<PAGE>

                  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 29, 1998

                                          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.)

    3001 E. PRESIDENT GEORGE BUSH HIGHWAY, RICHARDSON, TX          75082
    ------------------------------------------------------       ---------- 
          (Address of principal executive office)                (Zip Code)

     Registrant's telephone number, including area code   (972) 808-2923  

     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, 1999 was $54,887,571.

     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 25, 1999
                    ------                             --------------------
     Common Stock, par value $.01 per share                 48,788,952

     Portions of the definitive proxy statement relating to the 1999 annual
meeting of stockholders are incorporated by reference in Part III.

<PAGE>

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


                                  TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                       PAGE
                                                                       ----
<S>       <C>                                                          <C>
                                       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...........10

                                  PART II


Item 5.   Market for Registrant's Common Equity and
            Related Stockholder Matters.................................10
Item 6.   Selected Financial Data.......................................11
Item 7.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations.........................12
Item 8.   Financial Statements and Supplementary Data...................17
Item 9.   Changes In and Disagreements With Accountants on
            Accounting and Financial Disclosure.........................19

                                  PART III


Item 10.  Directors and Executive Officers of the Registrant............19
Item 11.  Executive Compensation........................................19
Item 12.  Security Ownership of Certain Beneficial
            Owners and Management.......................................19
Item 13.  Certain Relationships and Related Transactions................19

                                       PART IV


Item 14.  Exhibits, Financial Statement Schedule and Reports
                    on Form 8-K.........................................19

Signatures..............................................................24
</TABLE>


                                       2
<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 98 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 98 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 29, 1998 and December
30, 1997 averaged approximately $5.79 and $5.62, 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 years ended December 29,
1998 and December 30, 1997 averaged approximately $6.05 and $5.80, respectively.


                                       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 purchasing, 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 1998, third party sales by Dynamic
Foods aggregated $1.0 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 95% 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
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 cafeteria and buffet
personnel for possible use in all Company owned family dining units. 


                                       4
<PAGE>


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 October 1999 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 - 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
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.


                                       5
<PAGE>

CAPITAL EXPENDITURE PROGRAM

     During the fiscal years ended December 29, 1998, December 30, 1997 and
December 31, 1996, the Company expended $7.7 million, $5.6 million and $10.1
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 $15 to $20 million in fiscal year 1999 to
remodel existing cafeterias, open new restaurants 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
fully implement 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 - Liquidity and Capital
Resources."

EMPLOYEES

     As of March 2, l999, the Company employed approximately 5,200 persons, of
whom approximately 4,200 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 70 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.

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.   


                                       6
<PAGE>

Item 2.   PROPERTIES

     RESTAURANT LOCATIONS.  The following table sets forth the number of
restaurants operated by the Company in certain states as of March 2, 1999.

     STATE                                    NUMBER OF RESTAURANTS
     -----                                    --------------------- 

     Arizona                                           6
     Arkansas                                          2
     California                                        2
     Colorado                                          9
     Illinois                                          1
     Iowa                                              5
     Kansas                                            7
     Missouri                                          2
     Nevada                                            2
     New Mexico                                       15
     Oklahoma                                         10
     Texas                                            38
                                                     ---
                                                      99
                                                     ---
                                                     ----

     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
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-four 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 and a truck terminal of
approximately 7,200 square feet are located adjacent to the distribution
facility.

     The Company recently moved its executive offices to the Dallas, Texas area.
The Company leases approximately 28,000 square feet of office space in
Richardson, Texas, which it believes will be adequate to conduct its current
operations for the foreseeable future.  The Company's former executive office
building is owned in fee simple and is being sold.


                                       7
<PAGE>

     The Company leases eight properties under a master sublease, owns seven
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 leased to third parties or placed on the market for sale.

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).  These entities were acquired from
Michael Levenson and certain other investors in 1991 in connection with the
conversion of the Company's business from partnership to corporate form; the
asserted taxes relate to their activities prior to their acquisition.

     In 1997 the Service, Foods and Holdings entered into a negotiated
settlement of pending tax litigation relating to the examined returns that
determined the amount of tax due for the examined years to be $934 thousand in
the aggregate, together with interest through the date of the settlement of
approximately $1.6 million, which amounts continue to accrue interest at the
rates specified by the Service.  The Company has previously accrued liabilities
with respect to such amounts.  The current aggregate assets of Foods and
Holdings are approximately $125 thousand, and they have  proposed a settlement
of the assessed taxes and interest to the Service in that amount, which is 
processing the proposal.  The Service has not to date asserted liability for
these amounts against the Company or any of its other subsidiaries; management
cannot offer assurance that the Service will accept the proposed settlement
offer by Holdings and Foods, or that the Service will not seek to assert
liability against the Company or its other subsidiaries.

     (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 & 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.


                                       8
<PAGE>

     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 negotiated agreements with
each of the parties whose indemnity claim was outstanding at year end and during
1998 either made cash payments or issued 10.5% unsecured notes in settlement of
such claims.  "See Item 13. Certain Relationships and Related Transactions."

     (3) The Company, in July 1998, filed a declaratory judgment lawsuit in
State District Court in Lubbock, Texas, in which it asks the Court to find that
the Company is not obligated to make severance payments that have been demanded
by Theodore Papit, the former President and Chief Executive Officer of the
Company.  Mr. Papit resigned effective  May 29, 1998, following the election at
the Company's annual meeting of stockholders of a slate of directors proposed by
Teacher's Insurance and Annuity Association of America ("TIAA"), the Company's
largest stockholder at that time.  He subsequently demanded payment of more than
$500,000 of severance and other amounts that he claimed were owing to him under
a President and Chief Executive Officer Agreement dated March 23, 1998.  This
agreement was approved by a split vote of the Board of Directors after TIAA had
publicly announced that it might take action affecting the control of the
Company.  The Company has requested a jury trial and believes that there are a
number of grounds that will support the Court in granting the requested relief,
among them being that the Agreement is void as an interested party transaction
that did not receive the necessary approval of independent, disinterested
directors, the terms of the Agreement are not fair to the Company and the
Agreement was entered into by the Company without the benefit of full disclosure
by Mr. Papit and consideration by the Board of Directors of material information
regarding his management of the Company.

     (4) The Company and certain of its subsidiaries, the Cavalcade Pension
Plan, the Cavalcade Pension Plan Committee, Kmart Corporation and its pension
plan and Michael Levenson have since 1996 been defendants in a lawsuit brought
against them in U.S. District Court in Denver, Colorado by Robert H. Aull
("Plaintiff"), a former employee of the Company and a participant in the
Cavalcade Pension Plan.  The Plaintiff requested that the Court certify a class
of other plaintiffs who are similarly situated and sought unspecified damages.

     The Plaintiff's allegations (all of which are disputed by the defendants in
the case) included: (i) that accrued benefits under the Cavalcade Pension Plan
were improperly reduced during the period from 1988 to 1993, (ii) the "freeze"
of the Plan on June 30, 1989 was improper, (iii) an insufficient amount of
assets was transferred from the Kmart Corporation pension plan to the Cavalcade
Pension Plan in connection with the acquisition of the Company from Kmart
effected by Mr. Levenson and his affiliates in 1988 and (iv) rent concessions
allowed to the Company by Kmart commencing in 1993 constituted prohibited
transactions that bestowed illegal benefits upon the Company and Mr. Lewis. 


                                       9
<PAGE>

     The Company, the Cavalcade Pension Plan, the members of the Cavalcade
Pension Plan Committee, Kmart Corporation and its pension plan have entered into
a definitive settlement agreement (the "Agreement") with the plaintiff and his
counsel that would resolve all outstanding claims among them.  The Agreement is
subject to (i) confirmation by an independent actuary of the calculations that
support the proposed settlement and (ii) approval of the settlement as "fair" to
all members of the plaintiff class by the court after notice to all purported
class members and a hearing.  It is expected that the Agreement will be filed
with the court shortly and that the required hearing would be completed in the
late second or early third quarter of 1999.  The Company is not able to provide
assurance that the conditions to the proposed settlement will be satisfied or
that the proposed settlement will be implemented as described herein.

     As a result of the settlement of the Aull litigation and the concurrent
resolution of an IRS audit of the Plan that focused on substantially identical
issues, the Company has recognized a special charge of $5.8 million in the
fourth quarter of 1998, of which $2.2 million relates to resolution of the IRS
audit and is not contingent upon actuarial review or the fairness hearing in the
Aull litigation. 

     The anticipated cash impact of the settlement on the Company includes
payment in 1999 of approximately $1.5 million of expenses for legal and
professional fees, with the remainder of the settlement to be paid to the Plan
in future years to fund increased benefit payments to former and current
employees.  The settlement will not require any funding payments to the Plan by
the Company in 1999 but is expected to require payments by the Company to the
Plan of approximately $1.7 million in 2000 and approximately $850,000 in 2001,
with additional funding payments required in subsequent years in amounts that
are expected to decline over time, subject to the overall funding status of the
Plan.  The Agreement provides for Kmart Corporation's pension plan to transfer
$700,000 to the Cavalcade Pension Plan to fund a portion of the additional
benefits required by the Agreement.  Management does not believe that payment of
these amounts in 1999 and subsequent years will have a material adverse effect
on the Company's planned operations.

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

          None

                                      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 19,
1999, there were 48,788,952 shares of Common Stock outstanding and approximately
2,000 record holders.

     As of March 25, 1999, 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.  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                    1998
                       -----------------       ---------------- 
                         HIGH       LOW          HIGH      LOW
                       -------    ------       -------    -----
     <S>               <C>        <C>          <C>        <C>
     First Quarter     $  1.75    $ 1.12       $  1.00    $ .47
     Second Quarter       1.50      1.00          1.25      .69
     Third Quarter        1.06      0.75          1.12      .69
     Fourth Quarter        .81      0.50          1.38      .88
</TABLE>


                                      10
<PAGE>

     At March 25, 1999, the Company had warrants outstanding representing the
right to purchase an aggregate of 2,562,129 shares of Common Stock at an
exercise price pf $1.11 per share.  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)

FISCAL YEARS ENDED

<TABLE>
<CAPTION>
                                 Dec 29,     Dec 30,     Dec 31,     Jan 2,      Jan 3,
                                  1998        1997        1996        1996        1995
                                  ----        ----        ----        ----        ---- 
<S>                             <C>         <C>         <C>         <C>         <C>
Sales (1)                       $188,208    $193,530    $197,196    $209,769    $224,819
Income (loss) before
 extraordinary item               (1,229)     (5,396)      8,363     (38,863)    (21,342)

Income (loss)
  per common share, basic (2)
    Before extraordinary item      (0.03)      (0.11)       0.17       (0.80)      (0.44)
    Extraordinary item              -           -           -           3.50(3)     -

Total assets                      68,509      65,801      75,259      78,038      95,917
Long term obligations
  and redeemable pre-
  ferred stock (4)                81,902      78,974      82,905      90,590     215,595

Mandatorily redeemable
 common stock                       -          -           -           -           8,000
</TABLE>

(1)  The Company closed four restaurants in 1998, eight restaurants in 1997,
     five restaurants in 1996, fourteen restaurants in 1995 and fourteen
     restaurants in 1994.
(2)  All years based on Common Stock outstanding after giving effect to the
     reverse stock split effected in 1996 after giving retroactive effect to the
     adoption of Statement of Financial Accounting Standards No. 128, "Earnings
     per Share."
(3)  Includes a net extraordinary gain of $170,239 from financial restructuring
     transactions in the fourth quarter of the fiscal year ended January 2,
     1996.
(4)  Includes $17,882, $23,374, $28,867 and $33,413 of interest accrued to
     maturity on long-term debt in fiscal year ended December 29, 1998, December
     30, 1997, December 31, 1996 and January 2, 1996, respectively and $202,453
     of long-term debt that was classified as current for the fiscal year ended
     January 3, 1995.


                                      11
<PAGE>

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.

     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>
                                               1998       1997        1996
                                             --------  ---------   ---------
<S>                                          <C>       <C>         <C>
Statement of operations data:
Sales                                        $188,208  $ 193,530   $ 197,196
Costs and expenses:
    Cost of sales (excluding depreciation)     55,801     58,292      61,327
    As a percent of sales                       29.65%     30.12%      31.10%
    Selling, general and administrative       114,706    118,979     118,233
    As a percent of sales                       60.95%     61.48%      59.96%

    Depreciation and amortization              10,097     10,889      10,168
    Special charges (credits)                   8,583     10,477      (1,138)
                                             --------  ---------   ---------

    Total costs and expenses                  189,187    198,637     188,590
                                             --------  ---------   ---------
Operating income (loss)                          (979)    (5,107)      8,606
Interest expense                                  250        289         243 
                                             --------  ---------   ---------

Net Income (loss)                            $ (1,229) $  (5,396)  $   8,363
                                             --------  ---------   ---------
                                             --------  ---------   ---------


Restaurant units in operation:
     Beginning of year                            103        110         115
     Opened                                         -          1           -
     Closed                                        (4)        (8)         (5)
                                             --------  ---------   ---------

   End of year                                     99        103         110 
                                             --------  ---------   ---------
                                             --------  ---------   ---------

Year over year comparable store sales
  change (for units open at year end and  
  which operated the full year)                  2.98%      0.31%       0.04%
                                             --------  ---------   ---------
                                             --------  ---------   ---------
Average weekly sales per restaurant unit 
  (for units open at year end and which
  operated the full year)                    $ 35,621  $  34,426   $  33,449
                                             --------  ---------   ---------
                                             --------  ---------   ---------
</TABLE>

                                       12
<PAGE>

FIFTY-TWO WEEKS ENDED DECEMBER 29, 1998 COMPARED TO FIFTY-TWO WEEKS ENDED 
DECEMBER 30, 1997 

     RESULTS OF OPERATIONS.  Sales for the fifty-two week fiscal year ended 
December 29, 1998 were $188.2 million, a decrease of $5.3 million from the 
fiscal year ended December 30, 1997. The operating loss for the 1998 fiscal 
year was $979 thousand compared to a loss of $5.1 million in fiscal year 
1997.  The operating results of fiscal 1998 included special charges of $8.6 
million compared to net special charges of $10.5 million in the prior year. 
The net loss for fiscal 1998 was $1.2 million, compared to a net loss of $5.4 
million for fiscal 1997.  

     SALES.  Restaurant sales in comparable units were 2.98% higher in fiscal 
1998 than 1997.  Sales in 1998 were lower than the prior year by $9.7 million 
as a result of the closure of four units in 1998 and eight units in 1997.  
Revenues in fiscal year 1998 included $1.0 million of Dynamic Foods sales to 
third parties.

     COST OF SALES.  Cost of sales was 29.6% of sales for fiscal year 1998 
compared to 30.1% for fiscal year 1997.  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 $4.3 million in fiscal 
year 1998.  Of the decrease, $6.1 million was due to operating results 
including fewer units. SG&A expense includes increases of $813 thousand in 
labor and related expense, $560 thousand in legal and professional expense, 
$452 thousand in marketing expense and $308 thousand in rent expense.  SG&A 
expense includes a decrease of $355 thousand in utility expense.

     SPECIAL CREDITS AND CHARGES.  The operating results for fiscal 1998 
include special charges aggregating $8.6 million.  Included in the total are 
charges of $6.2 million for the estimated costs of litigation settlements, 
$1.5 million for expenses related to closed stores and the writedown of 
certain properties, $610 thousand related to the proxy contest and the 
election of the Board of Directors and $291 thousand write off of the 
deferred costs associated with warrants.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense 
was $792 thousand lower than the prior year, due to the reduction in carrying 
value of certain depreciable assets in 1997 in accordance with Statement of 
Financial Accounting Standards ("SFAS") 121 partially offset by the 
depreciation on capital expenditures in the current year.

     INTEREST EXPENSE.  Interest expense was $250 thousand, which was lower 
than the prior year by $39 thousand. 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.  
Cash payments of interest not recorded as expense in 1998 amounted to $5.5 
million.

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 the closure of eight units in 1997 and five units in 1996.  Sales 
in fiscal 1997 included $1.7 million of Dynamic Foods sales to third parties.

     COST OF SALES.   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.

                                       13
<PAGE>

     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 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 
fiscal 1997 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 SFAS 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.  Cash payments of interest not recorded as expense in 1997 
amounted to $5.5 million. 

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 
133"), which is effective for all quarters of fiscal years beginning after 
June 15, 1999.  This statement requires that all derivatives be recognized on 
the balance sheet, measured at fair value.  Adoption of this statement is not 
expected to have a material impact on the Company's consolidated financial 
position, results of operations or cash flows.

LIQUIDITY AND CAPITAL RESOURCES:

     During fiscal 1998, cash provided from operating activities of the 
Company was $20.2 million compared to $10.2 million in 1997.  Cash used for 
the payment of interest was approximately $5.7 million in 1998 and $5.5 
million 1997.  The Company made capital expenditures of $7.7 million during 
1998 compared to $5.6 million during 1997.  Cash, temporary investments and 
marketable securities were $11.6 million at December 29, 1998 compared to 
$4.5 million at December 30, 1997.  The current ratio of the Company was 
 .70:1 at December 29, 1998 compared to .48:1 at December 30, 1997.  The 
Company's total assets at December 29, 1998 aggregated $68.5 million compared 
to $65.8 million at December 30, 1997.

     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 $63.6 million of 12% Notes due 
December 31, 2001, including $17.9 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).  

                                       14
<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. 

     The Company intends to pursue a program of remodeling existing 
cafeterias and opening new restaurants.  The Company anticipates expending 
approximately $15 to $20 million in fiscal year 1999 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 fully 
implement 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 stockholder value.

     In 1993, the Company entered into an amendment of a master sublease 
agreement pursuant to which it leased 43 properties from Kmart Corporation 
("Kmart").  Pursuant to the amendment, the aggregate monthly rent was reduced 
by 25 percent for the period from the effective date of the amendment through 
and including December 31, 1997, and by 20 percent following that date and 
until December 31, 2001.  The reductions in rent were made subject to 
termination by Kmart if Mr. Lewis ceased to be Chairman of the Board of 
Directors of the Company.  Mr. Lewis was not nominated for reelection at the 
Company's Annual Meeting of Stockholders on May 28, 1998.  Kmart in June 1998 
demanded that the Company pay increased rents, which the Company has done 
while reserving its right to dispute Kmart's right to receive the increased 
rental.  As a result of the increased rents, the Company will pay additional 
rent of approximately $1.8 million through December 31, 2001, includiong $679 
thousand additional rent paid in 1998.  Because the Company accounts for its 
rental payments under the straight-line method, the purported increase in 
rent through December 31, 1998 is being amortized over the remaining life of 
the leases, which run through December 31, 2003, December 31, 2007, June 29, 
2008 and December 31, 2008.The increase in annual rent expense amounted to 
approximately $168 thousand for fiscal 1998 and for the fiscal 1999 will 
amount to approximately $288 thousand.

     The Company and certain of its subsidiaries and other defendants entered 
into a definitive settlement agreement that would resolve all outstanding 
claims among them related to the pending litigation and IRS audit involving 
the Company's pension plan.  See "Item 3--Legal Proceedings." The agreement 
is subject to confirmation by an independent actuary of the calculations that 
support the proposed settlement and approval of the settlement as "fair" to 
all members of the plaintiff class by the court.  The anticipated cash impact 
of the settlement on the Company includes payment in 1999 of approximately 
$1.5 million of expenses for legal and professional fees, with the remainder 
of the settlement to be paid to the Plan in future years to fund increased 
benefit payments to former and current employees.  The settlement will not 
require any funding payments to the Plan by the Company in 1999 but is 
expected to require payments by the Company to the Plan of approximately $1.7 
million in 2000 and approximately $850 thousand in 2001, with additional 
funding payments required in subsequent years in amounts that are expected to 
decline over time, subject to the overall funding status of the Plan.

YEAR 2000 READINESS DISCLOSURE

     Some computers, software, and other equipment include computer code in 
which calendar year data is abbreviated to only two digits.  As a result, 
some of these systems will not operate correctly after 1999 because they may 
interpret "00" to mean 1900, rather than 2000.  These problems are widely 
expected to increase in frequency and severity as the year 2000 approaches, 
and are commonly referred to as the "Year 2000 Problem."

     The Company believes that it has identified all significant digital 
systems and applications that will require modification to ensure Year 2000 
compliance. The Company has commenced the process of modifying, upgrading and 
replacing any digital systems that have been assessed as adversely affected, 
and estimates that its compliance activities will be substantially completed 
no later than the first quarter of 1999.  The Company estimates that the 
total costs of this effort 

                                       15
<PAGE>

during the 1998 and 1999 fiscal years will be less than $500,000, which is 
being funded through operating cash flows.  These estimates are based on 
management's assumptions regarding future events, including the continued 
availability of necessary resources and the effectiveness of hardware and 
software solutions provided by third parties and by the Company's information 
technology staff.

     The Year 2000 Problem may also affect parties who provide critical goods 
and services to the Company, for example banks, credit card companies, 
utility providers and suppliers of raw and processed foodstuffs to the 
Company's restaurants and its Dynamic Foods operation.  The Company is 
evaluating the extent to which the Company's operations are vulnerable to 
Year 2000 problems of its material vendors and is seeking assurance of their 
Year 2000 compliance status.  Management believes that the Company's reliance 
upon large volumes of independent consumer transactions at 100 restaurant 
locations, operation of its own trucking fleet and utilization of the Dynamic 
Foods division to provide the majority of its food products limit some 
aspects of the Company's Year 2000 exposure.  However, the Company's ability 
to assure Year 2000 compliance by many critical vendors is very limited.  
Year 2000 failures by one or more of these vendors could disrupt materially 
the ability of the Company to operate.

     The Company is in the process of preparing contingency plans to address 
the possibility of significant performance failures by its material vendors, 
which will include an analysis of advisable cash and inventory levels and 
identification of alternative suppliers of critical goods and services.  
These plans are expected to be completed by June 30, 1999.  There is no 
assurance that the Company can adequately plan for contingencies that may be 
associated with Year 2000 failures by these third parties, or that 
alternative suppliers will be available and themselves unaffected by Year 
2000 Problems.  In particular, management is not able to predict with any 
assurance the effect of Year 2000 Problems in the food product industry or 
among the suppliers of utilities such as electricity, water and 
telecommunications to the Company, and specifically to its Dynamic Foods 
operation.  An interruption of the operation of Dynamic Foods could require 
the Company to close its restaurants until service can be resumed.

     The discussion in "Management's Discussion and Analysis of Financial 
Conditions and Results of Operations" of the Company's plans, and 
management's expectations, relating to the Company's business, including Year 
2000 compliance, as well as other portions of this report, include certain 
statements that may constitute "forward-looking" information (as defined in 
the Private Securities Litigation Reform Act of 1995).  Words such as 
"anticipate," "estimate," "project" and similar expressions are intended to 
identify such forward-looking statements.  Such forward-looking statements 
are subject to certain risks, uncertainties and assumptions, including 
without limitation those discussed in this "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" and elsewhere in 
this report. Should one or more of these risks materialize, or should any of 
the underlying assumptions prove incorrect, actual results of current and 
future operations may vary materially from those anticipated, estimated or 
projected.  Prospective investors are cautioned not to place undue reliance 
on these forward-looking statements, which speak only as of their dates.  The 
Company assumes no obligation to update any such forward-looking statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company is exposed to market risk from changes in commodity prices. 
The Company purchases certain commodities used in food preparation.  These 
commodities are generally purchased based upon market prices established with 
vendors.  These purchase arrangements may contain contractual features that 
limit the price paid by establishing certain price floors or caps.  The 
Company does not use financial instruments to hedge commodity prices because 
these purchase arrangements help control the ultimate cost paid and any 
commodity price aberrations are generally short term in nature.

     The Company's long term debt does not expose it to market risk as all 
interest accrues at fixed rates.  The Company does not use derivative 
financial instruments to manage overall borrowing costs.

     This market risk discussion contains forward-looking statements.  Actual 
results may differ materially from this discussion based upon general market 
conditions and changes in domestic and global financial markets.

     Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                       16
<PAGE>

     The Company's fiscal year is a 52-53 week year.  Each of the 1998, 1997 
and 1996 Fiscal years included 52 weeks.

Index to Consolidated Financial Statements and Financial Schedule

<TABLE>
<CAPTION>
                                                                           Page
                                                                            No.
                                                                           ----
<S>                                                                        <C>
Independent Auditors' Report                                               F-1

Consolidated Balance Sheets--
December 29, 1998 and December 30, 1997                                    F-2

Consolidated Statements of Operations --
Years ended December 29, 1998, December 30, 1997 and December 31, 1996     F-4

Consolidated Statements of Changes in Stockholders' Deficit --
Years ended December 29, 1998, December 30, 1997 and December 31, 1996     F-5

Consolidated Statements of Cash Flows --
Years ended December 29, 1998, December 30, 1997 and December 31, 1996     F-6

Notes to Consolidated Financial Statements --
Years ended December 29, 1998, December 30, 1997 and December 31, 1996     F-8

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
</TABLE>


                                       17
<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 29, 1998, December 30, 1997, and December 31, 1996
                                       







                                       18
<PAGE>

                         INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying consolidated financial statements of 
Furr's/Bishop's, Incorporated and subsidiaries as listed in the accompanying 
index.  In connection with our audits of the consolidated financial 
statements, we have also audited the financial statement schedule as listed 
in the accompanying index.  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 29, 1998 and 
December 30, 1997 and the results of their operations and their cash flows 
for each of the years in the three-year period ended December 29, 1998, in 
conformity with generally accepted accounting principles.  Also in our 
opinion, the related financial statement schedule, 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.




                                       KPMG LLP

Dallas, Texas
February 5, 1999


                                      F-1
<PAGE>


 FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 1998 AND DECEMBER 30, 1997 
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)  

<TABLE>
<CAPTION>
                                                                    December 29,   December 30,      
ASSETS                                                                  1998          1997 
                                                                    ------------   ------------
<S>                                                                 <C>            <C>
CURRENT ASSETS:
   Cash and cash equivalents                                          $ 11,571      $  4,516
   Accounts and notes receivable (net of allowance for doubtful
      accounts of $14 and $29, respectively)                               715           882
   Inventories                                                           7,014         6,038
   Prepaid expenses and other                                              441         1,122
                                                                      --------      --------

     Total current assets                                               19,741        12,558
                                                                      --------      --------

PROPERTY, PLANT AND EQUIPMENT:
   Land                                                                  9,119         9,119
   Buildings                                                            30,779        32,667
   Leasehold improvements                                               21,040        18,590 
   Equipment                                                            40,433        41,340
   Construction in progress                                              2,144           797
                                                                      --------      --------

                                                                       103,515       102,513

   Less accumulated depreciation and amortization                      (55,195)      (49,729)                
                                                                      --------      --------

     Property, plant and equipment, net                                 48,320        52,784

OTHER ASSETS                                                               448           459
                                                                      --------      --------

     TOTAL ASSETS                                                     $ 68,509      $ 65,801   
                                                                      --------      --------
                                                                      --------      --------
</TABLE>


                                                                    (Continued)


                                      F-2
<PAGE>

 FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 1998 AND DECEMBER 30, 1997 
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)  

<TABLE>
<CAPTION>
                                                                      December 29,    December 30,   
LIABILITIES AND STOCKHOLDERS' DEFICIT                                    1998             1997 
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
CURRENT LIABILITIES:
   Current maturities of long-term debt                                $  5,493         $  5,493    
   Trade accounts payable                                                 3,990            4,287 
   Other payables and accrued expenses                                   17,303           15,126
   Reserve for store closings - current portion                           1,316            1,344         
                                                                       --------         --------
     Total current liabilities                                           28,102           26,250

RESERVE FOR STORE CLOSINGS, NET OF CURRENT PORTION                        3,280            3,331

LONG-TERM DEBT, NET OF CURRENT PORTION                                   60,712           66,205 

OTHER PAYABLES                                                           15,697            7,276

EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE,
   NET OF AMORTIZATION                                                    2,330            2,837
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,
      48,736,606 and 48,675,168 issued and outstanding 
      in 1998 and 1997, respectively                                        487              487   
   Additional paid-in capital                                            55,938           55,870
   Accumulated other comprehensive loss                                  (2,857)          (2,504)
   Accumulated deficit                                                  (95,180)         (93,951)
                                                                       --------         --------
     Total stockholders' deficit                                        (41,612)         (40,098)
                                                                       --------         --------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                            $ 68,509         $ 65,801
                                                                       --------         --------
                                                                       --------         --------
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 29, 1998, DECEMBER 30, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                    Year Ended
                                             ----------------------------------------------------------
                                             December 29, 1998   December 30, 1997    December 31, 1996
                                             -----------------   -----------------    -----------------
<S>                                          <C>                 <C>                  <C>
Sales                                           $   188,208        $   193,530           $   197,196
Costs and expenses:
   Cost of sales (excluding depreciation)            55,801             58,292                61,327
   Selling, general and administrative              114,706            118,979               118,233
   Depreciation and amortization                     10,097             10,889                10,168
   Special charges (credits)                          8,583             10,477                (1,138)
                                                -----------        -----------           -----------
                                                    189,187            198,637               188,590 
                                                -----------        -----------           -----------

Operating income (loss)                                (979)            (5,107)                8,606

   Interest expense                                     250                289                   243 
                                                -----------        -----------           -----------

Net income (loss)                               $    (1,229)       $    (5,396) $              8,363 
                                                -----------        -----------           -----------
                                                -----------        -----------           -----------



Income (loss) per common share:
    Basic:
        Net income (loss)                       $     (0.03)       $     (0.11)          $      0.17 
                                                -----------        -----------           -----------
                                                -----------        -----------           -----------
        Weighted average shares                  48,679,023         48,674,134            48,664,862   
                                                -----------        -----------           -----------
                                                -----------        -----------           -----------

    Diluted:                                           
        Net income (loss)                       $     (0.03)       $     (0.11)          $      0.17  
                                                -----------        -----------           -----------
                                                -----------        -----------           -----------
        Weighted average share                   48,679,023         48,674,134            49,445,826  
                                                -----------        -----------           -----------
                                                -----------        -----------           -----------
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FISCAL YEARS ENDED DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998 
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                    Accumulated
                                                                    Additional         Other
                                         Preferred     Common        Paid-In       Comprehensive     Accumulated
                                           Stock        Stock        Capital        Income (loss)       Deficit         Total
                                           -----        -----        -------        -------------       -------         -----
<S>                                     <C>            <C>          <C>            <C>               <C>             <C>
BALANCE, JANUARY 2, 1996                $              $   486      $  55,841        $   (5,283)     $    (96,918)   $  (45,874)
    Warrants exercised                                       1             25                                                26 
    Comprehensive income:
        Net income                                                                                          8,363         8,363
        Pension liability adjustment                                                      2,429                           2,429
                                                                                                                     ----------
        Total comprehensive income                                                                                       10,792
                                        -----------    -------      ---------        ----------      ------------    ----------

BALANCE, DECEMBER 31, 1996                                 487         55,866            (2,854)          (88,555)      (35,056)

    Warrants exercised                                                      4                                                 4

    Comprehensive income (loss):
        Net loss                                                                                           (5,396)       (5,396)
        Pension liability adjustment                                                        350                             350 
                                                                                                                     ----------

        Total comprehensive loss                                                                                         (5,046)
                                        -----------    -------      ---------        ----------      ------------    ----------

BALANCE, DECEMBER 30, 1997                                 487         55,870            (2,504)          (93,951)      (40,098)

    Warrants exercised                                                     68                                                68

    Comprehensive loss
        Net loss                                                                                           (1,229)       (1,229)
        Pension liability adjustment                                                       (353)                           (353) 
                                                                                                                     ----------

        Total comprehensive loss                                                                                         (1,582) 
                                        -----------    -------      ---------        ----------      ------------    ----------

BALANCE, DECEMBER 29, 1998              $              $   487      $  55,938        $   (2,857)     $    (95,180)   $  (41,612) 
                                        -----------    -------      ---------        ----------      ------------    ----------
                                        -----------    -------      ---------        ----------      ------------    ----------
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS 
FISCAL YEARS ENDED DECEMBER 29, 1998, DECEMBER 30, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               December 29, 1998   December 30, 1997   December 31, 1996
                                                               -----------------   -----------------   -----------------
<S>                                                            <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                             $    (1,229)        $     (5,396)       $      8,363
   Adjustments to reconcile net income 
      (loss) to net cash provided by 
      operating activities:
          Depreciation and amortization                               10,097               10,889              10,168
          Loss (gain) on sale of property, 
              plant and equipment and other assets                       (50)                  75                 373
          Provision for closed
              store reserves                                             285                  150                 226
          Special charges (credits)                                    7,867                5,567                (699)
          Deferred charges (credits)                                     (48)                 495                 808

          Changes in operating assets and liabilities:
              Decrease in restricted cash                                                                         800
              (Increase) decrease in accounts and notes 
                 receivable                                              167                  304                (440)
                                                                 -----------         ------------        ------------
              (Increase) decrease in inventories                        (976)                (316)                109
              (Increase) decrease in prepaid expenses 
                 and other                                               681                 (741)                975
              Increase (decrease) in trade accounts 
                 payable                                                (297)              (1,211)                424
              Increase (decrease) in other payables 
                 and accrued expenses                                  2,177                  241              (3,359)
              Increase (decrease) in other payables, including 
                 accrued pension cost                                  1,545                  142                (123) 
                                                                 -----------         ------------        ------------
                      Net cash provided by operating 
                         activities                                   20,219               10,199              17,625   
                                                                 -----------         ------------        ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property, plant and equipment                         (7,718)              (5,638)            (10,133)
   Expenditures charged to reserve for 
      store closings                                                  (1,371)                (982)             (2,517)
   Proceeds from the sale of property, plant 
      and equipment and other assets                                   1,205                  199               3,378
   Other, net                                                             16                   15                  61  
                                                                 -----------         ------------        ------------
          Net cash used in investing 
            activities                                                (7,868)              (6,406)             (9,211)
                                                                 -----------         ------------        ------------
</TABLE>

                                                                    (Continued)

                                      F-6
<PAGE>

FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 29, 1998, DECEMBER 30, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               December 29, 1998   December 30, 1997   December 31, 1996
                                                               -----------------   -----------------   -----------------
<S>                                                            <C>                 <C>                 <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Payment of indebtedness                                       $    (5,493)        $     (5,493)       $     (5,170)
   Issuance of indebtedness                                                                 2,551 
   Other, net                                                            197                  (31)                266    
                                                                 -----------         ------------        ------------
        Net cash used in financing activities                         (5,296)              (2,973)             (4,904)    
                                                                 -----------         ------------        ------------
INCREASE IN CASH 
   AND CASH EQUIVALENTS                                                7,055                  820               3,510

CASH AND CASH 
   EQUIVALENTS AT BEGINNING OF YEAR                                    4,516                3,696                 186 
                                                                 -----------         ------------        ------------
CASH AND CASH 
   EQUIVALENTS AT END OF YEAR                                    $    11,571         $      4,516        $      3,696
                                                                 -----------         ------------        ------------
                                                                 -----------         ------------        ------------

SUPPLEMENTAL DISCLOSURE OF 
   CASH FLOW INFORMATION:
   Interest paid, including $5,493, $5,493 and $3,753
       of interest classified as payment of 
       indebtedness during the fiscal years 
       ended December 29, 1998, December 30, 1997 
       and December 31, 1996, respectively                       $     5,736         $      5,500        $      3,774
                                                                 -----------         ------------        ------------
                                                                 -----------         ------------        ------------

   Income tax paid (refunded)                                    $        --         $        (60)       $         60 
                                                                 -----------         ------------        ------------
                                                                 -----------         ------------        ------------

   Pension liability adjustment                                  $       353         $       (350)       $     (2,429)
                                                                 -----------         ------------        ------------
                                                                 -----------         ------------        ------------
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>

FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 1998, DECEMBER 30, 1997 AND DECEMBER 31, 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 presented represents a 
52-week year.

BUSINESS SEGMENTS - The Company operates in two vertically integrated 
operating segments, namely the operation of food purchasing, processing, 
warehousing and distribution of products and the operation of cafeterias, 
including food preparation and retail sales, 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 29, 1998 and December 30, 1997, 
this account balance included prepaid rent of $0 and $580, 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 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"). The Company recorded special charges 
of $419 for the year ended December 29, 1998, $2,139 for the year ended 
December 30, 1997 and $7,772 for the year ended December 31, 1996 to 
recognize the write-down of certain property, plant and equipment to 
estimated fair value, based on expected 

                                      F-8
<PAGE>

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.  The Company groups and evaluates its assets for 
impairment at the individual restaurant level.  The Company considers a 
restaurant's assets to be impaired if a forecast of undiscounted future cash 
flow directly related to the assets, including disposal value, if any, is 
less than the carrying amount.

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 $3,777, $3,455 and  $2,085 for the years ended 
December 29, 1998, December 30, 1997 and December 31, 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 terms of the leases to which the differences relate.

INCOME TAXES - The Company accounts for 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 -  Basic earnings per share is computed by dividing earnings 
available to common stockholders by the weighted average number of shares 
outstanding during the year.  Diluted earnings per share is computed by 
dividing earnings available to common stockholders 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. The 
following table reconciles the denominators of basic and diluted earnings per 
share for the fiscal years ended December 29, 1998, December 30, 1997 and 
December 31, 1996.

<TABLE>
<CAPTION>
                             December 29,          December 30,      December 31,
                                 1998                  1997              1996   
                             ------------          ------------      ------------
<S>                          <C>                   <C>               <C>
Weighted average common
shares outstanding            48,679,023            48,674,134        48,664,862
Options                      
Warrants                                                                 780,964
                              ----------            ----------        ----------
Total shares                  48,679,023            48,674,134        49,445,826
                              ----------            ----------        ----------
                              ----------            ----------        ----------
</TABLE>

                                      F-9
<PAGE>

For the fiscal years 1998, 125,278 and ______ options, that could potentially 
dilute basic earnings per share were not included in the computation of 
diluted earnings per share because to do so would have been antidilutive for 
such fiscal years.
  
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 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, stockholders 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.

                                      F-10
<PAGE>

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 in the 1995 fiscal year 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 $8,000 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 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.

3.      OTHER PAYABLES AND ACCRUED EXPENSES

Included in other payables and accrued expenses are the following:

<TABLE>
<CAPTION>
                                            December 29,       December 30,
                                                1998               1997
                                            ------------       ------------
<S>                                         <C>                <C>
     Taxes other than income taxes            $ 4,065             $ 3,999
     Salaries, wages and commissions            4,048               3,642
     Insurance                                  3,980               3,137
     Legal and accounting expenses              2,040                 210
     Rent                                       1,056               1,019  
     Gift certificates outstanding              1,031                 918
     Utilities                                    534                 621       
     Other payables and accrued expenses          549                 365 
     Restructuring expenses                                         1,215   
                                              -------             -------

                                              $17,303             $15,126
                                              -------             -------
                                              -------             -------
</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
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 

                                      F-11
<PAGE>

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 recorded $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 29,    December 30,
                                                       Date           1998            1997     
                                                                   ------------    ------------
<S>                                                  <C>           <C>             <C>
     12% Notes, including interest accrued through
     maturity of $17,882 and $23,375, respectively     2001          $63,654         $69,147
     10.5% Notes                                       2001            2,551           2,551 
                                                                      66,205          71,698        

     Current maturities of long-term debt                             (5,493)         (5,493)       
     Long-term debt                                                  $60,712         $66,205        
</TABLE>

At December 29, 1998, the scheduled aggregate amount of all maturities of 
long-term debt and interest classified as long-term debt are as follows:

<TABLE>
<S>                   <C>
     1999             $  5,493
     2000                5,493
     2001               55,219
                      --------
                      $ 66,205
                      --------
                      --------
</TABLE>

5.        STOCKHOLDERS' EQUITY

COMMON STOCK WARRANTS - At December 29, 1998, warrants to purchase 2,614,195 
shares of Common Stock at $1.11 per share were outstanding, including 
warrants to purchase shares held by Kmart.

THE 1995 STOCK OPTION PLAN - The Board of Directors adopted, and on January 2,
1996, the stockholders approved the 1995 Stock Option Plan (the "1995 Option
Plan").  The number of shares reserved under the 1995 Option Plan, after
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 

                                      F-12
<PAGE>

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.  Pursuant to the provisions of the 1995 Option 
Plan, on November 22, 1996, May 30, 1997 and May 28, 1998, options to 
purchase 6,666 shares of Common Stock were issued to each non-employee 
director of the Company and on June 18, 1998, options to purchase 100,000 
shares of Common Stock were issued to each non-employee director of the 
Company.  On September 27, 1998, options to purchase 750,000 shares of Common 
Stock were issued to Phillip Ratner, President and Chief Executive Officer of 
the Company.  On December 8, 1998, options to purchase 1,055,000 shares of 
Common Stock were issued to 139 employees. 

     Following is a summary of activity in the 1995 Option Plan for the three 
years ended December 29, 1998:

<TABLE>
<CAPTION>
                                  Weighted Average   Exercise          Price Per
                                    Share-option      Options           Options
                                     Outstanding    Outstanding       Exercisable
                                     -----------    -----------       -----------
<S>                               <C>               <C>               <C>
Balance at January 2, 1996                -               -                -
   Granted                              $1.00           39,996             -         
                                                    -----------       -----------
Balance at December 31, 1996      
   Granted                               1.36          526,664    
   Became exercisable                     -               -              13,332
   Cancelled or expired                  1.37         (513,332)          (4,444)
                                                    -----------       -----------

Balance at December 30, 1997             1.06           53,328            8,888
   Granted                                .96        3,051,662             -
   Became exercisable                     -               -              17,776
   Cancelled or expired                   .77         (526,664)         (13,332)
                                                    -----------       -----------

Balance at December 29, 1998             1.00        2,578,326           13,332    
                                                    -----------       -----------
                                                    -----------       -----------
</TABLE>

Exercise prices for options outstanding as of December 29, 1998, ranged from 
$0.75 to $1.19 per share and the weighted average remaining life of the stock 
options was 9.8 years.  The options exercisable as of December 29, 1998 have 
a weighted average exercise price of $1.04 per share.

The Company has elected to follow APB 25, "Accounting for Stock Issued to 
Employees."  Since options are granted to employees at the market price on 
the date of grant, no compensation expense is recognized.  However, SFAS 
No. 123 requires presentation of pro forma net income and earnings per share 
as if the Company had accounted for stock options granted to employees under 
the fair value method of that statement.

The weighted average fair value of the individual options granted during 
1998 is estimated at approximately $0.52 per share on the date of grant.  The 
impact on net income of options issued in 1997 and 1996 is not material to 
the Company's consolidated results of operations. 

                                      F-13
<PAGE>

      Had the Company determined compensation cost based on the fair value at
the grant date for its stock options issued in 1998 under SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                As Reported          Pro Forma  
                                -----------          ---------
<S>                             <C>                  <C>
      Net loss                    $(1,229)            $(1,460)
      Net loss per basic and 
      diluted common share         $(0.03)             $(0.03)
</TABLE>

The fair values of options issued during 1998 were determined using a 
Black-Scholes option pricing model with the following assumptions applicable 
for the date of grant:

<TABLE>
<S>                                         <C>
     Dividend yield                               -            
     Volatility                              105% to 127%
     Risk-free interest rate                4.65% to 5.61%
     Expected life                             3 years       
</TABLE>

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 29, 1998, December 30, 1997 and December 31, 1996:

<TABLE>
<CAPTION>
                                                        December 29,  December 30,  December 31,
                                                           1998          1997          1996  
                                                        ------------  ------------  ------------
<S>                                                     <C>           <C>           <C>
Expected tax (benefit) at the statutory tax rate          $  (430)      $(1,889)      $ 2,927
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)       (1,922)       (1,794)
Correction of prior year's estimated taxes                                              5,084
Increase (decrease) in 
     valuation allowance                                    2,344         4,179        (5,838)                       
Other                                                           8           133            28
                                                          -------       -------       -------
Actual tax (benefit)                                      $     -       $     -       $     -       
                                                          -------       -------       -------
                                                          -------       -------       -------
</TABLE>

                                      F-14
<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 29, 1998       December 30, 1997        
                                                  Deferred Tax            Deferred Tax
                                                  ------------            ------------
                                                  Assets    Liabilities   Assets    Liabilities
                                                  ------    -----------   ------    -----------
<S>                                              <C>        <C>          <C>        <C>
     Net operating loss carryforward             $ 40,782                $ 38,116
     Tax credits carryforward                       1,377                   1,377
     Reserve for store closing for
          financial statement purposes
          and not for tax purposes                  1,607                   1,636
     Other reserves                                 4,310                     496
     Excess of future lease payments over fair            
          values, net of amortization                 816                     993
     Property, plant and equipment, net             6,798                  10,154
     Other temporary differences                      156    $     -          730     $     -
                                                 --------    -------     --------     -------
     Deferred tax assets and liabilities           55,846    $     -       53,502     $     -
                                                             -------                  -------
                                                             -------                  -------

     Valuation allowance                          (55,846)                (53,502)
                                                 --------                --------
     Deferred tax asset, net                     $      -                $      -     
                                                 --------                --------
                                                 --------                --------
</TABLE>

As of December 29, 1998, the Company has consolidated net operating loss 
carryforwards of approximately $116,521 for income tax reporting purposes 
that expire from 2000 through 2014.  For financial reporting purposes, the 
income tax benefit associated with the loss carryforwards has not been 
recognized since, in the opinion of management, it is not likely that 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 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 29, 1998, the Company-affiliated group tax attributes not 
subject to limitation are approximately $22,149. 

As of December 29, 1998, 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.

                                      F-15
<PAGE>

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.

In 1997, 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.  Each subsidiary agreed 
to tax deficiencies aggregating 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 $4,311 (including $4,215 in special charges), $250 and 
$590 for the years ended December 29, 1998, December 30, 1997 and December 
31, 1996, respectively.

The Company is subject to the additional minimum liability requirements 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 29, 1998 and 
December 30, 1997, the Company recorded an increase of $353 in 1998 and a 
decrease of $350 in 1997 to the noncurrent pension liability with 
corresponding offsets to stockholders' deficit.


















                                      F-16
<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 29,   December 30,  December 31,
                                                           1998           1997          1996
                                                           ----           ----          ----  
<S>                                                     <C>            <C>           <C>
Accumulated benefit obligation end of year                $18,207        $12,603       $11,948
                                                          -------        -------       ------- 
                                                          -------        -------       ------- 
Change in projected benefit obligation
  Projected benefit obligation at beginning of year       $12,603        $11,948       $14,211
  Service cost                                                  -              -             -
  Interest cost                                               832            859           903
  Actuarial (gain) loss                                     1,027            891        (1,995)
  Benefits paid                                            (1,170)        (1,095)       (1,171)
  Cost of IRS and litigation settlements                    4,915              -             - 
                                                          -------        -------       ------- 
  Projected benefit obligation at end of year              18,207         12,603        11,948 

Change in plan assets
  Fair value of plan assets at beginning of year           11,808         10,803        10,349
  Actual return on plan assets                              1,407          1,848           746
  Employer contribution                                        50            251           879
  Kmart contribution to IRS and
    litigation settlement                                     700              -             -
  Benefits paid                                            (1,170)        (1,094)       (1,171)
                                                          -------        -------       ------- 
  Fair value of plan assets at end of year                 12,795         11,808        10,803 
                                                          -------        -------       ------- 
Funded status                                              (5,412)          (795)       (1,145)

Unrecognized net loss from past experience
  different from that assumed and effects of 
  changes in assumptions                                    2,857          2,504         2,854

Unrecognized prior service cost                                 -              -             - 
                                                          -------        -------       ------- 
Net amount recognized                                     $(2,555)       $ 1,709       $ 1,709
                                                          -------        -------       ------- 
                                                          -------        -------       ------- 
Amounts recognized in the statement of financial 
  position consist of:
    Accrued benefit cost                                  $(5,412)       $  (795)      $(1,145)
    Intangible asset                                            -              -             -
    Accumulated other comprehensive loss                    2,857          2,504         2,854
                                                          -------        -------       ------- 
    Net amount recognized                                 $(2,555)       $ 1,709       $ 1,709
                                                          -------        -------       ------- 
                                                          -------        -------       ------- 
Major assumptions:

Discount rate                                                6.50%          7.00%         7.75%
Expected long-term rate of return on
  plan assets                                                9.00%          9.00%         9.00%

</TABLE>

                                         F-17
<PAGE>

Effective December 29, 1998, for purposes of calculating benefit obligations, 
the assumed discount rate decreased from 7.00% to 6.50% 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 29, 1998.

The components of net periodic pension cost for the years ended December 29, 
1998, December 30, 1997 and December 31, 1996 are as follows:

<TABLE>
<CAPTION>
                                                                 1998       1997       1996
                                                                ------     -----      ------- 
          <S>                                                   <C>        <C>        <C>
          Service cost - benefits earned during the period      $    -     $   -      $    -
          Interest cost on projected benefit obligation            832        859        903
          Expected return on plan assets                          (886)      (806)      (764)
          Amortization of prior service cost                         -          -          -
          Amortization of transition asset                           -          -          -
          Recognized actuarial (gain) loss                         150        197        451
                                                                ------     -----      ------- 
          Net periodic pension cost                                 96        250        590
          Cost of IRS and litigation settlements
            (net of Kmart contribution)                          4,215 
                                                                ------     -----      ------- 
          Total pension cost                                    $4,311     $  250     $  590
                                                                ------     -----      ------- 
                                                                ------     -----      ------- 
</TABLE>

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 29, 
1998, December 30, 1997, and  December 31, 1996  amounted to $8, $8 and $7, 
respectively.

8.   COMMITMENTS AND CONTINGENCIES

The Partnership leases restaurant properties under various noncancelable 
operating lease agreements which expire between 1999 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.

In 1993, the Company entered into an amendment of a master sublease agreement 
pursuant to which it leased 43 properties from Kmart Corporation ("Kmart"). 
Pursuant to the amendment, the aggregate monthly rent was reduced by 25 
percent for the period from the effective date of the amendment through and 
including December 31, 1997, and by 20 percent following that date and until 
December 31, 2001.  The reductions in rent were made subject to termination 
by Kmart if Mr. Lewis ceased to be Chairman of the Board of Directors of the 
Company.  Mr. Lewis was not nominated for reelection at the Company's Annual 
Meeting of Stockholders on May 28, 1998.  Kmart in June 1998 demanded that 
the Company pay increased rents, which the Company has done while reserving 
its right to dispute Kmart's right to receive the increased rental.  As a 
result of the increased rents, the Company will pay additional rent of 
approximately $1.8 million through December 31, 2001, includiong $679 
thousand additional rent paid in 1998.  Because the Company accounts for its 
rental payments under the straight-line method, the purported increase in 
rent through December 31, 1998 is being amortized over the remaining life of 
the leases, which run through December 31, 2003, December 31, 2007, June 29, 
2008 and December 31, 2008.The increase in annual rent expense amounted to 
approximately $168 thousand for fiscal 1998 and for the fiscal 1999 will 
amount to approximately $288 thousand.  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, 


                                     F-18
<PAGE>

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 in 1996, 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 29, 
1998:

<TABLE>
<CAPTION>
                                                   Minimum      Sublease
                                                     RENT         INCOME  
                                                   --------     ---------  
          <S>                                      <C>          <C>
               1999                                $ 9,004        $  980
               2000                                  9,739           893
               2001                                  9,352           861
               2002                                  8,918           686
               2003                                  6,437           472
          For the remaining terms of the leases     28,109         1,716
</TABLE>


Total rental expense included in the statements of operations is $10,659,
$11,036 and $10,916, which includes $1,075, $1,029 and $1,077 of additional rent
based on net sales, for the years ended December 29, 1998, December 30, 1997 and
December 31, 1996, respectively.  The results of operations include sublease
rent income of $899, $800 and $760 for the years ended December 29, 1998,
December 30, 1997 and December 31, 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 


                                     F-19
<PAGE>

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 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 $4,900 to recognize the estimated cost of such 
indemnification.  The Company negotiated agreements with each of the parties 
whose indemnity claim was outstanding at the end of 1997 and during fiscal 
1998 either made cash payments or issued 10.5% unsecured notes (see Note 4) 
in satisfaction of such claims.

     The Company and certain of its subsidiaries, the Cavalcade Pension Plan,
the Cavalcade Pension Plan Committee, Kmart Corporation and its pension plan and
Michael Levenson have since 1996 been defendants in a lawsuit brought against
them in U.S. District Court in Denver, Colorado by Robert H. Aull ("Plaintiff"),
a former employee of the Company and a participant in the Cavalcade Pension
Plan.  The Plaintiff requested that the Court certify a class of other
plaintiffs who are similarly situated and sought unspecified damages.

     The Plaintiff's allegations (all of which are disputed by the defendants 
in the case) included: (i) that accrued benefits under the Cavalcade Pension 
Plan were improperly reduced during the period from 1988 to 1993, (ii) the 
"freeze" of the Plan on June 30, 1989 was improper, (iii) an insufficient 
amount of assets was transferred from the Kmart Corporation pension plan to 
the Cavalcade Pension Plan in connection with the acquisition of the Company 
from Kmart effected by Mr. Levenson and his affiliates in 1988 and (iv) rent 
concessions allowed to the Company by Kmart commencing in 1993 constituted 
prohibited transactions that bestowed illegal benefits upon the Company and 
Mr. Lewis. 

     The Company, the Cavalcade Pension Plan, the members of the Cavalcade
Pension Plan Committee, Kmart Corporation and its pension plan have entered into
a definitive settlement agreement (the "Agreement") with the plaintiff and his
counsel that would resolve all outstanding claims among them.  The Agreement is
subject to (1) confirmation by an independent actuary of the calculations that
support the proposed settlement and (2) approval of the settlement as "fair" to
all members of the plaintiff class by the court after notice to all purported
class members and a hearing.  It is expected that the Agreement will be filed
with the court shortly and that the required hearing would be completed in the
late second or early third quarter of 1999.  The Company is not able to provide
assurance that the conditions to the proposed settlement will be satisfied or
that the proposed settlement will be implemented as described herein.

     As a result of the settlement of the Aull litigation and the concurrent
resolution of an IRS audit of the Plan that focused on substantially identical
issues, the Company has recognized a special charge of $5,786 in the fourth
quarter of 1998, of which approximately $2,200 relates to resolution of the IRS
audit and is not contingent upon actuarial review or the fairness hearing in the
Aull litigation.


                                     F-20
<PAGE>

     The anticipated cash impact of the settlement on the Company includes 
payment in 1999 of approximately $1,500 of expenses for legal and 
professional fees, with the remainder of the settlement to be paid to the 
Plan in future years to fund increased benefit payments to former and current 
employees.  The settlement will not require any funding payments to the Plan 
by the Company in 1999 but is expected to require payments by the Company to 
the Plan of approximately $1,700 in 2000 and approximately $850 in 2001, with 
additional funding payments required in subsequent years in amounts that are 
expected to decline over time, subject to the overall funding status of the 
Plan.  The Agreement provides for Kmart Corporation's pension plan to 
transfer $700 to the Cavalcade Pension Plan to fund a portion of the 
additional benefits required by the Agreement.  Management does not believe 
that payment of these amounts in 1999 and subsequent years will have a 
material adverse effect on the Company's planned operations.

     The Company, in July 1998, filed a declaratory judgment lawsuit in State
District Court in Lubbock, Texas, in which it asks the Court to find that the
Company is not obligated to make severance payments that have been demanded by
Theodore Papit, the former President and Chief Executive Officer of the Company.
Mr. Papit resigned effective  May 29, 1998, following the election at the
Company's annual meeting of stockholders of a slate of directors proposed by
Teacher's Insurance and Annuity Association of America ("TIAA"), the Company's
largest stockholder at that time.  He subsequently demanded payment of more than
$500 of severance and other amounts that he claimed were owing to him under
a President and Chief Executive Officer Agreement dated March 23, 1998.  This
agreement was approved by a split vote of the Board of Directors after TIAA had
publicly announced that it might take action affecting the control of the
Company.  The Company has requested a jury trial and believes that there are a
number of grounds that will support the Court in granting the requested relief,
among them being that the Agreement is void as an interested party transaction
that did not receive the necessary approval of independent, disinterested
directors, the terms of the Agreement are not fair to the Company and the
Agreement was entered into by the Company without the benefit of full disclosure
by Mr. Papit and consideration by the Board of Directors of material information
regarding his management of the Company.     


9.    QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                         Thirteen Weeks Ended
                                        --------------------------------------------------- 
                                        March 31      June 30       Sept 29     December 29 
                                        ---------    --------       --------    ----------- 
<S>                                     <C>          <C>            <C>         <C>
Year ended December 29, 1998: 
     Sales                               $ 46,212    $ 48,032       $ 48,011      $ 45,953
     Gross profit (1)                      32,461      33,606         33,655        31,847
     Net income (loss) (2)                  2,024       1,519          2,003        (6,775)
     Net income (loss) per common share       .04         .03            .04          (.14)

                                                       Thirteen Weeks Ended
                                        --------------------------------------------------- 
                                          April 1     July 1          Sept 30   December 30
                                        ---------    --------       --------    ----------- 
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) (2)                 (1,671)      1,328         (6,167)        1,114 
     Net income (loss) per common share     (0.03)       0.03          (0.13)         0.02
</TABLE>

     (1)  Gross profit is computed using cost of sales including depreciation 
          expense.
     (2)  See Note 13 Special Charges and Credits


                                     F-21
<PAGE>

10.      OTHER RELATED PARTY TRANSACTIONS

On June 7, 1996, the Company, Cafeteria Operators, L.P. 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.  In
September 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.  Mr. Lewis
subsequently resigned as President and Chief Executive Office effective December
31, 1996 and the Board requested Mr. Lewis 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.  In October
1997, Mr. Lewis agreed to remain Chairman of the Board beyond December 31, 1997
until at least may 31, 1998 and in November 1997, Mr. Lewis was paid $50,000 in
consideration for his agreement to remain Chairman of the Board through at
leaset May 31, 1998.  In addition, the Company agreed to pay Mr. Lewis $7,500
per month during the period after December 31, 1997 that he acted as Chairman of
the Board.  At the request of Mr. Lewis, this payment was reduced to $2,5000 per
month effective April 1, 1998.

Effective January 1, 1997, Kenneth Reimer, a director of the Company from
January 1996 to May 1998, 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.
 
In 1996 and 1997, Cactus Enterprises, Inc., a company wholly owned by Kenneth
Reimer, performed certain management consulting services for the Board.  Total
fees and expenses paid were approximately $8, $4 and $68 in 1998, 1997 and 1996,
respectively.

Pursuant to an Interim Manager Agreement, as amended, (the "Hopgood Agreement")
effective June 1, 1998, between Suzanne Hopgood, Chairman of the Board of
Directors, and the Company, Ms. Hopgood agreed to serve as Interim Chief
Executive Officer.  Ms. Hopgood received $320 for serving in this capacity until
September 27, 1998 and providing other management consulting services relating
to management transition, real estate and finance matters through December 29,
1998.

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 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 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 owned more than five percent of the Common Stock at the
time the agreements were signed.  Equitable is an affiliate of EQ Asset Trust
1993, a business trust that owns more than five percent of the outstanding
Common Stock.


                                     F-22
<PAGE>

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 29, 1998 and December 30, 1997, the carrying amount and the fair
value of the Company's financial instruments, as determined under SFAS 107, were
as follows:

<TABLE>
<CAPTION>
                                                  December 29,    December 30,
                                                      1998            1997      
                                                      ----            ---- 
<S>                                               <C>             <C>
Long-term debt, including current portion and
interest accrued through maturity:
      Carrying amount                              $  66,205        $ 71,698
      Estimated fair value                            48,324          48,324
</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 29, 1998 and December 30, 1997 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.  BUSINESS SEGMENTS

The Company has two reportable segments: the operation of cafeterias, including
food preparation and retail sales, and the operation of Dynamic Foods, which
purchases, processes, warehouses and distributes food products and supplies to
the cafeterias and external customers.  These reportable segments are vertically
integrated business units that offer different products and services.

The accounting policies of the segments are the same as those in the summary of
significant accounting policies.  The Company evaluates performance based on
profit or loss from operations before non-recurring special charges or credits
and before income tax provisions.


                                     F-23

<PAGE>

Following is a summary of segment information of the Company for the fiscal
years ended December 29, 1998, December 30, 1997 and December 31, 1996:

<TABLE>
<CAPTION>
                                                                                    Dynamic
                                                                     Cafeterias      Foods        Total   
                                                                     ----------     -------     --------- 
<S>                                                                  <C>           <C>          <C>
1998:   
  External revenues                                                  $  187,162    $   1,046    $ 188,208  
  Intersegment revenues                                                      --       58,380       58,380
  Depreciation and amortization                                           9,260          837       10,097  
  Segment profit                                                          6,315        1,289        7,604  
  Segment assets                                                         54,457       14,052       68,509  
  Expenditures for segment assets                                         6,839          879        7,718  
1997:
  External revenues                                                     191,783        1,747      193,530  
  Intersegment revenues                                                      --       58,877       58,877
  Depreciation and amortization                                           9,870        1,019       10,889  
  Segment profit                                                          4,619          751        5,370  
  Segment assets                                                         52,781       13,020       65,801  
  Expenditures for segment assets                                         5,466          172        5,638  
1996:
  External revenues                                                     193,662        3,534      197,196  
  Intersegment revenues                                                      --       59,959       59,959
  Depreciation and amortization                                           9,162        1,006       10,168  
  Segment profit                                                          5,963        1,505        7,468  
  Segment assets                                                         60,852       14,407       75,259  
  Expenditures for segment assets                                         9,867          266       10,133  
</TABLE>

Following is a reconciliation of reportable segments to the Company's 
consolidated totals for the fiscal years ended December 29, 1998, December 30,
1997 and December 31, 1996:

<TABLE>
<CAPTION>
                                           December 29,    December 30,    December 31, 
                                               1998            1997           1996      
                                           ------------    ------------    ------------ 
<S>                                        <C>             <C>             <C>
Revenues
  Total revenues of reportable segments    $    246,588    $    252,407    $    257,155     
  Elimination of inter-segment revenue          (58,380)        (58,877)        (59,959)
                                           ------------    ------------    ------------ 
      Total consolidated revenues          $    188,208    $    193,530    $    197,196
                                           ------------    ------------    ------------ 
                                           ------------    ------------    ------------ 
Profit (loss)
  Total profit of reportable segments      $      7,604    $      5,370    $      7,468
  Elimination of inter-segment profit                -               -               -   
                                           ------------    ------------    ------------ 
      Total consolidated profit            $      7,604    $      5,370    $      7,468
                                           ------------    ------------    ------------ 
                                           ------------    ------------    ------------ 
Assets
  Total assets of reportable segments      $     68,509    $     65,801    $     75,259 
  Elimination of inter-segment assets                -               -               -  
                                           ------------    ------------    ------------ 
      Total consolidated assets            $     68,509    $     65,801    $     75,259
                                           ------------    ------------    ------------ 
                                           ------------    ------------    ------------ 
</TABLE>

13.      SPECIAL CHARGES AND CREDITS

The operating loss for the thirteen week period ended December 29, 1998 includes
special charges aggregating $7,973, which includes $6,205 of charges related to
the settlement of litigation, $1,477 of charges related to adjustments to closed
store reserves and the write-down of property, plant and equipment and $291 of
charges related 


                                     F-24
<PAGE>

to the writeoff of the deferred costs associated with warrants.

Operating income for the thirteen week period ended June 30, 1998 includes
special charges of $610 related to the cost of the proxy contest for the
election of the Board of Directors.

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

     Pursuant to General Instruction G(3) of Form 10-K, information required 
by this item is furnished by incorporation by reference of information in the 
Company's definitive Proxy Statement for its 1999 Annual Meeting of 
Stockholders under the captions "Proposal 1 - Election of Directors," 
"Section 16(a) Beneficial Ownership Reporting Compliance" and "Executive 
Officers."

Item 11.  EXECUTIVE COMPENSATION

     Pursuant to General Instruction G(3) of Form 10-K, information required 
by this item is furnished by incorporation by reference of information found 
in the Company's Definitive Proxy Statement for its 1999 Annual Meeting of 
Stockholders under the caption "Excecutive Compensation," subcaptions 
"Summary Compensation Table," "Option Plan," "Option Grants," "Director 
Options," "Director Fees," "Employment Contracts and Termination of 
Employment and Change of Common Agreements," "Compensation Committee 
Interlocks," "Board Compensation Committee Report on Executive Compensation" 
and "Comparison of Cumulative Total Return of Company Stock, Industry Index 
and Broad Market."

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Pursuant to General Instruction G(3) of Form 10-K, information required 
by this item is furnished by incorporation by reference of all information 
under the caption "Executive Compensation," subcaption "Transactions with 
Management and Others" in the Company's Definitive Proxy Statement for its 
1999 Annual Meeting of Stockholders.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Pursuant to General Instruction G(3) of Form 10-K, information required 
by this item is furnished by incorporation by reference of all information 
under the caption "Executive Compensation," subcaption "Transactions with 
Management and Others" in the Company's Definitive Proxy Statement for its 
1999 Annual Meeting of Stockholders.

                                       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


                                         19

<PAGE>

                                                             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 1998, the Company filed on Form 8-K,
          including the Employment Agreement, the Indemnification Agreement and
          the Nonqualified Stock Option Agreement, each between Phillip Ratner 
          and Furr's/Bishop's, Incorporated.

     (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).

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).


                                      20
<PAGE>

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).

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/Bishop'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).

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).


                                      21
<PAGE>

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).

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   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).


                                      22
<PAGE>

10.4   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).

10.5   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.

10.6   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).

10.7   President and Chief Executive Officer Agreement, effective as of March,
       1998, between Theodore J. Papit and Furr's/Bishop's, Incorporated.

10.8   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).

10.9   Interim Manager Agreement, effective as of June 1, 1998, between Suzanne
       Hopgood and Furr's/Bishop's, Incorporated, incorporated by reference
       from Furr's/Bishop's, Incorporated's Form 10-Q for the fiscal quarter
       ended June 30, 1998.

10.10  First Amendment to 1995 Stock Option Plan, dated as of June 18, 1998,
       incorporated by reference from Furr's/Bishop's, Incorporated's Form 10-Q
       for the fiscal quarter ended June 30, 1998.

10.11  Employment Agreement, dated as of September 27, 1998, between Phillip
       Ratner and Furr's/Bishop's, Incorporated, incorporated by reference from
       Furr's/Bishop's, Incorporated's Form 8-K dated October 2, 1998.

10.12  Indemnification Agreement, dated as of September 27, 1998, between
       Phillip Ratner and Furr's/Bishop's, Incorporated, incorporated by
       reference from Furr's/Bishop's, Incorporated's Form 8-K dated October 2,
       1998.

10.13  Nonqualified Stock Option Agreement, effective as of September 16, 1998,
       between Phillip Ratner and Furr's/Bishop's, Incorporated, incorporated
       by reference from Furr's/Bishop's, Incorporated's Form 8-K dated October
       2, 1998.

21.0   Subsidiaries of the Registrant.

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

27.0   Financial Data Schedule.


                                      23
<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 25, 1999                    /s/ PHILLIP RATNER
                                       ---------------------------------------
                                       Phillip Ratner
                                       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 25, 1999                     /s/  Suzanne Hopgood
                                       --------------------------------------
                                       Suzanne Hopgood
                                       Director, Chairman of 
                                       the Board

DATE: March 25, 1999                     /s/ Jacob C. Baum
                                       --------------------------------------
                                       Jacob C. Baum 
                                       Director


DATE: March 25, 1999                     /s/ Ben Evans
                                       --------------------------------------
                                       Ben Evans
                                       Director


DATE: March 25, 1999                     /s/ Margaret Bertelsen Hampton
                                       --------------------------------------
                                       Margaret Bertelsen Hampton
                                       Director


DATE: March 25, 1999                     /s/ Damien Kovary
                                       --------------------------------------
                                       Damien Kovary
                                       Director


DATE: March 25, 1999                     /s/ William J. Nightingale
                                       --------------------------------------
                                       William J Nightingale
                                       Director


DATE: March 25, 1999                     /s/ Gilbert C. Osnos
                                       --------------------------------------
                                       Gilbert C. Osnos
                                       Director


                                      24
<PAGE>


DATE: March 25, 1999                     /s/ Max Pine
                                       --------------------------------------
                                       Max Pine
                                       Director


DATE: March 25, 1999                     /s/ Barry W. Ridings
                                       --------------------------------------
                                       Barry W. Ridings
                                       Director


DATE: March 25, 1999                     /s/ Alton R. Smith
                                       --------------------------------------
                                       Alton R. Smith
                                       Principal Accounting Officer


                                     25