<PAGE>
  

================================================================================
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                                        
                                   FORM 10-K
                                        
(Mark One)

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934
     
     For the fiscal year ended December 27, 1998
     
                                  OR

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

                        Commission File Number:  0-21587
                                        
                                PJ AMERICA, INC.
             (Exact name of registrant as specified in its charter)
                                        
           Delaware                                             61-1308435
-------------------------------                           ----------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

                              2300 Resource Drive
                          Birmingham, Alabama  35242
                   ----------------------------------------
                   (Address of principal executive offices)

                                (205) 981-2800
             (Registrant's telephone number, including area code)
     --------------------------------------------------------------------
          Securities registered pursuant to Section 12(b) of the Act:


                                                  (Name of each exchange
     (Title of Each Class)                         on which registered)
     ---------------------                        ------------------------
             None                                           None

     Securities registered pursuant to 
      Section 12(g) of the Act:
        Common Stock, $.01 par value               The Nasdaq Stock Market
     ---------------------------------------------------------------------

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:

     Yes   [X]                No [ ]

     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 of this
form 10-K. [ ]

     As of February 4, 1999, there were 5,779,410 shares of the Registrant's
Common Stock outstanding. The aggregate market value of the shares of
Registrant's Common Stock held by non-affiliates of the Registrant at such date
was $85,455,745 based on the last sale price of the Common Stock on February 4,
1999 as reported by the Nasdaq Stock Market. For purposes of the foregoing
calculation only, all directors and executive officers of the Registrant have
been deemed affiliates.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of Part III are incorporated by reference from the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held May 25, 1999.

================================================================================
<PAGE>
  

                               TABLE OF CONTENTS

PART I
------

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


PART II
-------

        Item 5.  Market for Registrant's Common Equity
                  and Related Stockholder Matters
        Item 6.  Selected Financial Data
        Item 7.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
        Item 7a. Qualitative and Quantitative Disclosures About Market Risk
        Item 8.  Financial Statements and Supplementary Data
        Item 9.  Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure


PART III
--------

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


PART IV
-------

        Item 14. Exhibits, Financial Statement Schedules
                  and Reports on Form 8-K
<PAGE>
 
                                    PART I

Item 1.  Business

General

     PJ America, Inc. (the "Company") is the largest franchisee of "Papa John's"
pizza delivery and carry-out restaurants. At December 27, 1998, the Company
operated 119 Papa John's restaurants in nine states and Puerto Rico. In 1998,
the Company opened its first restaurants in California, Oregon, Washington and
Puerto Rico. The Company also opened a commissary in Puerto Rico in December
1998. At December 27, 1998, Papa John's International, Inc. ("PJI") and its
franchisees (including the Company) operated 1,889 Papa John's restaurants in 45
states, the District of Columbia and International.

Strategy

     The Company's objective is to become the leading chain of pizza delivery
restaurants in each of its targeted markets. To accomplish this objective, the
Company has developed a strategy designed to achieve high levels of customer
satisfaction and repeat business, as well as to establish recognition and
acceptance of the Papa John's concept. The key elements of the Company's
strategy include:

     Focused High Quality Menu. Papa John's restaurants offer a focused menu of
high quality, value-priced pizza, breadsticks and cheesesticks, as well as soft
drinks. Papa John's original, medium thick crust is made from fresh dough (never
frozen) produced in PJI's regional commissaries. Every pizza is prepared using
real mozzarella cheese, pizza sauce made from fresh-packed tomatoes (not
concentrate), a proprietary mix of savory spices and a choice of high quality
meat and vegetable toppings in generous portions. The Company offers thin crust
pizza in all of its markets.

     Purchasing and Distribution. PJI's commissary system supplies pizza dough
and other food and paper products twice weekly to each of its franchised
restaurants. PJI currently operates ten regional commissaries across the United
States. PJI also operates one distribution center in Dallas, Texas. PJI expects
to open new commissaries and distribution centers as PJI and its franchisees
expand into new territories. PJI's commissary system enables it to closely
monitor and control product quality and consistency, while lowering food and
operating costs for its franchisees. All Papa John's restaurants are required to
purchase a proprietary mix of savory spices and dough from PJI. Franchisees may
purchase other goods from approved suppliers or PJI, which has negotiated
purchasing agreements with most of its suppliers. The Company believes that
these agreements enable it to benefit from volume discounts which result in
prices the Company believes are below those which it could otherwise obtain. In
addition, all the equipment, counters and smallwares required to open a Papa
John's restaurant are available from PJI. PJI also provides layout and design
services and recommends subcontractors, signage installers and telephone systems
to its franchisees. Although not required to do so, the Company purchases
substantially all of its food products and restaurant equipment from PJI.

                                       1
<PAGE>
 
     In December 1998, the Company opened its own commissary in Puerto Rico to
service its Puerto Rico restaurants. The Company expects to be able to purchase
product from PJI suppliers under the same terms and prices as PJI's
commissaries.
 
     The Company is leasing the building for the commissary, and the capital
investment for improvements and equipment is approximately $.8 million.

     Commitment to Employee Training and Development. The Company is committed
to the development and motivation of its employees through on-going training
programs, incentive compensation and opportunities for advancement. The Company
offers financial and stock incentives to employees at various levels based on
the achievement of performance goals. The Company's growth also provides
significant opportunities for advancement. The Company believes these factors
create an entrepreneurial spirit throughout the organization, resulting in a
positive work environment and motivated, customer-oriented employees.

     Marketing Programs. The Company's restaurant-level marketing programs
target the delivery area of each restaurant, making extensive use of distinctive
print materials in direct mail and store-to-door couponing. Local marketing
efforts also include a variety of community-oriented activities with schools,
sports teams and other organizations. In markets in which the Company has a
significant presence, local marketing efforts are supplemented with radio and
television advertising. The Company anticipates expanding television advertising
in 1999, as the market penetration in its existing markets has increased.

Unit Economics

     The Company believes its unit economics are exceptional. The 73 restaurants
that were open throughout the entire 1998 fiscal year generated average sales of
$774,000, average cash flow (operating income plus depreciation) of $147,000 (or
19.0% of average sales) and average restaurant operating income of $126,000 (or
16.3% of average sales). Sales and profitability in the initial months of
operations, historically have been lower than for mature restaurants.

     The average cash investment, including franchise fees for the 46
restaurants opened and acquired during the 1998 fiscal year was approximately
$255,000, exclusive of land and pre-opening costs. The Company expects the
average cash investment for restaurants to be opened in 1999 to be approximately
$260,000 and anticipates that the new restaurants to be opened in 1999 will
primarily be in California, Oregon, Puerto Rico, and Utah, which are all new
markets for Papa John's Pizza.

Expansion and Site Selection

     The Company's growth strategy will focus on further developing the Papa
John's concept through (i) building out its existing markets; (ii) acquiring and
developing new territories; and (iii) strategically acquiring existing Papa
John's franchisee groups and territories, if available. The Company's objective
is to become the leading chain of pizza delivery restaurants in each of its
targeted markets. Through a market-by-market expansion strategy focused on
clustering restaurants, the Company seeks to increase consumer awareness and
take advantage of operational and advertising efficiencies. During fiscal 1998,
the Company opened 25 restaurants and acquired

                                       2
<PAGE>
 
21 restaurants. In 1999, the Company expects to open approximately 32 additional
restaurants primarily in California, Oregon, Utah, and Puerto Rico. As part of
its overall growth strategy, the Company intends to supplement its new
restaurant development through acquisitions of existing Papa John's franchisees.

     The Company has entered into development agreements for all of its existing
markets. Pursuant to such agreements, the Company is required to open 32 and 29
restaurants in 1999 and 2000, respectively.

     The Company also has a right of first refusal with a term of five years
beginning September 1, 1996 to acquire from an affiliate of the Company, the
operations and development rights for Papa John's restaurants in Iowa, including
the Moline and Rock Island, Illinois areas (but excluding the Council Bluffs
area of Iowa), in which 13 restaurants are currently open and development rights
with respect to such territory provide that a total of 17 additional Papa John's
restaurants will be opened through 2002. There are no agreements, however, with
respect to the Company's acquisition of such territory, and there can be no
assurance that such territories will be acquired. PJI has waived its right of
first refusal with respect to the Company's possible acquisition of the Iowa
territory described above. In addition, certain officers, directors and
stockholders of the Company own interests in Papa John's franchisees that
operate in certain areas in Michigan, Ohio and South Carolina. PJI has waived
its right of first refusal with respect to the Company's possible acquisition of
such franchisees.

     The Company devotes significant resources to the investigation and
evaluation of potential sites. The site selection process focuses on trade area
demographics, target population density, household income levels and competitive
factors. Management inspects each potential Company restaurant location and the
surrounding market before a site is approved. The Company's restaurants are
typically located in strip shopping centers or free-standing buildings that
provide visibility, curb appeal and accessibility. All site selections must be
approved by PJI. Papa John's restaurant design may be configured to fit a wide
variety of building shapes and sizes, thereby increasing the number of suitable
locations for Papa John's restaurants.

Menu

     Papa John's restaurants offer a focused menu of high quality, value-priced
pizza, breadsticks and cheesesticks, as well as soft drinks. All Papa John's
original medium thick crust pizzas are prepared using fresh dough (not frozen)
made from high protein wheat flour, real mozzarella cheese, pizza sauce made
with fresh-packed tomatoes (not concentrate), a proprietary mix of savory spices
and a choice of high quality meat and vegetable toppings in generous portions.
Fresh onions, green peppers and mushrooms are chopped daily at all restaurants
and are purchased from local produce suppliers. Each pizza is complemented by a
container of Papa John's special garlic sauce and two pepperoncinis. The Company
believes its focused menu helps create a strong identity among consumers and
simplifies operations, resulting in lower operating costs, improved food quality
and superior customer service. The Company offers a thin crust pizza in all of
its markets.

                                       3
<PAGE>
 
Marketing Programs

     The Company has restaurant-level marketing programs which target the
delivery area of each restaurant, making extensive use of distinctive print
materials in direct mail and store-to-door couponing. The Company tailors its
store-to-door coupons according to customer buying habits as tracked by the
Company's point-of-sale computer systems used in each restaurant. Local
marketing efforts also include a variety of community-oriented activities with
schools, sports teams and other organizations. The Company currently supplements
its local marketing efforts with a limited amount of radio and television
advertising. The Company anticipates expanding television advertising in 1999,
as the market penetration in its existing markets has increased. The Company
believes that its marketing programs are cost-effective and significantly
increase Papa John's visibility among potential customers. The Company's
advertising expenditures as a percentage of restaurant sales for 1998 were 6.7%.

     The Company's restaurant-level marketing efforts are supported by print and
electronic advertising materials that are produced by the Papa John's Marketing
Fund, Inc. (the "Marketing Fund") for use by both PJI and its franchisees. The
required Marketing Fund contribution is established from time to time by the
governing board of the Marketing Fund and is currently 1.0% of restaurant sales.
The maximum required contribution for PJI franchisees is 1.5% of restaurant
sales and can be increased above 1.5% only upon approval by not less than 60% of
Marketing Fund members. In addition, PJI may require the Company to participate
in an advertising cooperative for its designated market area and to contribute a
minimum amount of restaurant sales for local advertising. PJI also provides each
of its franchisees with catalogs for uniforms and promotional items and pre-
approved, print marketing materials that can be ordered from PJI.

Restaurant Operations

     Management and Employees. A typical Company restaurant employs a restaurant
manager, two or three assistant managers and approximately 25 hourly employees,
most of whom work part-time. The restaurant manager is responsible for the day-
to-day operation of the restaurant and for the maintenance of Company
established operating standards. The Company seeks to hire experienced
restaurant managers and staff and motivate and retain them by providing
opportunities for advancement and performance-based financial incentives. In
addition, the Company established the 1996 Stock Ownership Incentive Plan, which
will enable the Company to provide long-term equity-based incentives for
corporate and restaurant management personnel. The Company believes that it has
a low managerial turnover rate in comparison to the quick service restaurant
industry and that this low turnover rate results in decreased training costs and
higher productivity.
 
     The Company employs area supervisors, each of whom has responsibility for
overseeing four to six Company restaurants. The Company also employs regional
operations directors who oversee area supervisors and managers within their
respective markets.

     Training. The Company has full-time training coordinators in the Alabama,
Virginia and Utah markets. In addition, PJI provides an on-site training team as
needed. Each regional area supervisor and restaurant manager is required to
complete PJI's two-week training program in which instruction is given on all
aspects of PJI's systems and operations. The program includes

                                       4
<PAGE>
 
classroom instruction and hands-on training at an operating Papa John's
restaurant. In addition, the Company has developed a specific education and
safety program for its delivery drivers.

     Point-of-Sale System. All of the Company's existing restaurants are
equipped with the Papa John's PROFIT System. The Company believes that this
technology increases speed and accuracy in order taking and pricing, reduces
paperwork and allows the restaurant manager to better monitor and control food
and labor costs. The point-of-sale system enhances restaurant-level marketing
capabilities through a database that provides information on customers and their
buying habits with respect to the Company's products. The Company is able to
obtain current restaurant reporting information, thereby improving the speed,
accuracy and efficiency of restaurant-level reporting.

     Reporting. Managers at restaurants prepare daily reports of sales, cash
deposits and operating costs. Physical inventories of all food and beverage
items are taken daily. The Company's area supervisors prepare weekly profit and
loss statements for each of the restaurants. The Company believes that the
PROFIT System helps simplify and accelerate many of these reporting functions.

     Hours of Operation. The Company's restaurants are open seven days a week,
typically from 11:00 a.m. to 12:00 midnight Sunday through Thursday, and from
11:00 a.m. to 1:30 a.m. on Friday and Saturday.

Development and Franchise Agreements

     Franchise and Development Agreements. The Company has entered into
development agreements with PJI for the right to construct one or more Papa
John's restaurants pursuant to a development schedule within specified
geographic areas in nine states and Puerto Rico.

     Generally, a franchise agreement is executed when the Company secures a
restaurant location. Each per restaurant development fee is typically credited
against PJI's franchise fee, which is payable to PJI upon signing the franchise
agreement for a specific location. The franchise fees payable with respect to
the Company's restaurants range between $10,000 and $18,500, depending upon the
date of execution of the development agreement. With respect to the Company's
recent executed development agreements (California, Oregon, Puerto Rico and
Utah), the Company expects to pay PJI's standard franchise fee (currently
$20,000) at the time the franchise agreement is entered into.

     Under each of the Company's franchise agreements, the Company pays PJI a
royalty fee of 4% of sales, PJI's current standard royalty fee. Under such
agreements, PJI may increase the royalty fee to 5% of sales after the agreement
has been in effect for between three to five years. In no event may the royalty
fee be increased to an amount greater than the royalty fee currently in effect
for new PJI franchisees.

     PJI's franchise agreements authorize the Company to use its trade names,
trademarks and service marks with respect to specific Papa John's restaurants.
PJI also provides general construction specifications, designs, color schemes,
signs, equipment, preparation methods for food and beverages, marketing
concepts, operations and financial control methods, management

                                       5
<PAGE>
 
training, technical assistance and materials. Each franchise agreement prohibits
the Company from transferring a franchise without the prior approval of PJI. PJI
has the contractual right to terminate a franchise agreement for a variety of
reasons, including a franchisee's failure to make payments when due or failure
to adhere to PJI's policies and standards. Many state franchise laws limit the
ability of a franchisor to terminate or refuse to renew a franchise.

     The development agreements, and each of the franchise agreements, prohibit
the Company, during the term of the agreements and for a two-year period
following their termination or expiration, from owning or operating any other
pizza delivery or take-out restaurant within ten to fifty miles of the franchise
granted or any other Papa John's franchise. In addition, the Company and its
senior executive officers have agreed through October 1999 not to operate any
restaurant concepts other than Papa John's without PJI's approval. Also, the
Company's directors (other than Messrs. Sherman, Schnatter and Hart) have agreed
not to be actively involved in the management of other restaurant concepts
during such period without PJI's consent.

     Franchise Restaurant Development. PJI assists the Company in selecting
sites and developing restaurants. PJI provides the Company with the physical
specifications for typical restaurants, both for free-standing restaurants and
restaurants located in strip shopping centers. The Company procures virtually
all of the design plans, counters and equipment for its restaurants from PJI at
prices the Company believes are favorable. The Company is responsible for
selecting the location for its restaurants but must obtain PJI's approval of
each restaurant design and each location based on accessibility and visibility
of the site and targeted demographic factors, including population, density,
income, age and traffic. The Company is responsible for all costs and expenses
incurred in locating, acquiring and developing restaurant sites.

     Franchise Training and Support. Each regional operations director and area
supervisor must satisfactorily complete PJI's two-week training program and must
also devote his or her full business time and efforts to the operation of the
Company's restaurants. Each of the Company's restaurant managers report to an
area supervisor and are also required to complete PJI's two-week training
program.

     Franchise Operations. All Company restaurants are required to operate in
compliance with PJI's policies, standards and specifications, including matters
such as menu items, ingredients, materials, supplies, services, fixtures,
furnishings, decor and signs. The Company has full discretion to determine the
prices to be charged to its customers.

     Reporting. PJI collects daily, weekly and monthly sales and other operating
information from the Company. The Company has agreements with PJI permitting PJI
to electronically debit the Company's bank accounts for the payment of
royalties, Marketing Fund contributions and purchases from PJI. This system
significantly reduces the resources needed to process payables.

Competition

     The restaurant industry is intensely competitive with respect to price,
service, location and food quality, and there are many well-established
competitors with substantially greater financial and other resources than the
Company. Such competitors include a large number of national and regional
restaurant chains, as well as local pizza restaurant operators. Some of the
Company's

                                       6
<PAGE>
 
competitors have been in existence for a substantially longer period than the
Company and may be better established in the markets where the Company's
restaurants are, or may be, located. Within the pizza segment of the restaurant
industry, the Company believes that its primary competitors are the national
pizza chains, including Pizza Hut, Domino's and Little Caesar's. A change in the
pricing, marketing or promotional strategies or product mix of one or more of
these competitors could have a material adverse impact on the Company's sales
and earnings. In general, there is also active competition for management
personnel and real estate sites suitable for Papa John's restaurants.

     The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing restaurants. In
addition, factors such as inflation, increased food, labor and benefits costs
and the lack of experienced management and hourly employees may adversely affect
the restaurant industry in general and the Company's restaurants in particular.

Government Regulation

     The Company is subject to various Federal, state and local laws affecting
its business. Each Papa John's restaurant is subject to licensing and regulation
by a number of governmental authorities, which include health, safety,
sanitation, building and fire agencies in the state or municipality in which the
restaurant is located. Difficulties in obtaining or failures to obtain required
licenses or approvals can delay or prevent the opening of a new restaurant in a
particular area. The Company is also subject to Federal and state environmental
regulations, but these have not had a material effect on the Company's
operations.
 
     The Company's relationship with PJI is governed by the laws of several
states which regulate substantive aspects of the franchisor-franchisee
relationship. Substantive state laws that regulate the franchisor-franchisee
relationship presently exist or are being considered in a substantial number of
states and bills have been introduced in Congress (one of which is now pending)
which would provide for Federal regulation of substantive aspects of the
franchisor-franchisee relationship. These current and proposed franchise
relationship laws limit, among other things, the duration and scope of non-
competition provisions, the ability of a franchisor to terminate or refuse to
renew a franchise and the ability of a franchisor to designate sources of
supply.

     The Company's restaurant operations are also subject to Federal and state
laws governing such matters as wages, working conditions, citizenship
requirements and overtime. Some states have set minimum wage requirements higher
than the Federal level, and the Federal government increased the Federal minimum
wage in September 1997. Significant numbers of hourly personnel at the Company's
restaurants are paid at rates related to the Federal minimum wage and,
accordingly, increases in the minimum wage increase labor costs at the Company's
restaurants. Other governmental initiatives such as mandated health insurance,
if implemented, could adversely affect the Company as well as the restaurant
industry in general. The Company is also subject to the Americans With
Disabilities Act of 1990, which, among other things, may require certain minor
renovations to its restaurants to meet federally-mandated requirements. The cost
of these renovations is not expected to be material to the Company.

                                       7
<PAGE>
 
     The Company has been granted by PJI the rights to enter into development
agreements for Papa John's restaurants in Puerto Rico. The Company's ability to
establish international operations is subject to various risks, including
changing political and economic conditions, currency fluctuations, trade
barriers, adverse tax consequences, and government regulations relating to,
among other things, the preparation and sale of food, building and zoning
requirements, wages, working conditions, and the Company's relationship with its
employees. There can be no assurance that the Company will be successful in
establishing its international operations or that such risks will not have a
material adverse effect on the Company in the future.

Trademarks

     The Company's rights to use PJI's trademarks and service marks are
significant to the Company's business. PJI is the owner of the Federal
registration of the trademark "Papa John's." PJI has also registered "Pizza Papa
John's" and design as a trademark and a service mark. PJI owns Federal
registrations for the marks "Pizza Papa John's Delivering the Perfect Pizza!"
and design, "Call Your Papa," "Perfect Pizza Perfect Price," "Delivering the
Perfect Pizza!", "We Deliver Perfection," "The Official Pizza of Summer," and
"Pizza Papa John's Print Network." PJI has applied for the registration of
"Pizza Papa John's Better Ingredients, Better Pizza" and design, "Better
Ingredients, Better Pizza" and design, and miscellaneous design (Papa John's
logo). PJI is aware of the use by other persons in certain geographic areas of
names and marks which are the same as or similar to the Company's marks. It is
PJI's policy to pursue registration of its marks whenever possible and to
vigorously oppose any infringement of its marks.

Employees

     At February 1, 1999, the Company had approximately 4,000 employees of which
approximately 3,400 were restaurant employees, approximately 540 were restaurant
management and supervisory personnel and approximately 60 were corporate
personnel. Most restaurant employees are part-time and are paid on an hourly
basis. None of the Company's employees are currently represented by a labor
union, and the Company is not aware of any union organizing activity among its
employees. The Company believes that its relationship with its employees is
good.

Cautionary Statements

     Information provided in this Form 10-K under the captions "Business -
Strategy," "- Expansion and Site Selection," "- Development and Franchise
Agreements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains, and from time to time the Company may
disseminate materials and make statements which may contain "forward-looking"
information, as that term is defined by the Private Securities Litigation Reform
Act of 1995 (the "Act"). These cautionary statements are being made pursuant to
the provisions of the Act and with the intention of obtaining the benefits of
the "safe harbor" provisions of the Act. The Company cautions investors that any
forward-looking statements made by the Company are not guarantees of future
performance and that actual results may differ materially from those in the
forward-looking statements as a result of various factors, including but not
limited to: (i) the ability to upgrade the Company's infrastructure to support
its operations and development plans, (ii) the ability of the Company, PJI and
PJI's franchisees to expand

                                       8
<PAGE>
 
through the opening of new restaurants which may be affected by the selection
and availability of suitable restaurant locations, negotiation of suitable
leases or financing terms, constraints on permitting and construction of
restaurants, and the hiring, training and retention of management and other
personnel, (iii) the Company's ability to acquire existing PJI's franchisees may
be hindered by competition from PJI, which has a right to approve and a right of
first refusal with respect to the sale of all Papa John's restaurants, (iv) the
overall success of PJI, (v) the restaurant industry is intensely competitive
with respect to price, service, location and food quality, and there are many
well established competitors with substantially greater financial and other
resources than the Company, PJI and PJI's franchisees and some of these
competitors have been in existence for a substantially longer period than the
Company, PJI and PJI's franchisees and may be better established in the markets
where restaurants operated by the Company, PJI or PJI's franchisees are, or may
be, located (vi) a change in the pricing or other marketing or impact on sales
and earnings at restaurants operated by the Company, PJI and PJI's franchisees,
(vii) increases in operating costs such as inflation, increased food costs,
increased labor and employee benefit costs and the availability of qualified
management and hourly employees, (viii) the availability of capital to the
Company, PJI and PJI's franchisees and (ix) changes in governmental regulations,
including further increases in the minimum wage.

Item 2.  Properties

     At December 27, 1998, the Company operated 119 Papa John's restaurants.

                                    Number of
                                   Restaurants

                  Alabama               23
                  California             4
                  Louisiana             12
                  Ohio                   9
                  Oregon                 4
                  Puerto Rico            2
                  Texas                  8
                  Utah                  14
                  Virginia              42
                  Washington             1

                  Total                119
                                                                               
     All but eight of the Company's restaurants are located in leased space. The
initial terms of most of the Company's leases are three to five years and
provide for one or more options to renew for at least one additional term. The
Company's leases generally specify a fixed annual rent with fixed increases, or
increases based on changes in the Consumer Price Index, at various intervals
during the lease term. Generally, the leases are net leases which require the
Company to pay all or a portion of the cost of insurance, maintenance and
utilities.

     The Company leases approximately 7,000 square feet of corporate office
space collectively in Alabama, Virginia, Kentucky and Louisiana. In December
1998, the Company completed the construction of an office building in Alabama,
which it owns.

                                       9
<PAGE>
 
Item 3.  Legal Proceedings

     The Company is involved in lawsuits and claims arising in the normal course
of business. In the opinion of management of the Company, although the outcomes
of these lawsuits and claims are uncertain, in the aggregate they will not have
a material adverse effect on the Company's business, financial condition or
results of operations.

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

     Not applicable.

                                       10
<PAGE>

                     EXECUTIVE OFFICERS OF THE REGISTRANT

     Set forth below are the current executive officers of the Company, together
with their ages, their positions with the Company and the year in which they
first became an officer of the Company:
<TABLE>
<CAPTION>
                                                                                   First Elected
Name                      Age     Position                                       Executive Officer
----                      ---     --------                                       -----------------
<S>                       <C>     <C>                                            <C>
Richard F. Sherman         55     Chairman of the Board                                       1991
Douglas S. Stephens        35     President, Chief Executive Officer                          1991
D. Ross Davison            37     Vice President - Chief Financial                            1996
                                  Officer and Treasurer
James S. Riekel            39     Vice President - Regional Operations                        1993
Robert W. Curtis, Jr.      34     Vice President - Regional Operations                        1998
John D. Rose               45     Vice President - Real Estate & Development                  1998
</TABLE>

     Richard F. Sherman has served as a director and Chairman of the Board of
the Company or certain predecessors since 1991. Mr. Sherman is a private
investor who has been a franchisee and a consultant to PJI since 1991. From 1993
to present, Mr. Sherman has been a director of PJI. From 1987 to 1991, Mr.
Sherman was Chairman of the Board and President of Rally's Hamburgers, Inc. From
1984 to 1987, Mr. Sherman was President and a director of Church's Chicken, Inc.
From 1971 to 1984, Mr. Sherman was Group Executive Vice President and director
of Hardee's Food Systems, Inc. and its parent, Imasco USA, Inc. Mr. Sherman
serves on the board of directors of Taco Cabana, Inc., and Reed's Jewelers, Inc.

     Douglas S. Stephens has served as a director, President and Chief Executive
Officer of the Company or certain predecessors since 1991. From 1989 to 1991,
Mr. Stephens was the Vice President of Information Systems for the Kentucky
Lottery Corporation. From 1986 to 1989, Mr. Stephens was a systems consultant
for Andersen Consulting, a division of Arthur Andersen, LLP, an international
professional services firm.

     D. Ross Davison has served as Vice President - Chief Financial Officer and
Treasurer of the Company since 1996. From 1985 to 1996, Mr. Davison was with
Arthur Andersen, LLP, an international professional services firm, and his most
recent position was Senior Manager. From 1983 to 1985, Mr. Davison was with
Cotton and Allen, P.S.C., a certified public accounting firm. Mr. Davison is a
licensed Certified Public Accountant.

     James S. Riekel has served as Vice President - Regional Operations of the
Company or certain predecessors since 1992. From 1983 to 1992, Mr. Riekel was
with Domino's Pizza, Inc., where his most recent position was Regional
Operations Director.

     Robert W. Curtis, Jr. was elected Vice President - Regional Operations of
the Company in 1998. Mr. Curtis served as Senior Operations Director of Alabama
from 1993 to 1998. Mr. Curtis has worked for Domino's Pizza (8 years) and Papa
John's International, Inc. (2 years).

     John D. Rose has served as Vice President - Real Estate and Development
since August 1998. From 1996 to 1998, Mr. Rose was Vice President of Real Estate
for Famous Dave's of America. From 1992 to 1996 Mr. Rose held various positions
in the real estate department of PJI.

                                       11
<PAGE>
 
                                    PART II


Item 5.         Market for Registrant's Common Equity and Related Stockholder
                  Matters
              
Item 6.         Selected Financial Data
              
Item 7.         Management's Discussion and Analysis of Financial Condition and
                  Results of Operations
              
Item 7a.        Qualitative and Quantitative Disclosures About Market Risk
              
                N/A
              
Item 8.         Financial Statements and Supplementary Data
              
Item 9.         Changes in and Disagreements with Accountants on Accounting and
                  Financial Disclosure
              
                None


                                    PART III

Items 10 - 13.  Directors and Executive Officers of the Registrant; Executive
                  Compensation; Security Ownership of Certain Beneficial Owners
                  and Management; and Certain Relationships and Related
                  Transactions

     The information required by these items, other than the information set
forth in this Report under Part I, "Executive Officers of Registrant," is
omitted because the Company is filing a definitive proxy statement pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Report which includes the required information. Such information is
incorporated herein by reference.

                                       12
<PAGE>
 
                                    PART II


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

     The Company's common stock has traded on the Nasdaq National Market System
under the trading symbol "PJAM" since October 25, 1996. At February 4, 1999,
there were approximately 70 record holders of the Company's common stock. The
following table sets forth the high and low sales prices of the Company's common
stock for the quarters indicated, as reported by the Nasdaq National Market
System:
<TABLE>
<CAPTION>
              1998
          Quarter Ended       High       Low
          -------------       ----       ---
          <S>                <C>        <C>

          First Quarter      $18.63     $14.50
          Second Quarter     $21.50     $17.50
          Third Quarter      $21.38     $13.25
          Fourth Quarter     $20.50     $13.25


              1997
          Quarter Ended       High       Low
          -------------       ----       ---

          First Quarter      $19.25     $14.00
          Second Quarter     $18.88     $12.13
          Third Quarter      $18.75     $15.13
          Fourth Quarter     $17.88     $13.25
</TABLE>

Since its initial public offering of common stock in October 1996, the Company
has not paid dividends on its common stock, and has no plans to do so in the
foreseeable future.

                                      13
<PAGE>

Item 6.   Selected Financial Data (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                          FOR THE YEARS ENDED (1)
                                                       -------------------------------------------------------------
                                                        (2)(4)      (2)(3)(4)     (2)(3)(4)       (4)
                                                       Dec. 25,     Dec. 31,      Dec. 29,      Dec. 28,     Dec. 27,
                                                         1994         1995          1996          1997         1998
                                                       -------------------------------------------------------------
<S>                                                    <C>          <C>           <C>           <C>          <C>
Restaurant sales                                        $6,415       $16,744       $24,550      $48,128      $68,586
Cost and expenses:
     Cost of sales                                       2,098         5,630         8,064       15,251       22,153
     Salaries and benefits                               1,677         4,158         6,113       12,508       18,272
     Other operating expenses                            1,481         3,820         5,833       11,535       15,971
     General and administrative expenses                   433           887         1,402        2,558        3,466
     Depreciation and amortization                         172           393           628        1,302        2,078
                                                       -------------------------------------------------------------
          Total costs and expenses                       5,861        14,888        22,040       43,154       61,940
                                                       -------------------------------------------------------------
Operating income                                           554         1,856         2,510        4,974        6,646
Other income (expense), net                                (22)          (78)           11          864          916
                                                       -------------------------------------------------------------
Income before income taxes                                 532         1,778         2,521        5,838        7,562
Provision for income taxes                                 194           684           941        2,040        2,495
                                                       -------------------------------------------------------------
     Net income                                         $  338        $1,094       $ 1,580      $ 3,798      $ 5,067
                                                       =============================================================

     Net income per share - Basic                                     $ 0.52       $  0.61      $  0.71      $  0.88
                                                                      ----------------------------------------------
     Net income per share - Diluted                                   $ 0.52       $  0.61      $  0.69      $  0.86
                                                                      ==============================================
     Weighted average shares outstanding - Basic                       2,120         2,583        5,369        5,777
                                                                      ----------------------------------------------
     Weighted average shares outstanding - Diluted                     2,120         2,610        5,483        5,919
                                                                      ===============================================

Balance sheet data (end of period):
     Total assets                                       $1,655        $3,628       $23,614      $40,283      $48,813
     Total debt, including current maturities              427         1,071            70          -            -
     Stockholders' equity                                  995         1,885        21,518       36,807       41,746
</TABLE>

(1)  The Company operates on a 52-53 week year ending on the last Sunday in
     December each year. Fiscal 1995 was a 53 week year.

(2)  Includes the Alabama Group for the entire period presented. Fiscal 1996
     also includes the Virginia Group from the date of acquisition (October 30,
     1996), which was simultaneous with the closing of the IPO.

(3)  Fiscal 1995 and 1996 represent the results of operations of the Company
     restated to give retroactive effect to the merger with OPD on June 5, 1997,
     which was accounted for as a pooling of interests, as if the merger had
     occurred at the beginning of fiscal 1995.

(4)  Net income reflects a pro forma provision for income taxes assuming the
     Company's predecessors and OPD were C corporations rather than S
     corporations.

                                      14

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

Introduction

     The Company is the largest franchisee of Papa John's pizza delivery and
carry-out restaurants. At December 27, 1998, the Company owned and operated 119
Papa John's restaurants in nine states and Puerto Rico.

     The Company succeeded to the businesses of five PJI franchisees
("Predecessor Companies") on October 30, 1996 concurrent with the closing of the
Company's IPO.

     On June 5, 1997, a subsidiary of the Company merged with OPD acquiring
eight Papa John's restaurants in the Akron, Ohio area. This transaction was
accounted for as a pooling of interests and accordingly, the financial
statements for 1996 have been restated.

     The Company's restaurants operate under separate franchise agreements,
which generally have terms between five and ten years (with renewal options
between five and ten years) and require payment of monthly royalties equal to 4%
of restaurant sales. The Company also has entered into development agreements
with PJI to open a certain number of restaurants over a defined period of time
within specific geographic areas. The Company's development agreements generally
require it to pay a non-refundable fee per restaurant covered by the respective
agreements and which fee is typically credited against the initial franchise fee
that the Company is required to pay for each new restaurant opened. The Company
amortizes development and franchise fees over a 20-year period, beginning with
the opening of a restaurant.

     The Company's growth strategy focuses on further developing the Papa John's
concept through: (i) building out its existing markets; (ii) acquiring and
developing new territories; and (iii) strategically acquiring existing Papa
John's franchisee groups and territories, if available. The Company's market-by-
market expansion strategy has contributed to increases in comparable restaurant
sales, although there can be no assurance that comparable restaurant sales will
continue to be positive.

     The average cash investment including franchise fees for the 46 restaurants
opened or acquired during 1998 was approximately $255,000 (25 openings, and 21
acquired), exclusive of land and pre-opening costs. The Company expects the
average cash investment for restaurants opened in 1999 to be approximately
$260,000. The expected increase in the unit cost is primarily due to a higher
proportion of free-standing units and higher construction costs in California,
Oregon and Puerto Rico.

     The Company believes its expansion strategy has contributed to obtaining
higher average restaurant sales than the Papa John's franchise system. For
restaurants open throughout 1998, average sales in 1998 were $774,000, compared
to average sales in 1997 of $773,000, with the restaurant base increasing 59%
(from 46 restaurants to 73 restaurants).

     The Predecessor Companies operated as S corporations until October 29,
1996. As such, the earnings of the Predecessor Companies were taxed for federal
and state income tax purposes directly to the Predecessor Companies'
stockholders. Beginning October 30, 1996, the Company became subject to
corporate level income taxes (June 5, 1997 for OPD).

                                      15
<PAGE>
 
1998 Compared to 1997

     Restaurant Sales.  Restaurant sales increased 43% to $68.6 million in 1998,
from $48.1 million in 1997. This increase was primarily due to a 47% increase in
the number of equivalent restaurants open during 1998 as compared to 1997.
"Equivalent restaurants" represents the number of restaurants open at the
beginning of a given period, adjusted for restaurants opened or acquired during
the period on a weighted average basis. Also, comparable sales increased 4.5% in
1998 over 1997, for restaurants open throughout both years.

     Costs and Expenses.  Cost of sales, which consists of food, beverage, and
paper costs, increased $6.9 million, and increased as a percentage of restaurant
sales to 32.3% in 1998 from 31.7% in 1997. This percentage increase is primarily
attributable to significantly higher average cheese costs in the second half of
1998, partially offset by a slight shallowing of discounts.

     Salaries and benefits, which consist of all store level employee wages,
taxes and benefits, increased $5.8 million, and increased as a percentage of
restaurant sales to 26.6% in 1998 from 26.0% in 1997. The percentage increase
was primarily due to the increase in the minimum wage in September 1997, and a
higher proportion of new restaurant openings in 1998.

     Other operating expenses include other restaurant level operating costs,
the material components of which are automobile mileage reimbursement for
delivery drivers, rent, royalties, utility expenses, and advertising expenses.
Other operating expenses increased $4.4 million, and decreased as a percentage
of restaurant sales to 23.3% in 1998 compared to 24.0% in 1997. This percentage
decrease is primarily due to increased leverage of advertising expenses, mileage
reimbursement and insurance expense, partially offset by higher occupancy and
other operating expenses for newer restaurants.

     General and administrative expenses increased $.9 million and decreased as
a percentage of restaurant sales to 5.1% in 1998 from 5.3% in 1997.

     Depreciation and amortization increased by $.8 million, and increased
slightly as a percentage of restaurant sales to 3.0% in 1998 from 2.7% in 1997.
The dollar and percentage increases were primarily due to goodwill amortization
of acquired restaurants in late 1997 and 1998, and the higher proportion of new
restaurant openings.

     Other Income.  Other income, consisting primarily of investment income, was
consistent at $.9 million. Investment balances are considered available to fund
growth and acquisitions.

                                       16
<PAGE>
 
1997 Compared to 1996

     Restaurant Sales.  Restaurant sales increased 96% to $48.1 million in 1997,
from $24.6 million in 1996. This increase was primarily due to a 109% increase
in the number of equivalent restaurants open during 1997 as compared to 1996
(acquisition of 25 Virginia restaurants on October 30, 1996). Also, comparable
sales increased 6.9% in 1997 over 1996, for restaurants open throughout both
years.

     Costs and Expenses.  Cost of sales, which consists of food, beverage, and
paper costs, increased $7.2 million, but decreased as a percentage of restaurant
sales to 31.7% in 1997 from 32.8% in 1996. This percentage decrease is primarily
attributable to lower average cheese costs in 1997 as compared to 1996.

     Salaries and benefits, which consist of all store level employee wages,
taxes and benefits, increased $6.4 million, and increased as a percentage of
restaurant sales to 26.0% in 1997 from 24.9% in 1996. The increase in salaries
and benefits as a percentage of restaurant sales was primarily due to increases
in the minimum wage in October 1996 and September 1997, partially offset by
improved labor utilization.

     Other operating expenses include other restaurant level operating costs,
the material components of which are automobile mileage reimbursement for
delivery drivers, rent, royalties, utility expenses, and advertising expenses.
Other operating expenses increased $5.7 million, and increased as a percentage
of restaurant sales to 24.0% in 1997 compared to 23.8% in 1996. This percentage
increase is primarily due to the acquisition of the Virginia restaurants, which
historically have had higher other operating expenses as a percentage of
restaurant sales, partially offset by increased leverage of expenses as a result
of comparable restaurant sale increases and increased purchasing power.

     General and administrative expenses increased $1.2 million and decreased as
a percentage of restaurant sales to 5.3% in 1997 from 5.7% in 1996. The decrease
was primarily due to the leveraging of general and administrative expenses as a
result of increased sales, partially offset by additional corporate
infrastructure necessary to support planned growth.

     Depreciation and amortization increased by $.7 million, and increased
slightly as a percentage of restaurant sales to 2.7% in 1997 from 2.6% in 1996.
The dollar increase was primarily due to the addition of new and acquired
restaurants.

     Other Income.  Other income, consisting primarily of investment income,
increased $.9 million. The increase in investment income was a result of
earnings on funds received from the IPO in October 1996 and the secondary stock
offering in July 1997.

                                      17
<PAGE>
 
Liquidity and Capital Resources

     The Company requires capital primarily for the development and acquisition
of new restaurants. Total capital expenditures (which include franchise and
development fees) for 1998 were approximately $10.0 million, primarily for the
opening of restaurants, commissary assets, and an office building. In addition,
the Company acquired 21 restaurants, construction in process, development
territory (31 additional restaurants) and other assets for cash from other Papa
John's franchisees for $9.0 million.

     Cash provided by operating activities was $9.5 million, $6.5 million, and
$3.7 million in 1998, 1997, and 1996, respectively. The increases are primarily
the result of higher net income and depreciation and amortization.

     The Company has financed its operations principally from cash provided by
operating activities and proceeds from stock offerings. The Company received
$19.2 million in net cash proceeds from its IPO in October 1996. As a result of
the IPO, the Company used approximately $2.0 million of the IPO proceeds to fund
final S corporation distributions to stockholders, $1.6 million to retire
stockholder indebtedness, and $2.0 million to retire bank indebtedness. The
remaining net proceeds were used to fund capital expenditures in 1996 or were
held in various investments. The Company also received net proceeds of $12.2
million from a secondary stock offering in July, 1997, which were used to fund
capital expenditures or were held in various investments.

     Capital expenditures are expected to be approximately $9 million for 1999,
all of which is expected to be for restaurant development and existing
restaurant improvements. The Company also may acquire the operations of other
Papa John's franchisees if such operations become available on terms
satisfactory to the Company. Capital resources at December 27, 1998 include
$18.4 million of cash and investments. The Company plans to fund its capital
expenditures through 1999 from available cash, investments, and cash generated
from operations. The Company has not sought and does not have any commitments
for any credit facilities.

Impact of Inflation

     The Company does not believe inflation has materially affected earnings
during the past three years. Substantial increases in costs, particularly labor,
employee benefits or food costs, could have a significant impact on the Company
in the future.

Impact of Year 2000

     Some of the Company's older purchased software programs were written using
two digits rather than four to define the applicable year. As a result, time-
sensitive software or hardware recognizes a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or miscalculations
resulting in disruptions of important administrative processes, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

                                      18
<PAGE>
 
The Company has completed an assessment of its computer systems and will have to
modify or replace certain software and hardware so that they will function
properly in the year 2000 and thereafter. Based on the Company's assessment or
representations from software suppliers, or both, the Company believes the total
Year 2000 project cost will be less than $25,000 and costs incurred to date have
been less than $5,000. Much of the cost related to Year 2000 coincides with
existing management plans to replace certain systems (principally the financial
accounting system) in order to accommodate the Company's planned growth. The
Company expects the new accounting system to be implemented by June 1999. The
timing of implementation was not materially affected by Year 2000 concerns.

The Company believes that with the planned modifications to existing software
and/or conversions to new software and hardware as described above, the Year
2000 issue will not pose significant operational problems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material impact on certain administrative
processes, but would not be expected to have a material impact on restaurant
operating processes.

The Company's payroll system interfaces directly with a significant third party
vendor. The Company has completed the testing and implementation of the Year
2000 compliant software utilized to interface directly with this third party
vendor. The Company is in the process of querying its significant vendors with
respect to Year 2000 issues. Based on the responses received from vendors, the
Company is not aware of any vendors with a Year 2000 issue that would materially
impact results of operations, liquidity, or capital resources. However, the
Company has no means of ensuring that vendors will be Year 2000 ready. The
inability of vendors to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company, although the actual impact of non-
compliance by vendors is not determinable.

The Company has no contingency plans in place in the event it does not complete
all phases of its Year 2000 program. The Company plans to evaluate the status of
completion in June 1999 to determine whether such contingency plans are
necessary, although at this time the Company knows of no reason its Year 2000
program will not be completed in a timely manner.

Item 7a.  Qualitative and Quantitative Disclosures About Market Risk

N/A

                                      19
<PAGE>


Item 8.  Financial Statements and Supplementary Data

The following table sets forth the percentage relationship to restaurant sales
for certain income statement data for the Company:

<TABLE>
<CAPTION>
                                                                       For the Years Ended (1)
                                                               ----------------------------------------
                                                                  Dec. 29,       Dec. 28,    Dec. 27
                                                               1996 (2)(3)(4)    1997(4)      1998
                                                               ----------------------------------------
<S>                                                            <C>               <C>         <C>
Restaurant sales                                                        100.0%    100.0%      100.0%
Cost and expenses:
  Cost of sales                                                          32.8      31.7        32.3
  Salaries and benefits                                                  24.9      26.0        26.6
  Other operating expenses                                               23.8      24.0        23.3
  General and administrative expenses                                     5.7       5.3         5.1
  Depreciation and amortization                                           2.6       2.7         3.0
                                                               ----------------------------------------
    Total costs and expenses                                             89.8      89.7        90.3
                                                               ----------------------------------------
Operating income                                                         10.2      10.3         9.7
Other income                                                                -       1.8         1.3
                                                               ----------------------------------------
Income before income taxes                                               10.2      12.1        11.0
Provision for income taxes                                                3.8       4.2         3.6
                                                               ----------------------------------------
Net income                                                                6.4%      7.9%        7.4%
                                                               ========================================

Restaurant data - the Company (5):                                       1996      1997        1998
                                                               ----------------------------------------
  Percentage change in comparable restaurant sales                        4.7%      6.9%        4.5%
  Average sales for restaurants open for
   full year (in thousands)                                             $ 721     $ 773       $ 774
                                                               ========================================
Number of restaurants:
  Beginning of year                                                        39        46          73
  Opened                                                                    7        11          25
  Acquired                                                                  -        16          21
                                                               ----------------------------------------
  End of year                                                              46        73         119
                                                               ========================================
</TABLE>

(1)  The Company operates on a 52-53 week year ending on the last Sunday in
     December each year. All years presented are 52 week years.

(2)  Fiscal 1996 includes the Virginia Group from the date of acquisition
     (October 30, 1996), which was simultaneous with the closing of the IPO.

(3)  Fiscal 1996 represents the results of operations of the Company restated to
     give retroactive effect to the merger with OPD on June 5, 1997, which was
     accounted for as a pooling of interests, as if the merger had occurred at
     the beginning of fiscal 1996.

(4)  Net income reflects a pro forma provision for income taxes assuming the
     Company's predecessors and OPD were C corporations rather than S
     corporations for each period.

(5)  Includes all restaurants included in the IPO as if they were operated by
     the Company for 1996.

                                      20
<PAGE>

             Index to Financial Statements and Supplementary Data

                                                                           Page
                                                                           ----
Audited Consolidated Financial Statements

Consolidated Balance Sheets as of December 28, 1997 and December 27, 1998.. 22

Consolidated Statements of Income for the Years Ended December 29, 1996,
     December 28, 1997 and December 27, 1998............................... 23

Consolidated Statements of Stockholders' Equity for the Years Ended
     December 29, 1996, December 28, 1997 and December 27, 1998............ 24

Consolidated Statements of Cash Flows for the Years Ended
December 29, 1996, December 28, 1997 and December 27, 1998................. 25

Notes to Consolidated Financial Statements................................. 26

Report of Management....................................................... 41

Report of Independent Auditors............................................. 42


                                      21
<PAGE>

                       PJ AMERICA, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                Dec. 28,   Dec. 27,
(In thousands, except per share data)                             1997       1998
                                                                --------   --------
<S>                                                             <C>        <C>
                           ASSETS
Current assets:
    Cash and cash equivalents                                   $ 6,674    $ 5,026
    Inventories                                                     311        549
    Prepaid expenses and other                                      360        264
    Investments                                                   9,830      8,305
    Deferred income taxes                                           111        151
                                                                -------    -------

        Total current assets                                     17,286     14,295
Investments                                                      11,402      5,041
Net property and equipment                                        9,419     21,146
Deferred franchise and development costs, net of accumulated
  amortization of $149 in 1997 and $248 in 1998                   1,308      3,546
Goodwill, net of accumulated amortization of $10 in 1997 and
  $132 in 1998                                                      731      4,576
Other assets                                                        137        209
                                                                -------    -------
        Total assets                                            $40,283    $48,813
                                                                =======    =======

            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                            $   525    $   508
    Accounts payable - PJI                                            -      1,345
    Accrued expenses                                              2,420      4,263
                                                                -------    -------
          Total current liabilities                               2,945      6,116

Deferred income taxes                                               531        951

Stockholders' equity:
    Preferred stock ($1.00 par value per share; authorized
      1,000 shares, no shares issued and outstanding)                 -          -
    Common stock ($.01 par value per share; authorized 
      20,000 shares; issued and outstanding shares of 5,782
      in 1997 and 5,772 in 1998)                                     58         58
    Additional paid-in-capital                                   32,197     32,565
    Retained earnings                                             4,552      9,123
                                                                -------    -------
        Total stockholders' equity                               36,807     41,746
                                                                -------    -------
        Total liabilities and stockholders' equity              $40,283    $48,813
                                                                =======    =======
</TABLE>

                           (See accompanying notes)


                                      22

<PAGE>

                       PJ AMERICA, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                      For the Years Ended
                                                 ------------------------------
                                                 Dec. 29,   Dec. 28,   Dec. 27,
                                                   1996       1997       1998
                                                 --------   --------   --------
<S>                                              <C>        <C>        <C>
(In thousands, except per share amounts)
Restaurant sales                                  $24,550    $48,128    $68,586
Restaurant operating expenses:
    Cost of sales                                   8,064     15,251     22,153
    Salaries and benefits                           6,113     12,508     18,272
    Other operating expenses                        5,833     11,535     15,971
    Depreciation and amortization                     628      1,302      2,078
                                                  -------    -------    -------
                                                   20,638     40,596     58,474
                                                  -------    -------    -------

Restaurant operating income                         3,912      7,532     10,112
General and administrative expenses                 1,402      2,558      3,466
                                                  -------    -------    -------

Operating income                                    2,510      4,974      6,646
Other income                                           11        864        916
                                                  -------    -------    -------
Income before income taxes                          2,521      5,838      7,562
Income tax expense                                    250      1,943      2,495
                                                  -------    -------    -------
Net income                                        $ 2,271    $ 3,895    $ 5,067
                                                  =======    =======    =======

Net income per share - Basic                                            $  0.88
                                                                        =======
Net income per share - Diluted                                          $  0.86
                                                                        =======
Weighted average shares outstanding - Basic                               5,777
                                                                        =======
Weighted average shares outstanding - Diluted                             5,919
                                                                        =======

Pro forma income data (unaudited) (Note 4):
Historical income before income tax expense       $ 2,521    $ 5,838
Pro forma income tax expense                          941      2,040
                                                  -------    -------
Pro forma net income                              $ 1,580    $ 3,798
                                                  =======    =======

Pro forma net income per share:
    Basic                                         $  0.61    $  0.71
                                                  =======    =======
    Diluted                                       $  0.61    $  0.69
                                                  =======    =======
Weighted average shares outstanding:
    Basic                                           2,583      5,369
                                                  =======    =======
    Diluted                                         2,610      5,483
                                                  =======    =======
</TABLE>


                           (See accompanying notes)


                                      23

<PAGE>

                       PJ AMERICA, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                               Common Stock   Additional               Total
                                                              --------------   Paid-In    Retained  Stockholders'
                                                              Shares  Amount   Capital    Earnings     Equity
                                                              ---------------------------------------------------
<S>                                                           <C>     <C>     <C>         <C>       <C>
(In thousands)

Balance, December 31, 1995                                        1    $ 3     $   447     $ 1,435     $ 1,885
    Net income                                                    -      -           -       2,271       2,271
    S corporation distributions                                   -      -           -      (4,099)     (4,099)
    Stock splits and changes in par and authorized shares     1,769     15         (15)          -           -
    Change in par value applicable merger with OPD              277      2          (2)          -           -
    Issuance of common stock (net of issuance costs)          1,755     18      19,224           -      19,242
    Acquisition of Virginia group                             1,230     12         291       1,832       2,135
    Issuance of warrant to PJI                                    -      -          84           -          84
                                                              ------------------------------------------------

Balance, December 29, 1996                                    5,032     50      20,029       1,439      21,518
    Net income                                                    -      -           -       3,895       3,895
    S corporation distributions - OPD                             -      -           -        (782)       (782)
    Issuance of common stock (net of issuance costs)            750      8      12,168           -      12,176
                                                              ------------------------------------------------
Balance, December 28, 1997                                    5,782     58      32,197       4,552      36,807
    Net income                                                    -      -           -       5,067       5,067
    Proceeds from exercise of stock options                      45      -         675           -         675
    Repurchases of common stock                                 (55)     -        (307)       (496)       (803)
                                                              ------------------------------------------------
Balance, December 27, 1998                                    5,772    $58     $32,565      $9,123     $41,746
                                                              ================================================
</TABLE>


                           (See accompanying notes)


                                      24

<PAGE>

                       PJ AMERICA, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
                                                            For the Years Ended
                                                       ------------------------------
                                                       Dec. 29,   Dec. 28,   Dec. 27,
                                                         1996       1997       1998
                                                       ------------------------------
<S>                                                    <C>        <C>        <C>
Operating activities:
Net income                                             $  2,271   $  3,895   $  5,067
Adjustments to reconcile net income to net cash
  provided by operating activities:
Depreciation and amortization                               628      1,302      2,078
Deferred income taxes                                       (33)       453        380
Changes in operating assets and liabilities:
    Inventories                                             (69)       (82)      (140)
    Prepaid expenses and other                              130          8         31
    Accounts payable                                       (143)       336       (127)
    Accrued expenses                                        879        654        402
    Accounts payable - PJI                                    -          -      1,345
    Other                                                     -          -        362
Other assets                                                 (6)       (35)        53
                                                       ------------------------------
Net cash provided by operating activities                 3,657      6,531      9,451

Investing Activities:
Purchases of property, equipment franchise and
  development fees                                       (1,385)    (4,462)   (10,005)
Purchases of investments                                (12,058)   (50,550)   (36,154)
Proceeds from maturity of investments                         -     41,376     44,040
Purchase of Virginia Group                                  985          -          -
Purchase of PJ Louisiana and PJ Utah                          -     (1,621)    (9,049)
Other                                                        81          -          -
                                                       ------------------------------
Net cash used in investing activities                   (12,377)   (15,257)   (11,168)

Financing Activities:
Proceeds from bank borrowings                             1,065          -          -
Proceeds from issuance of common stock                   19,242     12,176          -
Proceeds from exercise of stock options                       -          -        675
Repurchases of common stock                                   -          -       (803)
Payments on bank borrowings                              (2,423)       (70)         -
Issuance of (payments on) stockholder notes              (1,496)         -        197
Distributions paid - S Corporation                       (4,099)      (782)         -
                                                       ------------------------------
Net cash provided by financing activities                12,289     11,324         69
                                                       ------------------------------

Net increase (decrease) in cash and cash equivalents      3,569      2,598     (1,648)
Cash and cash equivalents at beginning of year              507      4,076      6,674
                                                       ------------------------------
Cash and cash equivalents at end of year               $  4,076   $  6,674   $  5,026
                                                       ==============================
</TABLE>

                           (See accompanying notes)


                                      25

<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Basis of Presentation, Description of Business, and Reorganization

Basis of Presentation

     The accompanying consolidated financial statements include the accounts of
PJ America, Inc. and its wholly-owned subsidiaries (the Company). All
significant inter-company transactions between the consolidated companies have
been eliminated. Prior to the Company's initial public offering (the "Offering")
and reorganization in October 1996, the Company's financial statements
represented the combined financial position, results of operations and cash
flows of Extra Cheese, Inc. (Extra Cheese), Textra Cheese Corp. (Textra) and
Twice the Cheese, Inc. (Twice), collectively referred to herein as the "Alabama
Group." Those financial statements excluded the combined financial position of
PJVA, Inc. and PJV, Inc., collectively referred to as the "Virginia Group" prior
to their acquisition on October 30, 1996 (See Note 6). These consolidated
financial statements have been restated to give retroactive effect to the merger
with Ohio Pizza Delivery Co. (OPD), on June 5, 1997, in a transaction accounted
for as a pooling of interests as if the merger had occurred at the beginning of
fiscal 1995. (See Note 4).

     Extra Cheese, Textra, and Twice operated as S corporations through October
30, 1996, when their S corporation elections were terminated. As a result, they
were not subject to federal or state income tax before October 30, 1996.

     OPD operated as an S corporation from January 1, 1995 through June 5, 1997,
when its S corporation election was terminated. As a result, OPD was not subject
to federal or state income taxes before June 5, 1997. However, OPD was subject
to local income taxes.

     Pro forma information for the years ended December 29, 1996 and December
28, 1997 have been presented as if the Alabama Group and OPD had been treated as
C corporations rather than S corporations, with assumed effective income tax
rates of 36.5% and 41%, respectively.

Description of Business

     The Company operates pizza delivery and carry-out restaurants under the
trademark "Papa John's" in nine states and Puerto Rico. At December 27, 1998,
the Company operated 119 restaurants.

Reorganization

     The Company was formed in August 1996, to succeed to the businesses of five
Papa John's International, Inc. (PJI) franchisees. Extra Cheese entered into an
Agreement dated June 10, 1996, as amended on July 10, 1996, and a Plan of Merger
with Twice, Textra, PJVA, Inc. and PJV, Inc., pursuant to which all such
corporations agreed to be merged into PJ Cheese, Inc. (PJ Cheese), a wholly-
owned subsidiary of Extra Cheese, in exchange for shares of common stock of
Extra Cheese. On October 30, 1996, concurrent with the completion of the
Offering (i) all such

                                       26
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


1.  Basis of Presentation, Description of Business, and Reorganization
    (continued)

corporations merged into PJ Cheese; (ii) Extra Cheese contributed to PJ Cheese
all of the assets of Extra Cheese relating to its restaurants, with PJ Cheese
assuming all of Extra Cheese's liabilities relating thereto; and (iii) Extra
Cheese merged into the Company with the stockholders of Extra Cheese receiving
an aggregate of 3,000,000 shares of common stock of the Company (the
"Reorganization"). Accordingly, the Company is the parent of PJ Cheese, and PJ
Cheese owns all of the Papa John's restaurants which were owned by Extra Cheese,
Textra, Twice, PJVA, Inc. and PJV, Inc. (collectively, the "Predecessor
Companies").

     The Reorganization was an exchange of non-monetary assets by stockholders
and has been accounted for at historical cost.

2. Significant Accounting Policies

Fiscal Year

     The Company's fiscal year ends on the last Sunday in December of each year.

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.

Cash Equivalents

     Cash equivalents consist of highly liquid investments with a maturity of
three months or less at date of purchase. These investments are carried at cost,
which approximates fair value.

Inventories

     Inventories consist of food products, paper goods and supplies and are
stated at the lower of cost, determined under the first-in, first-out (FIFO)
method, or market. Virtually all of the Company's food products and supplies are
purchased from PJI.

Property and Equipment

     Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets, which
range from three to ten years for restaurant, commissary, and other equipment,
20 to 25 years for restaurant buildings and improvements, and 40 years for the
Company's office building. Leasehold improvements are amortized over the terms
of the respective leases, including the first renewal period (generally five to
ten years). Normal repair and maintenance costs are expensed as incurred.

                                       27
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                        

2. Significant Accounting Policies (continued)

Investments

     The Company determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. All investment securities held by the Company have been
classified as held-to-maturity. Held-to-maturity investment securities are
stated at amortized cost with any amortization of premiums and accretion of
discounts included in interest income.

Development and Franchise Fees

     Development fees paid by the Company to PJI (or for the acquisition of
another franchisee territory) for the right to open a certain number of
restaurants in a geographic area are deferred and amortized to expense on a pro
rata basis as each restaurant is opened. Franchise fees are generally paid when
each restaurant is opened and are deferred and amortized. Deferred development
and franchise fees are amortized over a 20 year period using the straight-line
method beginning with the opening of each restaurant.

Advertising and Related Costs

     Advertising and related costs include restaurant activities such as mail
coupons, doorhangers, promotional items, and required contributions to PJI's
production fund (0.50% to 1.0% of restaurant sales, and is currently 1.0%). Such
amounts are expensed as incurred and were approximately $1.5 million, $3.5
million and $4.6 million in 1996, 1997 and 1998, respectively, and are included
in other operating expenses in the consolidated statements of income.

Goodwill

     Goodwill represents the excess of cost over fair value of assets acquired
and is being amortized over 20-30 years using the straight-line method. The
Company reviews the carrying value of goodwill if the facts and circumstances
suggest that it may be impaired. If this review indicates that goodwill will not
be recoverable based upon the undiscounted expected future cash flows over the
remaining amortization periods the Company's carrying value of goodwill is
reduced by the excess of the carrying value over the fair value of the entity
acquired.

Stock-Based Compensation

     The Company follows the provisions of Accounting Principles Board Opinion
(APB) No. 25 for its stock-based compensation awards (see Note 13).

                                       28
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                        

2. Significant Accounting Policies (continued)

Income Taxes

     On October 29, 1996, the Predecessor Companies of PJ America, Inc.
terminated their status as S corporations and the Company became subject to
federal and state income taxes. Concurrently, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
and accordingly, there was no cumulative effect of adopting SFAS No. 109, and
prior year financial statements were not restated. In accordance with the
provisions of SFAS No. 109, deferred income taxes reflect the temporary tax
consequences on future years of differences between the tax and financial
statement basis of assets and liabilities.

Pre-Opening Costs - Restaurants

     Restaurant pre-opening costs, which represent certain expenses incurred
before a restaurant opens, are expensed as incurred.

Deferred Commissary Start-Up Costs

     Commissary start-up costs, which represent certain expenses incurred before
a new commissary facility begins operations, are capitalized and amortized on a
straight-line basis over a period of one year from the commissary's opening
date.

     In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" (the "SOP") which requires that
all start up costs be expensed. The SOP must be adopted in the first quarter of
1999. The Company's initial application of the SOP will require the write-off of
deferred commissary start-up costs as of the date of adoption, and such write
off would be reported, on a net of tax basis, as a cumulative effect of a change
in accounting principle. Deferred commissary start-up costs as of December 27,
1998 were approximately $275,000.

Net Income Per Share

     Net income per share is based on the weighted average number of shares of
common stock outstanding (Basic) and common stock equivalents during the period
(Diluted).

Reclassifications

     Certain amounts in the 1996 and 1997 Consolidated Financial Statements have
been reclassified to conform with the 1998 presentation.

                                       29
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                        

3. Stock Offerings and Repurchases

     The Company completed the initial public offering of its common stock on
October 30, 1996, pursuant to which the Company sold 1,755,000 shares of its
common stock, including 135,000 shares exercised to cover underwriter over-
allotments, at an initial public offering price of $12.50 per share. Net
proceeds from the Offering (after deducting the underwriting discount of $1.5
million and expenses of $1.2 million) were $19.2 million. Such proceeds were
partially used to fully retire the outstanding balance owed to banks and
shareholders, pay S Corporation distributions, and for general corporate
purposes.

     In July 1997, the Company completed a secondary offering of its common
stock, pursuant to which the Company sold 750,000 shares of its common stock at
$17.75 per share. Net proceeds of the offering (after deducting the underwriting
discount of $.7 million and expenses of $.4 million) were $12.2 million.

     In September 1998, the Board of Directors authorized the Company to
purchase up to $5 million of its common stock in both open market purchases as
well as private transactions. As of December 27, 1998, the Company had
repurchased and immediately retired 54,500 shares at various prices totaling $.8
million.

4. Business Combinations

     In May 1998, the Company acquired a 22 restaurant Papa John's territory in
Southern Louisiana, which included nine existing restaurants, five restaurants
under development, and development rights for eight additional restaurants. The
purchase price was $4.3 million in cash and a short term note payable to
sellers, plus the assumption of $1.4 million of debt, which was immediately
retired. The above acquisition was with certain Company directors and officers,
including the Chairman of the Board and Chief Executive Officer.

     In September 1998, the Company acquired a 30 restaurant Papa John's
territory in Utah, which included 12 existing restaurants and development rights
for 18 additional restaurants. The purchase price was $.8 million in cash plus
the assumption of $2.5 million of debt, which was immediately retired. The above
acquisition was with certain Company directors and officers, including the
Chairman of the Board and Chief Executive Officer.

     The above business combinations were accounted for by the purchase method
of accounting, whereby operating results subsequent to the acquisition date have
been included in the Company's consolidated financial statements.

                                       30
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


4.   Business Combinations (continued)

     The following represents the unaudited pro forma results of operations for
the years ended December 28, 1997 and December 27, 1998 as if the acquisitions
had occurred at the beginning of the Company's respective fiscal years.

<TABLE>

(In thousands, except per share amounts)
                                                          1997          1998
                                                    ----------------------------
<S>                                                   <C>           <C>
Restaurant sales                                        $55,495       $74,534
                                                    ============================
Income before income taxes                              $ 5,113       $ 7,220
                                                    ============================
Pro forma net income                                    $ 3,435       $ 4,850
                                                    ============================
Pro forma net income per share:                     ----------------------------
     Basic                                              $   .64       $   .84
                                                    ============================
     Diluted                                            $   .63       $   .82
                                                    ============================
Weighted average shares outstanding:                ----------------------------
     Basic                                                5,369         5,777
                                                    ============================
     Diluted                                              5,483         5,919
                                                    ============================
</TABLE>
                                                                               
     The pro forma information is not indicative of the results of operations
that actually would have been obtained if the transactions had occurred at the
beginning of the Company's fiscal year. Additionally, the pro forma information
is not intended to be a projection of future results.

     On June 5, 1997, PJAM Acquisition Subsidiary, a subsidiary of PJ America,
Inc. merged with OPD, based in Akron, Ohio, in a transaction accounted for as a
pooling of interests. Pursuant to the Agreement and Plan of Merger, dated as of
May 30, 1997, PJAM Acquisition Subsidiary was merged into OPD, with OPD
surviving the merger as a wholly-owned subsidiary of PJ America, Inc. Pursuant
to a fixed formula price, the OPD shareholders received 276,610 shares of the
Company's common stock in exchange for 100% of the common stock of OPD. The
total value of the transaction was approximately $4.6 million, based upon the
conversion value of $16.50 per common share agreed upon on May 20, 1997. The
exchange of shares was accounted for as a pooling of interests.

     During 1997, the Company purchased the assets of eight Papa John's
restaurants from other franchisees for total cash consideration of $1.6 million.


                                       31
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


5.  Pro Forma Information (Unaudited)

     The Company terminated its status as an S corporation on October 29, 1996
(June 5, 1997 for OPD). Pro forma income taxes have been presented to reflect a
provision for federal, state, and local income taxes at an assumed effective
rate of 36.5% (41.0% for OPD).

     Pro forma net income per share is based on the weighted averaged number of
shares of common stock (Basic) and common stock equivalents (Diluted)
outstanding during the period. The pro forma net income per share amounts were
calculated assuming that the number of shares of common stock in the Offering
necessary to generate sufficient proceeds to fund the payment of the Company's
undistributed S corporation earnings. A summary of the components of the
weighted average shares of common stock and equivalents outstanding during the
periods indicated is as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                          1996          1997
                                                    ----------------------------
<S>                                                   <C>           <C>
Total number of common shares outstanding
   throughout the period                                 2,091         5,046    
Weighted average number of common shares                                       
   issued in connection with stock offerings               492           323    
                                                    ----------------------------
Weighted average shares -- Basic                         2,583         5,369    
Shares issuable upon net exercise of outstanding                               
   stock options and warrants                               27           114    
                                                    ----------------------------
Total weighted average shares - Diluted                  2,610         5,483    
                                                    ============================
</TABLE>

                                       32
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                        

6. Acquisition of Virginia Group - Pro Forma Information (Unaudited)
 
     Concurrent with the Reorganization, the Company acquired PJVA, Inc. and
PJV, Inc. (See Note 1). The acquisition was accounted for at historical cost,
with the shareholders of PJVA, Inc. and PJV, Inc. receiving an aggregate of
1,230,000 shares of common stock of the Company.

     The following represents the unaudited pro forma results of operations for
the year ended December 29, 1996 as if the Reorganization and OPD merger had
occurred at the beginning of the Company's fiscal year. Pro forma net income
reflects an assumed corporate income tax rate of 36.5% for the Company, and
41.0% for OPD.
 
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
<S>                                       <C>
                                             1996
                                             ----
Restaurant sales                          $37,968
                                          =======
Income before income taxes                  3,405
                                          =======
Pro forma net income                      $ 2,143
                                          =======
Pro forma net income per share:
     Basic                                $  0.58
                                          =======
     Diluted                              $  0.57
                                          =======
Weighted average shares outstanding:
     Basic                                  3,722
                                          =======
     Diluted                                3,749
                                          =======
</TABLE>

The pro forma information is not indicative of the results of operations that
actually would have been obtained if the transactions had occurred at the
beginning of the Company's fiscal year. Additionally, the pro forma information
is not intended to be a projection of future results.

                                      33
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                        

7. Investments

     A summary of the Company's held-to-maturity securities as of December 27,
1998 follows (in thousands):

<TABLE>
<CAPTION>
                                      Gross          Gross
                   Amortized     Unrealized      Unrealized   Estimated
                        Cost  Holding Gains  Holding Losses  Fair Value
                   ----------------------------------------------------
<S>                <C>        <C>            <C>             <C>
Municipal bonds      $13,346           $106         $    --     $13,452
                     ==================================================
</TABLE>

Approximately 62% of the Company's held-to-maturity securities will mature
within one year with the remainder maturing between one and two years.

8. Net Property and Equipment

<TABLE>
<CAPTION>
   Net property and equipment consists of the following (in thousands):

                                          December 28,   December 27,
                                              1997           1998
                                          ---------------------------
<S>                                       <C>            <C>
     Land                                      $   403        $ 1,276
     Building and leasehold improvements         5,068         12,776
     Commissary and restaurant equipment         6,931         11,991
     Construction in process                       400            167
                                          ---------------------------
                                                12,802         26,210
     Less accumulated depreciation              (3,383)        (5,064)
     Net property and equipment                $ 9,419        $21,146
                                          ===========================
</TABLE>

9. Accrued Expenses

<TABLE>
<CAPTION>
   Accrued expenses consists of the following (in thousands):

                                          December 28,   December 27,
                                              1997           1998
                                          ---------------------------
<S>                                       <C>            <C>
     Salaries and wages                        $   518        $   854
     Taxes, other than income                      468            668
     Advertising and royalties                     256            400
     Shareholder notes payable                       -            197
     Other                                       1,178          2,144
                                               $ 2,420        $ 4,263
                                          ===========================
</TABLE>

                                      34
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                        

10.  Income Taxes

     Concurrent with the Reorganization on October 30, 1996, the Predecessor
Companies (See Note 1) terminated their status as S corporations. Accordingly,
the Company is now subject to federal and state income taxes. At the date of
termination of its S corporation status, the Company recorded a net deferred tax
asset and corresponding credit to income tax expense for cumulative temporary
differences between the tax basis and the reported amounts of the Company's
assets and liabilities in the consolidated financial statements. These
differences consisted primarily of deferred expenses and accumulated
depreciation on property and equipment. At the date of termination of S
corporation status, the net differences equaled approximately $109,000 resulting
in a net deferred tax asset and corresponding credit to income tax expense of
approximately $40,000.

     Additionally, in connection with the termination of the Predecessor
Companies' S corporation status, distributions were made to their stockholders
of approximately $2.0 million, representing substantially all undistributed S
corporation earnings (as determined for tax reporting purposes) at the time of
termination. Prior to the termination of the Company's S corporation status,
distributions paid to stockholders in 1996 were approximately $1.4 million.

     Concurrent with the acquisition of OPD (See Note 4), OPD terminated their
status as an S corporation on June 5, 1997. OPD was previously only subject to
local income taxes. The differences between OPD's tax basis and financial
reporting basis were immaterial.

     A summary of income tax expense is as follows (in thousands):

<TABLE>
<CAPTION>
                                            1996     1997    1998
                                            ----     ----    ----
<S>                                         <C>     <C>      <C>
       Current
         Federal                            $ 241   $1,372  $1,925
         State and local                       42      118     190
       Deferred (federal and state)             7      453     380
       Deferred tax credit                    (40)       -       -
                                            ----------------------
       Income tax expense                   $ 250   $1,943  $2,495
                                            ======================
</TABLE>

     Net deferred tax assets (liabilities) as of December 28, 1997 and December
27, 1998 are comprised of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  1997    1998
                                                                  ----    ----
<S>                                                               <C>     <C>
       Deferred tax assets - miscellaneous reserves and accruals  $ 111   $ 151
       Deferred tax liabilities - accelerated depreciation         (531)   (951)
                                                                  --------------
       Net deferred tax liabilities                               $(420)  $(800)
                                                                  ==============
</TABLE>

                                      35
<PAGE>
 
                       PJ AMERICA, INC. AND  SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10.  Income Taxes (continued)

The reconciliation of income tax computed at the U.S. federal statutory rate to
income tax expense is as follows (in thousands):

<TABLE>
<CAPTION>
                                                          1996    1997    1998
                                                          ----    ----    ----
<S>                                                      <C>    <C>     <C>
Income tax expense at U.S. federal statutory rates       $ 857  $1,985  $2,571
Increases (decreases) resulting from:
Income tax expense from operations while S corporations   (593)   (125)      -
State and local income taxes - net                          35     129     125
Tax exempt interest income                                 (10)   (115)   (242)
Deferred tax credit                                        (40)      -       -
Other                                                        1      69      41
                                                         ---------------------
Income tax expense                                       $ 250  $1,943  $2,495
                                                         =====================
</TABLE>

Income tax payments amounted to $.2 million, $1.5 million and $1.8 million in
1996, 1997 and 1998, respectively.

11.  Related Party Transactions

Franchisor

     Under the terms of area development agreements between the Company and PJI,
the Company paid development fees ranging from $3,500 to $5,000 per restaurant.
Franchise fees ranging from $1,150 to $15,000 have been paid as each new
restaurant was opened. Royalties in the amount of 4% of restaurant sales are
paid monthly to PJI, and a monthly contribution of 1.0% of sales is paid to the
Marketing fund of PJI. The Company is required to buy certain proprietary food
products from PJI's commissary subsidiary and have elected to buy substantially
all other food products, supplies, marketing materials and equipment from PJI or
its subsidiaries.

     The Company's franchise and development agreements with PJI contain certain
requirements regarding the number of units to be opened in the future. Should
the Company fail to comply with the required development schedule or with the
requirements of the agreements for restaurants within areas covered by the
development agreements, PJI has the right to terminate the exclusive nature of
the Company franchises. The franchise agreements also provide PJI with
significant rights regarding the business and operations of the Company.

     In connection with the Company's Offering, the Company issued a warrant to
PJ USA (a subsidiary of PJI) to purchase 225,000 shares of common stock at
$11.25 per share. The warrant was issued in consideration for, among other
things, the rights to enter into development agreements and the waiver of rights
of first refusal of certain affiliated franchisees.

                                      36
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11.  Related Party Transactions (continued)

     The Company expects to pay all standard development and franchise fees in
connection with operating restaurants in these territories. The warrant is
exercisable in whole or in part at any time until October 30, 2001. The portion
of the warrant discount attributable to the granting of the various development
rights, approximately $84,000, has been capitalized into deferred franchise and
development costs.

Affiliate Market

     Certain officers and directors of the Company own equity interests in other
entities that franchise Papa John's restaurants. The Company has obtained a
right of first refusal to acquire franchise and development rights for PJ Iowa,
LLC. However, there is no agreement or understanding between the Company and
these entities or stockholders to acquire such entities or their assets.

Stockholders

     Notes payable to stockholders at December 27, 1998, of approximately
$200,000 relate to the acquisition of the Southern Louisiana market, and carry
interest at 5.5%.

     In connection with the Company's Offering, certain officers, directors and
former employees received approximately $250,000 for consulting services
provided to the Company with respect to the structuring, organization and
implementation of the Offering.

     As noted in Note 4, certain acquisitions have been made between the Company
and certain Company directors and officers.

12.  Leases

     The Company primarily leases restaurant retail space under operating leases
with terms generally ranging from three to five years and providing for at least
one renewal. Certain leases further provide that the lease payments may be
increased annually based on the Consumer Price Index. Future minimum lease
payments are as follows (in thousands):

<TABLE>
                       <S>                        <C>
                       1999                        2,332
                       2000                        2,151
                       2001                        1,794
                       2002                        1,439
                       2003                          890
                       Thereafter                  1,050
                                                  ------
                                                  $9,656
                                                  ======
</TABLE>
                                                                               
     Rent expense was approximately $.4 million, $.9 million and $1.5 million in
1996, 1997, and 1998, respectively.

                                      37
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                        
13.  Stock Options

     In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance
with SFAS 123, the Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
123 requires the use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

     The Company awards stock options under the PJ America, Inc. 1996 Stock
Ownership Incentive Plan (the "Incentive Plan") and the PJ America, Inc. 1996
Non-Employee Directors Stock Option Plan (the "Directors Plan"). Shares of
common stock authorized for issuance are 600,000 under the Incentive Plan and
160,000 under the Directors Plan. In October 1998 the Board of Directors amended
the Incentive Plan to increase the number of shares available for issuance under
the Plan to 1,000,000 shares. The amendment will be submitted for stockholder
approval at the Annual Meeting of Shareholders on May 25, 1999. Options granted
under both plans generally expire ten years from the date of grant and vest over
one to four year periods.

     The Incentive Plan also provides for awards of restricted stock, however
the Company has not granted any such awards.

     Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company had accounted for its employee stock options granted subsequent
to December 25, 1994 under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998,
1997, and 1996, respectively: risk-free interest rates of 6.0%; a dividend yield
of 0%; volatility factors of the expected market price of the Company's common
stock of .49, .48 and .49; and a weighted-average expected life of the option of
4.0 years.

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair market value of its employee stock options.

                                      38
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                        

13.  Stock Options (continued)

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
unaudited pro forma information follows (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                               1996      1997      1998
-------------------------------------------------------------------------
<S>                                            <C>       <C>       <C>
Pro forma net income                           $1,022    $3,440    $4,475
Pro forma earnings per share - Basic             0.45      0.64      0.77
Pro forma earnings per share - Diluted           0.45      0.63      0.75
</TABLE>

     Information pertaining to options for 1996, 1997 and 1998 is as follows
(number of options in thousands):

<TABLE>
<CAPTION>
                                       1996                      1997                       1998
                            -------------------------------------------------------------------------------
                                            Weighted                  Weighted                    Weighted
                                            Average                   Average                     Average
                                            Exercise                  Exercise                    Exercise
                              Options        Price      Options        Price       Options         Price
-----------------------------------------------------------------------------------------------------------
<S>                           <C>           <C>         <C>           <C>          <C>            <C>
Outstanding - beginning
   of year                          -         $    -        336         $12.50         540          $13.15
Granted                           336          12.50        223          14.18         429           13.95
Exercised                           -              -          -              -          45           13.21
Cancelled                           -              -         19          15.42          66           13.82
-----------------------------------------------------------------------------------------------------------
Outstanding - end of year         336         $12.50        540         $13.15         858          $13.50
===========================================================================================================
Exercisable - end of year           -         $12.50         83         $12.50         229          $13.47
===========================================================================================================
Weighted-average fair value
   of options granted during
   the year                     $5.63                     $6.29                      $6.24
===========================================================================================================
Weighted-average
   contractual life              10.0                       9.4                        8.2
===========================================================================================================
</TABLE>

At December 27, 1998, approximately 20,000 shares were available for future
issuance under the Directors Plan.  Contingent upon approval by the Company's
stockholders of the amendment to the Incentive Plan described above, 237,000
shares were available at December 27, 1998 for future issuance under the
Incentive Plan.


                                      39
<PAGE>
 
                       PJ AMERICA, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                        

13.  Stock Options (continued)

     The following table sets forth the reconciliation of basic and diluted
weighted average shares outstanding at December 27, 1998:

<TABLE>
<CAPTION>
(In thousands)
<S>                                                     <C>
Weighted-average shares outstanding - Basic                    5,777
Shares issuable upon the exercise of outstanding
     stock options and warrants                                  142
                                                      --------------  
Weighted-average shares outstanding - Diluted                  5,919
                                                      ==============
</TABLE>
                                                                               

14.  Quarterly Data (Unaudited) in thousands, except per share data
 
<TABLE>
<CAPTION>
                          1/st/ Quarter            2/nd/ Quarter           3/rd/ Quarter           4/th/ Quarter
--------------------------------------------------------------------------------------------------------------------
                        1997         1998        1997        1998        1997        1998        1997        1998
--------------------------------------------------------------------------------------------------------------------
<S>                    <C>          <C>         <C>         <C>         <C>         <C>         <C>         <C>
Restaurant sales       $10,606      $14,218     $11,985     $16,499     $11,890     $17,789     $13,647     $20,080
Operating income         1,180        1,471       1,162       1,684       1,200       1,685       1,432       1,807
Net income                 845        1,168         841       1,290         955       1,270       1,157       1,339
Net income per
 share - Basic             .17          .20         .17         .22         .17         .22         .20         .23
Net income per
 share - Diluted           .16          .20         .16         .22         .17         .22         .20         .23
</TABLE>

     For the first and second quarters of 1997, net income reflects a pro-forma
provision for income taxes assuming OPD was a C corporation rather than a S
corporation for each period.

                                       40
<PAGE>
 
Report of Management

     The consolidated financial statements appearing in this Annual Report have
been prepared by management, which is responsible for their preparation,
integrity and fair presentation. The statements have been prepared in accordance
with generally accepted accounting principles and necessarily include some
amounts that are based on management's best estimates and judgments.

     Management is responsible for the system of internal controls over
financial reporting at PJ America, Inc. and its subsidiaries, a system designed
to provide reasonable assurance regarding the preparation of reliable published
financial statements.  This system is augmented by written policies and
procedures and the selection and training of qualified personnel.  Management
believes that the Company's system of internal controls over financial reporting
provides reasonable assurance that the financial records are reliable for
preparing financial statements.

     The Audit Committee of the Board of Directors meets with the independent
auditors and management periodically to discuss internal controls over financial
reporting and other auditing and financial reporting matters. The Committee
reviews with the independent auditors the scope and results of the audit effort.
The Committee also meets with the independent auditors without management
present to ensure that the independent auditors have free access to the
Committee. The independent auditors are recommended by the Audit Committee of
the Board of Directors and selected by the Board of Directors. Based upon their
audit of the consolidated financial statements, the independent auditors, Ernst
& Young LLP, have issued their Report of Independent Auditors, which follows.





     /s/  Douglas S. Stephens                    /s/  D. Ross Davison
__________________________________     _________________________________________
Douglas S. Stephens                    D. Ross Davison
President and C.E.O.                   Vice President, C.F.O. and Treasurer

                                      41
<PAGE>
 
                               ERNST & YOUNG LLP,
                         REPORT OF INDEPENDENT AUDITORS
                                        

Board of Directors and Stockholders
PJ America, Inc.

     We have audited the accompanying consolidated balance sheets of PJ America,
Inc. and Subsidiaries as of December 28, 1997 and December 27, 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended December 29, 1996, December 28, 1997 and December 27, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PJ America,
Inc. and Subsidiaries, at December 28, 1997 and December 27, 1998, and the
consolidated results of their operations and their cash flows for the years
ended December 29, 1996, December 28, 1997 and December 27, 1998 in conformity
with generally accepted accounting principles.



                                       /s/  Ernst & Young LLP 

Birmingham, Alabama
January 28, 1999

                                       42
<PAGE>
 
Item 9.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure

     None

                                    PART III

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

     The information required by these items, other than information set forth
in this Form 10-K under Item I, "Executive Officers of Registrant," is omitted
because the Company is filing a definitive proxy statement pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form 10-K which includes the required information.  The required
information contained in the Company's proxy statement is incorporated herein by
reference.

                                       43
<PAGE>
 
                                    PART IV

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

(a)(1) The following consolidated financial statements of PJ America, Inc. and
       Subsidiaries and the report of independent auditors are included in Item
       8:

<TABLE>
<CAPTION>
                                                                                    Page
                                                                                    ----
<S>                                                                                 <C>
     Consolidated Balance Sheets as of December 28, 1997 and December 27, 1998...     22
     Consolidated Statements of Income for the Years Ended December 29, 1996        
       December 28, 1997 and December 27, 1998.....................................   23
     Consolidated Statements of Stockholders' Equity for the Years Ended            
       December 29, 1996, December 28, 1997 and December 27, 1998..................   24
     Consolidated Statements of Cash Flows for the Years Ended December 29, 1996,   
       December 28, 1997 and December 27, 1998.....................................   25
     Notes to Consolidated Financial Statements..................................     26
     Report of Management........................................................     41
     Report of Independent Auditors..............................................     42
</TABLE>
(a)(2) Consolidated Financial Statement Schedules:

     All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and therefore have been omitted.

(a)(3)  Exhibits:

3.1       The Company's Certificate of Incorporation. Exhibit 3.1 to the
          Company's Registration Statements on Form S-1 (Registration No. 333-
          11253) is incorporated herein by reference.

3.2       The Company's By-laws.  Exhibit 3.2 to the Company's Registration
          Statement on Form S-1 (Registration No. 333-11253) is incorporated
          herein by reference.

4         Specimen Stock Certificate.  Exhibit 4 to the Company's Registration
          Statement on Form S-1 (Registration No. 333-11253) is incorporated
          herein by reference.

10.1      Form of Registration Rights Agreement. Exhibit 10.1 to the Company's
          Registration Statement on Form S-1 (Registration No. 333-11253) is
          incorporated herein by reference.

10.2      Form of 1996 Stock Ownership Incentive Plan. Exhibit 10.2 to the
          Company's Registration Statement on Form S-1 (Registration No. 333-
          11253) is incorporated herein by reference.

10.3      Form of Non-Employee Directors 1996 Stock Incentive Plan. Exhibit 10.3
          to the Company's Registration Statement on Form S-1 (Registration No.
          333-11253) is incorporated herein by reference.

                                       44
<PAGE>
 
10.4      Agreement relating to the Reorganization. Exhibit 10.4 to the
          Company's Registration Statement on Form S-1 (Registration No. 333-
          11253) is incorporated herein by reference.

10.5      Plan of Merger. Exhibit 10.5 to the Company's Registration Statement
          on Form S-1 (Registration No. 333-11253) is incorporated herein by
          reference.

10.6      Indemnification Agreement. Exhibit 10.6 to the Company's Registration
          Statement on Form S-1 (Registration No. 333-11253) is incorporated
          herein by reference.

10.8      Warrant issued to PJI. Exhibit 10.8 to the Company's Registration
          Statement on Form S-1 (Registration No. 333-11253) is incorporated
          herein by reference.
 
10.9      Agreement between PJI and Extra Cheese, Inc. relating to certain
          Southern California counties; Puerto Rico; Vancouver, Canada; consent
          for offering from PJI; the issuance of the warrant; and certain other
          matters. Exhibit 10.9 to the Company's Registration Statement on Form
          S-1 (Registration No. 333-11253) is incorporated herein by reference.

10.10     Development Agreement relating to the Utah territory. Exhibit 10.10 to
          the Company's Registration Statement on Form S-1 (Registration No.
          333-11253) is incorporated herein by reference.

10.11     Development Agreement relating to the development of an aggregate of
          ten restaurants in Birmingham, Tuscaloosa and Auburn, Alabama. Exhibit
          10.11 to the Company's Registration Statement on Form S-1
          (Registration No. 333-11253) is incorporated herein by reference.

10.11(a)  First Amendment to the Alabama Development Agreement. Exhibit 10.11(a)
          to the Company's Registration Statement on Form S-1 (Commission File
          No. 333-11253) is hereby incorporated by reference.

10.11(b)  Second Amendment to the Alabama Development Agreement. Exhibit
          10.11(b) to the Company's Registration Statement on Form S-1
          (Commission File No. 333-11253) is hereby incorporated by reference.

10.11(c)  Third Amendment to the Alabama Development Agreement.  Exhibit
          10.11(c) to the Company's Registration Statement on Form S-1
          (Commission File No. 333-11253) is hereby incorporated by reference.

10.12     Form of Franchise Agreement relating to the Birmingham, Tuscaloosa and
          Auburn, Alabama restaurants (e.g., Franchise Agreement dated February
          18, 1992, by and between Extra Cheese, Inc. and PJI at 2503 McFarland
          Blvd. W., Northport, Alabama  35476). Exhibit 10.12 to the Company's
          Registration Statement on Form S-1 (Registration No. 333-11253) is
          incorporated herein by reference.

                                       45
<PAGE>

<TABLE> 
<CAPTION> 
<C>       <S> 
 
10.13     Development Agreement relating to the development of an aggregate of
          four restaurants in Cullman, Jasper, Sylacauga and Talladega, Alabama.
          Exhibit 10.13 to the Company's Registration Statement on Form S-1
          (Registration No. 333-11253) is incorporated herein by reference.

10.14     Form of Franchise Agreement relating to the Cullman, Jasper, Sylacauga
          and Talladega, Alabama restaurants (e.g., Franchise Agreement dated
          August 14, 1995, by and between Extra Cheese, Inc. and PJI at 680
          Highway 78 West, Jasper, Alabama 35501). Exhibit 10.14 to the
          Company's Registration Statement on Form S-1 (Registration No. 
          333-11253) is incorporated herein by reference.

10.15     Development Agreement relating to the development of an aggregate of
          five restaurants in Longview, Lufkin and Nacogdoches, Texas. Exhibit
          10.15 to the Company's Registration Statement on Form S-1
          (Registration No. 333-11253) is incorporated herein by reference.

10.16     Form of Franchise Agreement relating to the East Texas restaurants
          (e.g., Franchise Agreement dated September 20, 1994, by and between
          Textra Cheese Corp. and PJI at 2702 North Street, Nacogdoches, Texas
          75961). Exhibit 10.16 to the Company's Registration Statement on Form
          S-1 (Registration No. 333-11253) is incorporated herein by reference.

10.17     Development Agreement relating to the Virginia development of an
          aggregate of 47 restaurants in Virginia Beach, Richmond and Norfolk,
          Virginia. Exhibit 10.17 to the Company's Registration Statement on
          Form S-1 (Registration No. 333-11253) is incorporated herein by
          reference.

10.17(a)  First Amendment to the Virginia Development Agreement. Exhibit
          10.17(a) to the Company's Registration Statement on Form S-1
          (Commission File No. 333-11253) is hereby incorporated by reference.

10.17(b)  Second Amendment to the Virginia Development Agreement. Exhibit
          10.17(b) to the Company's Registration Statement on Form S-1
          (Commission File No. 333-11253) is hereby incorporated by reference.

10.17(c)  Third Amendment to the Virginia Development Agreement. Exhibit
          10.17(c) to the Company's Registration Statement on Form S-1
          (Commission File No. 333-11253) is hereby incorporated by reference.

10.17(d)  Fourth Amendment to the Virginia Development Agreement. Exhibit
          10.17(d) to the Company's Registration Statement on Form S-1
          (Commission File No. 333-11253) is hereby incorporated by reference.

10.18     Form of Franchise Agreement relating to the Virginia restaurants (e.g.
          Franchise Agreement dated March, 31, 1994, by and between PJVA and PJI
          at 10054 Robious Road, Richmond, Virginia 23235). Exhibit 10.18 to the
          Company's Registration Statement on Form S-1 (Registration No. 
          333-11253) is incorporated herein by reference.
</TABLE> 

                                      46
<PAGE>

<TABLE> 
<CAPTION> 

<C>       <S>  
10.19     PJI's Waiver of Right of First Refusal (certain Utah, Iowa markets and
          other markets). Exhibit 10.19 to the Company's Registration Statement
          on Form S-1 (Registration No. 333-11253) is incorporated herein by
          reference.

10.20     The Company's Right of First Refusal relating to certain Iowa
          territories. Exhibit 10.20 to the Company's Registration Statement on
          Form S-1 (Registration No. 333-11253) is incorporated herein by
          reference.

10.24     Agreement between PJI and PJ Utah, LLC relating to development rights
          to be granted with respect to the Utah territory. Exhibit 10.26 to the
          Company's Registration Statement on Form S-1 (Registration No. 
          333-11253) is incorporated herein by reference.

10.25     Agreement and Plan of Merger among PJ America, Inc., PJAM Acquisition
          Subsidiary, Inc., OPD Co., Roger P. Tennyson, Mary Ann Tennyson, Brian
          J. Tennyson, Jeanne K. Tennyson, John H. Schnatter, Charles Schnatter
          and Dan Holland dated May 30, 1997. Exhibit 2.1 to the Company's Form
          8-K dated June 19, 1997, is hereby incorporated by reference.

10.26     PJ America, Inc. Registration Rights Agreement dated June 5, 1997
          relating to the Agreement and Plan of Merger (OPD transaction).
          Exhibit 10.1 to the Company's Form 8-K dated June 19, 1997, is hereby
          incorporated by reference.

10.30     Development Agreement relating to development of 60 restaurants in
          California.

10.31     Commissary License Agreement relating to the Company's agreement to
          operate a commissary in Puerto Rico.

10.32     Development Agreement relating to development of 20 restaurants in
          Puerto Rico.

10.33     Development Agreement relating to development of 36 restaurants in
          Portland, Oregon, and surrounding areas.

10.34     Stock Purchase Agreement among PJ America, Inc., PJ Louisiana, Inc.
          and Douglas S. Stephens, Robert W. Curtis, Jr., Michael M. Fleishman,
          Merida Sherman, Nicholas Sherman, Richard F. Sherman, Frank O. Keener,
          and Stephen P. Langford dated May 13, 1998.

10.35     Purchase Agreement among PJ America, Inc., Ohio Pizza Delivery Co.,
          Inc., PJ Utah, LLC, and Members dated September 3, 1998.

21        Subsidiaries of the Company:
          (a)  PJ Cheese, Inc. an Alabama corporation
          (b)  Ohio Pizza Delivery Co., Inc. an Ohio corporation
          (c)  PJ Louisiana, Inc. a Louisiana corporation
          (d)  PJ Utah, LLC, a Utah limited liability corporation
          (e)  Pizza Caribe, Inc. a Puerto Rico corporation
</TABLE> 

                                      47
<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.

Date:  February 12, 1999               PJ AMERICA, INC.


                                       By:      /s/ Douglas S. Stephens
                                          ------------------------------------
                                                   Douglas S. Stephens
                                          Chief Executive Officer and President
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE> 
<CAPTION> 
Signature                            Title
---------                            -----
<S>                           <C>                                <C>
____________________________  Chairman of the Board              February 12, 1999
     Richard F. Sherman

____________________________  Chief Executive Officer,           February 12, 1999
    Douglas S. Stephens       President and Director


    /s/  D. Ross Davison      Vice President--Chief Financial    February 12, 1999
----------------------------  Officer and Treasurer (Chief
      D. Ross Davison         Financial and Accounting Officer)

____________________________  Director                           February 12, 1999
    Michael M. Fleishman


____________________________  Director                           February 12, 1999
       Martin T. Hart


____________________________  Director                           February 12, 1999
      Frank O. Keener


____________________________  Director                           February 12, 1999
    Stephen P. Langford


____________________________  Director                           February 12, 1999
    Charles W. Schnatter
</TABLE> 

                                      48