, N.A., as trustee for the
    benefit and security of holders of certain notes of the Trust.
       AXA beneficially owns approximately 60.7% of Equitable's outstanding
    common stock as well as certain convertible preferred stock of Equitable.
    AXA is indirectly controlled by the Mutuelles AXA (five French mutual
    insurance companies, acting as a group).  AXA and the Mutuelles AXA and
    certain of their affiliates disclaim beneficial ownership of the Equitable
    Shares.
(2) Constitutes 2,163,625 shares owned by the SC Fundamental Value Fund, L.P.
    ("LP") and 1,023,217 shares owned by SC Fundamental Value BVI, Ltd.
    ("Ltd"). Messrs. Siegler and Collery, by virtute of their status as
    controlling stockholders of the general partner of LP and the managing
    general partner of the investment manager of Ltd, may be deemed to
    beneficially own the shares owned by LP and Ltd. Messrs. Siegler and
    Collery have disclaimed beneficial ownership of the shares owned directly
    by LP and Ltd.  The information included in this table is based upon the
    Amendment No. 2 to Schedule 13D filed with the Securities and Exchange
    Commission on April 10, 1997, on behalf of Messrs. Siegle and Collery and
    the other reporting persons identified therein.

</TABLE>

As a part of the Restructuring, certain holders of the Old Class A Common
Stock, Old Class B Common Stock and Old Convertible Preferred Stock received
warrants to purchase an aggregate of 32,419,774 shares of Common Stock at a
purchase price of $0.074 per share and Kmart received warrants to purchase an
aggregate of 8,108,159 shares of Common Stock at a purchase price of $0.074 per
share.  Such warrants are exercisable at any time and expire on January 2,
2001.  Following the reverse stock split that became effective on March 22,
1996, and subject to the adjustments thereby, such warrants were adjusted and
thereafter evidence the right to purchase one-fifteenth of one share of Common
Stock at an exercise price of $1.11 per share, for an aggregate of 2,161,318
and 540,544 shares, respectively.




















                                      31

<PAGE>

Management Stock Ownership

As of February 28, 1998, according to information furnished to the Company,
each director, the Named Officers and all officers and directors as a group,
owned beneficially the indicated number and percentage of outstanding Common
Stock, after giving effect to the reverse stock split.

<TABLE>
<CAPTION>
                                                          Common Stock
                                   Common Stock    Including Warrants/Options
Name of                      -------------------  --------------------------
Beneficial                     Number   Percent       Number       Percent
Owner (1)                    of Shares  of Class     of Shares    of Class
----------                   ---------  --------     ---------    --------
<S>                          <C>        <C>          <C>          <C>
Donald M. Dodson                   744       (3)         2,063          (3)
Jim H. Hale                          0       (3)         3,691          (3)
Suzanne Hopgood (4)              2,000       (3)         4,222          (3)
Kevin E. Lewis (2)              10,000      0.02%      530,828         1.08%
Danny K. Meisenheimer              317       (3)           880          (3)
Gilbert C. Osnos (4)            10,000      0.02%       12,222         0.02%
Kenneth F. Reimer (4             1,500       (3)         3,722          (3)
Alton R. Smith                     251       (3)           696          (3)
E.W. Williams, Jr. (4)          25,000      0.05%       55,987         0.11%
All Officers and
Directors as a Group            50,127      0.10%      630,185         1.25%

(1) Unless otherwise indicated in these notes, each person named in the table
    owns directly the number of Shares indicated and has the sole power to vote
    and dispose of such Shares.  Directors and Named Officers that are not
    included above have reported no ownership of common stock of the Company.
(2) Common Stock and Warrants owned by KL Group, Inc., which is wholly owned by
    Kevin Lewis.
(3) Percentage is less than 0.01%.
(4) Each director has 13,332 options outstanding, of which 2,222 became vested
    on November 22, 1997.

</TABLE>

Item 13.Certain Relationships and Related Transactions

Transactions with Management and Others

Since February 1996, Cactus Enterprises, Inc., a company wholly owned by
Kenneth Reimer, has performed certain management consulting services for the
Board.  Compensation for such services has been paid by the Company at a rate
of $2,000 per day.  Total fees and expenses paid in 1996 and 1997 were
approximately $68,000 and $4,000, respectively.  Mr. Reimer served as the
interim President and Chief Executive Officer of the Company from January 1997
to March 1997, and received compensation of $100,000 for such service.

On June 7, 1996, the Company, Cafeteria Operators and Kevin E. Lewis entered
into the Consulting Agreement pursuant to which, among other things, Mr. Lewis
would resign as President and Chief Executive Officer effective September 30,
1996 and would resign his position as Chairman of the Board on December 31,
1996, unless requested by the Board of Directors to continue until December 31,
1997.  On September 17, 1996 at the request of the Board of Directors, Mr.


                                      32
<PAGE>


Lewis agreed to remain President and Chief Executive Officer beyond September
30, 1996 with no change to the financial terms of the Consulting Agreement.  On
December 24, 1996, Mr. Lewis resigned as President and Chief Executive Officer
effective December 31, 1996 and was requested to remain as Chairman of the
Board into 1997.  After his resignation as President and Chief Executive
Officer, Mr. Lewis served as a consultant to the Company until December 31,
1997.  Pursuant to the Consulting Agreement, Mr. Lewis received an annual base
salary of $350,000, pro-rated through the end of 1996 and $250,000 through the
end of 1997.  Mr. Lewis received $75,000 upon the execution of the Consulting
Agreement, $75,000 on September 30, 1996 and $100,000 on December 31, 1997.
Furthermore, the Company agreed to pay, among other things, certain legal
expenses of Mr. Lewis incurred in connection with the negotiation of the
Consulting Agreement and certain travel and moving related expenses.  On
October 29, 1997, the Board requested that Mr. Lewis agree to remain Chairman
of the Board beyond December 31, 1997, until at least May 31, 1998 (the
"Chairman Extension Request") and on November 12, 1997, Mr. Lewis received
$50,000 in consideration for his agreement to remain Chairman of the Board
through at least May 31, 1998 at the pleasure of the Board.  Also, effective as
of December 31, 1997, Mr. Lewis, the Company and Cafeteria Operators entered
into a general release that effected the mutual releases contemplated by the
Consulting Agreement.

Pursuant to the CEO Agreement effective as of December 15, 1997, between
Theodore J. Papit and the Company, Mr. Papit agreed to remain as President and
Chief Executive Officer through the first quarter of 1998.  Mr. Papit had
previously announced his resignation from these positions, effective October
29, 1997, but, at the request of the Board of Directors of the Company, agreed
to remain through December 15, 1997.  In connection with the CEO Agreement, Mr.
Papit agreed to terminate, effective December 15, 1997, all then existing
compensation and contractual obligations of the Company regarding his
employment, including termination of all stock options.  Pursuant to the CEO
Agreement, the Company has compensated Mr. Papit at a flat rate of $50,000 per
month and reimbursed Mr. Papit for normal out-of-pocket expenses.  On March 23,
1998, the Board voted to retain Mr. Papit as President and Chief Executive
Officer, and Mr. Papit agreed to continue in those positions.  Mr. Papit's
compensation will include a base salary of $30,000 per month, participation in
the Company's executive bonus plan and other executive benefit programs and
stock options to purchase 500,000 shares of the Company's common stock.  He
will also be entitled to eighteen months of base salary in the event he is
terminated without cause or in the event he is terminated or resigns after a
change of control of the Company

In settlement of the Company's indemnification obligations to the persons
listed below (the "Affiliated Indemnitees") with respect to the Affiliated
Indemnitees' Levenson litigation expenses, the Company has entered into release
agreements with, and made the additional payments noted below to, each of the
Affiliated Indemnities. The Company (i) delivered to Teachers Insurance and
Annuity Association of America as payee a promissory note dated January 14,
1998 in the principal sum of $756,392, (ii) delivered to The Northwestern
Mutual Life Insurance Company as payee a promissory note dated February 24,
1998 in the principal sum of $488,195 and made a cash payment to The
Northwestern Mutual Life Insurance Company of $5,838, (iii) delivered to John
Hancock Mutual Life Insurance Company as payee a promissory note dated March 4,
1998 in the principal sum of $476,176, (iv) made a cash payment to the Mutual
Life Insurance Company of New York of $217,519, (v) made a cash payment to
Principal Mutual Life Insurance Company of $174,729 and (vi) delivered to the
Equitable Life Assurance Society of the United States ("Equitable") as payee a


                                      33
<PAGE>


promissory note dated March 23, 1998 in the principal sum of $829,687.  Each of
the promissory notes is due on December 31, 2001 and bears interest at the rate
of 10.5% per annum.  Except for Equitable, each of the Affiliated Indemnitees
owns more than five percent of the Common Stock.  Equitable is an affiliate of
EQ Asset Trust 1993, a business trust that owns more than five percent of the
outstanding Common Stock.




                                    PART IV

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

         (a)  The following documents are filed as a part of this Annual Report
              on Form 10-K:

              (1)  Financial Statements

                   The financial statements filed as part of this report are
                   listed in the "Index to Consolidated Financial Statements"
                   at Item 8.

              (2)  Financial Statement Schedule
                   Furr's/Bishop's, Incorporated

                                                                        Page
         Schedule           Description                                  No.
         --------           -----------                                 ----
           II-    Consolidated Valuation and Qualifying Accounts         S-1

  Schedules not listed above have been omitted because they are either not
applicable, not material or the required information has been given in the
financial statements or in notes to the financial statements.

         (b)  Reports on Form 8-K

  During the fourth quarter of 1997, the Company filed no reports on Form 8-K.

         (c)  Exhibits

Exhibit
  No.         Description

3.1      Amended and Restated Certificate of Incorporation of Furr's/Bishop's,
         Incorporated, incorporated by reference from the Registrant's
         Registration Statement on Form S-4 (File No. 33-38978).


3.2      By-laws of Furr's/Bishop's, Incorporated, as amended December 3, 1997,
         incorporated by reference from the Registrant's Registration Statement
         on Form S-1 (amended on Form S-3) (File No. 333-4576).

3.3      Certificate of Amendment to the Amended and Restated Certificate of
         Incorporation of Furr's/Bishop's, Incorporated, incorporated by
         reference from the Registrant's Registration Statement on Form S-4
         (File No. 33-92236).


                                      34

<PAGE>


3.4      Second Certificate of Amendment to the Amended and Restated
         Certificate of Incorporation of Furr's/Bishop's, Incorporated,
         incorporated by reference from the Registrant's Form 10-K for the year
         ended January 2, 1996.

4.1      Amended and Restated Indenture, dated as of November 15, 1995, between
         Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts
         (f/k/a Shawmut Bank, N.A.), incorporated by reference from the
         Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File
         No. 333-4578).

4.2      First Supplemental Indenture, dated as of January 24, 1996, between
         Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts
         (f/k/a Shawmut Bank, N.A.), incorporated by reference from the
         Registrant's Form 10-K for the year ended January 2, 1996.

4.3      General Security Agreement, dated as of March 27, 1992, between
         Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts
         (f/k/a Shawmut Bank, N.A.), incorporated by reference from the
         Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File
         No. 333-4578).

4.4      Security Agreement, dated as of March 27, 1992, between Cafeteria
         Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a
         Shawmut Bank, N.A.), incorporated by reference from the Registration
         Statement on Form S-1 of Cafeteria Operators, L.P. (File No.
         333-4578).

4.5      Form of Assignment and Security Agreements relating to deposits at
         Amarillo National Bank and Carlsbad National Bank, dated as of March
         27, 1992, between Cafeteria Operators, L.P. and Fleet National Bank of
         Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference
         from the Registration Statement on Form S-1 of Cafeteria Operators,
         L.P. (File No. 333-4578).

4.6      General Security Agreement, dated as of March 27, 1992, between
         Furr's/Bishop's Specialty Group, L.P. and Fleet National Bank of
         Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference
         from the Registration Statement on Form S-1 of Cafeteria Operators,
         L.P. (File No. 333-4578).

4.7      Assignment for Security (Trademarks), dated as of March 27, 1992, by
         Cafeteria Operators, L.P., filed with the Patent and Trademark Office,
         incorporated by reference from the Registration Statement on Form S-1
         of Cafeteria Operators, L.P. (File No. 333-4578).

4.8      Assignment for Security (Trademarks), dated as of December 28, 1995,
         by Cafeteria Operators, L.P., filed with the Patent and Trademark
         Office, incorporated by reference from the Registration Statement on
         Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).

4.9      Assignment for Security (Trademarks), dated as of December 28, 1995,
         by Furr's/Bishop's Specialty Group, L.P., filed with the Patent and
         Trademark Office, incorporated by reference from the Registration
         Statement on Form S-1 of Cafeteria Operators, L.P. (File No.
         333-4578).



                                      35
<PAGE>


4.10     Amended and Restated Security Agreement and Mortgage-Trademarks and
         Patents, dated as of December 31, 1995, among Cafeteria Operators,
         L.P., Furr's/Bishop's Specialty Group, L.P. and Fleet National Bank of
         Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference
         from the Registration Statement on Form S-1 of Cafeteria Operators,
         L.P. (File No. 333-4578).

4.11     Special Power of Attorney, dated as of March 27, 1992, by Cafeteria
         Operators, L.P., incorporated by reference from the Registration
         Statement on Form S-1 of Cafeteria Operators, L.P. (File No.
         333-4578).

4.12     Special Power of Attorney, dated as of December 28, 1995, by Cafeteria
         Operators, L.P., incorporated by reference from the Registration
         Statement on Form S-1 of Cafeteria Operators, L.P. (File No.
         333-4578).

4.13     Special Power of Attorney, dated as of December 28, 1995, by
         Furr's/Bishop's Specialty Group, L.P., incorporated by reference from
         the Registration Statement on Form S-1 of Cafeteria Operators, L.P.
         (File No. 333-4578).

4.14     Omnibus Agreement, dated as of November 15, 1995, among Cafeteria
         Operators, L.P., Furr's Specialty Group, L.P. and Fleet National Bank
         of Massachusetts (f/k/a Shawmut Bank, N.A.) (included as Exhibit E to
         the Exchange Agreement filed as Exhibit 10.1) and incorporate by
         reference from the Registrant's Registration Statement on Form S-4
         (File No. 33-92236)).

4.15     First Amendment to Deed of Trust, dated as of November 15, 1995,
         between Cafeteria Operators, L.P. and Fleet National Bank of
         Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Pima
         County, Arizona, incorporated by reference from the Registration
         Statement on Form S-1 of Cafeteria Operators, L.P. (File No.
         333-4578).

4.16     First Amendment to Deed of Trust, dated as of November 15, 1995,
         between Cafeteria Operators, L.P. and Fleet National Bank of
         Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at
         Jefferson County, Colorado, incorporated by reference from the
         Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File
         No. 333-4578).

4.17     First Amendment to Deed of Trust, dated as of November 15, 1995,
         between Cafeteria Operators, L.P. and Fleet National Bank of
         Massachusetts (f/k/a Shawmut Bank, N.A.) for premises locate at Clark
         County, Nevada, incorporated by reference from the Registration
         Statement on Form S-1 of Cafeteria Operators, L.P. (File No.
         333-4578).

4.18     First Amendment to Deed of Trust, Security Agreement, Financing
         Statement, Fixture Filing and Assignment of Rents and Leases, dated as
         of November 15, 1995, between Cafeteria Operators, L.P. and Fleet
         National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises
         located at San Bernardino County, California, incorporated by
         reference from the Registration Statement on Form S-1 of Cafeteria
         Operators, L.P. (File No. 333-4578).


                                      36
<PAGE>


4.19     First Amendment to Mortgage, Security Agreement and Assignment of
         Leases and Rents, dated as of November 15, 1995, between Cafeteria
         Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a
         Shawmut Bank, N.A.) for premises located at Johnson County, Kansas,
         incorporated by reference from the Registration Statement on Form S-1
         of Cafeteria Operators, L.P. (File No. 333-4578).

4.20     First Amendment to Deed of Trust, Security Agreement and Assignment of
         Leases and Rents, dated as of November 15, 1995, between Cafeteria
         Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a
         Shawmut Bank, N.A.) for premises located at St. Louis County,
         Missouri, incorporated by reference from the Registration Statement on
         Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).


4.21     First Amendment to New Mexico Deed of Trust, dated as of November 15,
         1995, between Cafeteria Operators, L.P. and Fleet National Bank of
         Massachusetts (f/k/a Shawmut Bank, N.A.). for premises located at
         Bernalillo County, New Mexico, incorporated by reference from the
         Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File
         No. 333-4578).

4.22     First Amendment to Mortgage with Power of Sale, dated as of November
         15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of
         Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Tulsa
         County, Oklahoma, incorporated by reference from the Registration
         Statement on Form S-1 of Cafeteria Operators, L.P. (File No.
         333-4578).

4.23     First Amendment to Deed of Trust, Security Agreement and Assignment of
         Leases, dated as of November 15, 1995, between Cafeteria Operators,
         L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut
         Bank,N.A.) for premises located at Taylor County, Texas, incorporated
         by reference from the Registration Statement on Form S-1 of Cafeteria
         Operators, L.P. (File No. 333-4578).

4.24     First Amendment to Deed of Trust, Security Agreement and Assignment of
         Leases, dated as of November 15, 1995, between Cafeteria Operators,
         L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
         N.A.) for premises located at Cameron County, Texas, incorporated by
         reference from the Registration Statement on Form S-1 of Cafeteria
         Operators, L.P. (File No. 333-4578).

4.25     First Amendment to Deed of Trust, Security Agreement and Assignment of
         Leases, dated as of November 15, 1995, between Cafeteria Operators,
         L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
         N.A.) for premises located at Dallas County, Texas, incorporated by
         reference from the Registration Statement on Form S-1 of Cafeteria
         Operators, L.P. (File No. 333-4578).

4.26     First Amendment to Deed of Trust, Security Agreement and Assignment of
         Leases, dated as of November 15, 1995, between Cafeteria Operators,
         L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
         N.A.) for premises located at Lubbock County, Texas, incorporated by
         reference from the Registration Statement on Form S-1 of Cafeteria
         Operators, L.P. (File No. 333-4578).



                                      37
<PAGE>


4.27     First Amendment to Deed of Trust, Security Agreement and Assignment of
         Leases, dated as of  November 15,1995, between Cafeteria Operators,
         L.P. and Fleet National Bank of Massachusetts (f/k/a  Shawmut Bank,
         N.A.) for premises located at Grayson County, Texas, incorporated by
         reference from the Registration Statement on Form S-1 of Cafeteria
         Operators, L.P. (File No. 333-4578).

4.28     First Amendment to Deed of Trust, Security Agreement and Assignment of
         Leases, dated as of November 15, 1995, between Cafeteria Operators,
         L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
         N.A.) for premises located at Hopkins County, Texas, incorporated by
         reference from the Registration Statement on Form S-1 of Cafeteria
         Operators, L.P. (File No. 333-4578).

10.1     Exchange Agreement, dated as of November 15, 1995, among
         Furr's/Bishop's, Incorporated, Cafeteria Operators, L.P. and holders
         of 11% Senior Secured Notes, incorporated by reference from the
         Registrant's Registration Statement on Form S-4 (File No. 33-92236).


10.2     Warrant Agreement dated as of July 10, 1995, between Furr's/Bishop's,
         Incorporated and Chemical Bank, incorporated by reference from the
         Registrant's Registration Statement on Form S-4 (File No. 33-92236).

10.3     Consulting and Indemnity Agreement and General Release, dated as of
         June 7, 1996, among Kevin E. Lewis, Furr'/Bishop's, Incorporated and
         Cafeteria Operators, L.P., incorporated by reference from the
         Registrant's Registration Statement on Form S-1 (File No. 333-4576).

10.4     First Amendment to Consulting and Indemnity Agreement and General
         Release, dated as of September 17, 1996, among Kevin E. Lewis,
         Furr's/Bishop's, Incorporated and Cafeteria Operators, L.P.,
         incorporated by reference from Cafeteria Operators, L.P.'s Form 10-K
         for the fiscal year ended December 31, 1996.

10.5     General Release, entered into as of December 31, 1997, among Kevin E.
         Lewis, Cafeteria Operators, L.P. and Furr's/Bishop's, Incorporated,
         incorporated by reference from the Registration Statement on Form S-1
         of Cafeteria Operators, L.P. (File No. 333-4578).

10.6     Master Sublease Agreement, dated as of December 1, 1986, between Kmart
         Corporation and Cafeteria Operators, L.P. (as successor in interest to
         Furr's Cafeterias, Inc.), incorporated by reference from the
         Registration Statement on Form S-1 of Cavalcade Foods, Inc., Furr's
         Cafeterias, Inc. and Bishop Buffets, Inc. (File No. 33-11842).

10.7     Amendment, with respect to the Master Sublease Agreement, dated as of
         December 1, 1993, between Kmart Corporation and Cafeteria Operators,
         L.P., incorporated by reference from the Registrant's Form 8-K dated
         November 15, 1993.

10.8     1995 Stock Option Plan of Furr's/Bishop's, Incorporated, incorporated
         by reference from Annex B of the Prospectus included in the
         Registrant's Registration Statement on Form S-4 (File No. 33-92236).

10.9     President and Chief Executive Officer Agreement, effective as of
         December 15, 1997, between Theodore J. Papit and Furr's/Bishop's,
         Incorporated.

                                      38
<PAGE>


10.10    Chairman of the Board Extension Agreement, effective January 1, 1998,
         among Kevin E. Lewis, Cafeteria Operators, L.P. and Furr's/Bishop's,
         Incorporated, incorporated by reference from the Registration
         Statement on Form S-1 of Cafeteria Operators, L.P. (File No.
         333-4578).

21.0     Subsidiaries of the Registrant.

23.1     Consent of KPMG Peat Marwick LLP, as independent certified public
         accountants.

23.2     Consent of Deloitte & Touche LLP, as independent certified public
         accountants.

27.0     Financial Data Schedule.












































                                      39

<PAGE>


SIGNATURES

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

                                             FURR'S/BISHOP'S, INCORPORATED

DATE:  March 27, 1998                        /s/Theodore J. Papit
                                             -------------------------
                                             Theodore J. Papit
                                             President and
                                             Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
Furr's/Bishop's, Incorporated and on the dates indicated.

DATE:  March 27, 1998                        /s/ Suzanne Hopgood
                                             -------------------------
                                             Suzanne Hopgood
                                             Director

DATE:  March 27, 1998                        /s/ Kevin E. Lewis
                                             -------------------------
                                             Kevin E. Lewis
                                             Director, Chairman
                                             of the Board

DATE:  March 27, 1998                        /s/ Gilbert C. Osnos
                                             -------------------------
                                             Gilbert C. Osnos
                                             Director

DATE:  March 27, 1998                       /s/ Theodore J. Papit
                                            --------------------------
                                            Theodore J. Papit
                                            Director


DATE:  March 27, 1998                       /s/ Kenneth F. Reimer
                                            --------------------------
                                            Kenneth F. Reimer
                                            Director


DATE:  March 27, 1998                       /s/ Alton R. Smith
                                            --------------------------
                                            Alton R. Smith
                                            Principal Accounting Officer


DATE:  March 27, 1998                       /s/ E. W. Williams, Jr.
                                            --------------------------
                                            E. W. Williams, Jr.
                                            Director


                                      40
<PAGE>


                                                                  EXHIBIT 10.9

                PRESIDENT AND CHIEF EXECUTIVE OFFICER AGREEMENT

     This President and Chief Executive Officer Agreement (the "Agreement") is
entered into effective as of December 15, 1997, by and between Theodore J.
Papit ("Papit") and Furr's/Bishop's, Incorporated, a Delaware corporation
("Furr's").

     WHEREAS, before December 15, 1997, Papit served as President and Chief
Executive Officer of Furr's as contemplated by the Employment Letter Agreement
dated March 24, 1997, and agreed to by Papit on March 25, 1997 (the "Employment
Letter"); and

     WHEREAS, Papit previously announced his resignation, effective October 29,
1997, from his positions as President and Chief Executive Officer of Furr's,
but at the request of the Board of Directors of Furr's, agreed to remain
through December 15, 1997; and

     WHEREAS, Papit has agreed to continue to serve as President and Chief
Executive Officer of Furr's after December 15, 1997, on and subject to the
terms and conditions as set forth in this Agreement; and

     WHEREAS, the parties hereto desire to terminate the prior arrangements
regarding Papit's employment by Furr's;

     NOW, THEREFORE, in consideration of the above premises, the mutual
covenants and agreements contained herein and other good and valuable
consideration, the adequacy and sufficiency of which hereby are acknowledged,
the parties hereto agree as follows:

     (1)  President and Chief Executive Officer.  Notwithstanding Papit's
previous announcement of his intention to resign his positions with Furr's,
Papit agrees to continue to serve Furr's by acting as President and Chief
Executive Officer of Furr's and to perform the duties and responsibilities
appurtenant thereto as described in the bylaws of Furr's from and after
December 15, 1997, through March 31, 1998, or until his earlier removal from
such position by the Board of Directors of Furr's.

     (2)  Compensation.  From and after December 15, 1997, for each month or
partial month during which Papit serves as President and Chief Executive
Officer of Furr's, Papit shall be paid at a rate of $50,000 per month, payable
at the times and in accordance with the normal procedures for Furr's executive
payroll.

     (3)  Termination of Furr's and Papit's Prior Contractual Obligations.
Effective December 15, 1997, all contractual and compensation obligations and
agreements between Furr's and Papit regarding Papit's employment by Furr's or
its affiliates that were in existence prior to such date are terminated,
including, but not limited to, all obligations and agreements listed in the
Employment Letter and under any stock option agreements between Furr's and
Papit.

     (4)  Expenses.  Papit will be reimbursed by Furr's for his reasonable
out-of-pocket expenses incurred by him in fulfilling his duties under this
Agreement, such reimbursement to be in accordance with Furr's normal policies
and procedures for reimbursement of executive expenses.


                                      41

<PAGE>


     (5)  Governing Law; Venue.  This Agreement shall be governed and construed
in  accordance with the laws of the State of Texas.  In the event that any
judicial proceedings are instituted concerning the interpretation or
enforcement of this Agreement, exclusive venue over such proceedings shall be
vested in the courts sitting in Lubbock County, Texas.

     IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
set forth below, to be effective as of December 15, 1997.



February 3, 1998                        /s/Theodore J. Papit
----------------                        ------------------------
Date                                    Theodore J. Papit


                                        FURR'S/BISHOP'S, INCORPORATED


February 3, 1998                        By:    /s/Kevin E. Lewis
----------------                               -----------------
Date                                    Name:  Kevin E. Lewis
                                        Title: Chairman




































                                      42

<PAGE>


                                                                    EXHIBIT 21
                                                                    ----------


                                SUBSIDIARIES OF
                         FURR'S/BISHOP'S, INCORPORATED




Furr's/Bishop's Cafeterias, L.P. and Subsidiaries
     Cafeteria Operators, L.P.
        A Delaware limited partnership
        Doing business as Furr's Cafeterias and Bishop's Buffets



Cavalcade Holdings, Inc. and Subsidiaries
     Cavalcade Foods, Inc.
        A Delaware corporation







































                                      43

<PAGE>


                                                                 Exhibit 23.1

                         INDEPENDENT AUDITORS' CONSENT
                         -----------------------------


The Board of Directors
Furr's/Bishop's, Incorporated:

We consent to incorporation by reference in the registration statement (No.
333-11291) on Form S-8 of Furr's/Bishop's, Incorporated of our report dated
February 6, 1998, relating to the consolidated balance sheets of
Furr's/Bishop's, Incorporated and subsidiaries as of December 30, 1997 and
December 31, 1996, and the related consolidated statements of operations,
stockholders' deficit, and cash flows for the years then ended and the related
schedule for the years ended December 30, 1997 and December 31, 1996, which
report appears in the December 30, 1997 annual report on Form 10-K of
Furr's/Bishop's, Incorporated.  Our report refers to a change in accounting for
impairment of long-lived assets and for long-lived assets to be disposed of to
conform to Statement of Fianancial Accounting Standards No. 121.


                                               /s/KPMG Peat Marwick LLP
                                               ------------------------
                                               KPMG Peat Marwick LLP


Dallas, Texas
March 30, 1998






























                                      44

<PAGE>


                                                                 Exhibit 23.2

                         INDEPENDENT AUDITORS' CONSENT
                         -----------------------------

We consent to the incorporation by reference in the Registration Statements of
Furr's/Bishop's, Incorporated on Form S-1 (amended on Form S-3)(File No.
333-4576)and on Form S-8 (File No. 333-11291) of our report dated March 28,
1996, regarding our audit of the consolidated statements of operations,
stockholders' deficit and cash flows of Furr's/Bishop's, Incorporated and
subsidiaries and the financial statement schedule for the 52-week year ended
January 2, 1996, which report is included in the Annual Report on Form 10-K of
Furr's/Bishop's, Incorporated for the fiscal year ended December 30, 1997.


/s/Deloitte & Touche LLP
---------------------------
Deloitte & Touche LLP


Dallas, Texas
March 27, 1998





































                                      45
<PAGE>

<TABLE>
                                                                  SCHEDULE  II

FURR'S/BISHOP'S INCORPORATED AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
-------------------------------------------------------------------------------
<CAPTION>
                                      Additions
                                ---------------------
                     Balance at Charged to  Charged to             Balance at
                     Beginning  Costs and   Other                    End of
Description          of Period  Expenses    Accounts   Deductions    Period
-------------------- ---------  ---------   --------   ----------  ----------
<S>                  <C>        <C>         <C>        <C>         <C>
YEAR ENDED
 DECEMBER 30, 1997:
  Reserve for
  store closing      $   3,548  $  2,150    $    117   $  1,140    $    4,675
                     =========  ========    ========   ========    ==========
  Allowance for
  doubtful accounts
  receivable         $      20  $     12    $      -   $      3    $       29
                     =========  ========    ========   ========    ==========

YEAR ENDED
 DECEMBER 31, 1996:
  Reserve for
   store closing     $   5,839  $    226    $    160   $  2,677(1) $    3,548
                     =========  ========    ========   ========    ==========
 Allowance for
  doubtful accounts
  receivable         $      27  $     (1)(2)$      -   $      6(3) $       20
                     =========  ========    ========   ========    ==========

YEAR ENDED
 JANUARY 2, 1996:
  Reserve for
   store closing     $   3,479  $  4,155    $      -   $  1,795(1) $    5,839
                     =========  ========    ========   ========    ==========
 Allowance for
  doubtful accounts
  receivable         $      64  $    (16)(2)$      -   $     21(3) $       27
                     =========  ========    ========   ========    ==========



(1) Includes costs and expenses incurred during the year on closed units and
    severance payments.
(2) Net adjustment reflects $12 reversal of expense in 1996 and $16 in 1995.
(3) Related asset account was written off.

</TABLE>






                                      S-1