UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Check One)

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

For The Fiscal Year Ended June 28, 1998

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

For the transition period from ___ to ___

Commission File Number:  0-22639


                         UNIQUE CASUAL RESTAURANTS, INC.
             (Exact name of registrant as specified in its charter)

Delaware                                                              04-3370491
(State or other jurisdiction                                    (I.R.S. Employer
of incorporation or organization)                            Identification No.)

One Corporate Place, 55 Ferncroft Road,  Danvers, MA                       01923
(Address of principal executive offices)                              (Zip Code)


                                  978-774-6606
              (Registrant's telephone number, including area code)


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 and (2) has been subject to such filing requirements for
the past 90 days.  YES X   NO

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  based on the closing price of the Common Stock of the  registrant as
quoted on the National  Association of Securities  Dealers  Automated  Quotation
System on October 2, 1998 was  $38,366,754  (for  purposes of  calculating  this
amount only,  directors,  officers and  beneficial  owners of 10% or more of the
Common Stock of the registrant may be deemed affiliates).

Number of shares of Common  Stock,  $.01 par  value,  outstanding  at October 2,
1998: 11,605,659


<PAGE>





                       DOCUMENTS INCORPORATED BY REFERENCE


The sections of the Company's  definitive Proxy Statement,  listed below,  which
have  been or will be filed by the  Company  with the  Securities  and  Exchange
Commission,  are  incorporated  in this Annual  Report by reference and shall be
deemed to be a part hereof:

         The Company's  definitive Proxy Statement mailed in connection with its
         Annual Meeting of  Stockholders to be held on or about January 20, 1999
         pursuant to regulation 14A, which involves the election of directors.

                     Cross Reference Sheet between Items of
                   Registrant's Proxy Statement and Form 10-K


<TABLE>
<CAPTION>

FORM 10-K
Item No.          Item in Form 10-K                  Item in Proxy Statement

PART III

<S>               <C>                                <C>
10                Directors and Executive            Election of Directors  and  Directors  and  Committees in the
                  Officers of the Registrant         Company's Proxy  Statement  relating to its Annual Meeting of
                                                     Stockholders  to be held on or about January 20, 1999.

11                Executive Compensation             Executive  Compensation  in  the  Company's  Proxy  Statement
                                                     relating to its Annual Meeting of  Stockholders to be held on
                                                     or about January 20, 1999.

12                Security Ownership of Certain      Principal  Stockholders  in  the  Company's  Proxy  Statement
                  Beneficial Owners and Management   relating to its Annual Meeting of  Stockholders to be held on
                                                     or about January 20, 1999.
</TABLE>



Copies of all documents  incorporated  by reference  other than exhibits to such
documents will be provided  without charge to each person who receives a copy of
this Annual  Report upon written  request  addressed to  Stockholder  Relations,
Unique  Casual  Restaurants,  Inc.,  One  Corporate  Place,  55 Ferncroft  Road,
Danvers, Massachusetts 01923.


<PAGE>



                                 FORM 10-K INDEX

                                     PART I
<TABLE>
<CAPTION>

<S>               <C>                                                                                       <C>
Item 1            Business                                                                                   1

Item 2            Properties                                                                                25

Item 3            Legal Proceedings                                                                         25

Item 4            Submission of Matters to a Vote of Security Holders                                       26

                                     PART II

Item 5            Market for the Registrant's Common Stock and Related Stockholder Matters                  26

Item 6            Selected Financial Data                                                                   27

Item 7            Management's  Discussion  and  Analysis of  Results of  Operations  and
                  Financial Condition                                                                       27

Item 7a           Quantitative and Qualitative Disclosure About Market Risk                                 35

Item 8            Financial Statements and Supplementary Data                                               36

Item 9            Changes in and Disagreements with Accountants on Accounting and
                  Financial Disclosure                                                                      36

                                    PART III

Item 10           Directors and Executive Officers of the Registrant                                        37

Item 11           Executive Compensation                                                                    37

Item 12           Security Ownership of Certain Beneficial Owners and Management                            38

Item 13           Certain Relationships and Related Transactions                                            38

                                     PART IV

Item 14           Exhibits, Financial Statement Schedules, and Reports on Form 8-K                          38

</TABLE>



<PAGE>




              From time to time,  the Company may make certain  statements  that
              contain  "forward-looking"  information (as defined in the Private
              Securities   Litigation  Reform  Act  of  1995).   Words  such  as
              "believe",   "anticipate",   "estimate",  "project",  and  similar
              expressions   are  intended  to  identify   such   forward-looking
              statements.  Forward-looking  statements may be made by management
              orally or in  writing,  including,  but not  limited  to, in press
              releases,  as part of  Management's  Discussion  and  Analysis  of
              Financial Condition and Results of Operations as contained in this
              report  and as part of  other  sections  of this  Report  or other
              filings.  Readers are  cautioned  not to place  undue  reliance on
              these  forward-looking  statements,  which  speak only as of their
              respective dates, and are subject to certain risks,  uncertainties
              and  assumptions  including  those set  forth in the  Management's
              Discussion  and  Analysis of  Financial  Condition  and Results of
              Operations under the heading "Forward-Looking Statements".  Should
              one or more of these risks or uncertainties materialize, or should
              any of the underlying assumptions prove incorrect,  actual results
              of current and future  operations may vary  materially  from those
              anticipated, estimated or projected.

                                     PART I

Item 1.     Business.

Unique Casual Restaurants,  Inc. (the "Company") is a Delaware corporation which
was formed on May 27, 1997 prior to its  spin-off to holders of the common stock
of DAKA International,  Inc. ("DAKA International") pursuant to the transactions
described under the heading "Spin-off Transaction" herein (the "Spin-off").  The
Company's  principal  executive  offices are located at One Corporate  Place, 55
Ferncroft Road, Danvers,  Massachusetts 01923, and its telephone number is (978)
774-6606.   The  Company's   principal   subsidiaries  are   Fuddruckers,   Inc.
("Fuddruckers"),  Champps Entertainment,  Inc. ("Champps") and The Great Bagel &
Coffee Company ("Great Bagel & Coffee").  The Company's  principal  business for
the  periods  covered  by  this  report  was  to  own,   operate  and  franchise
Fuddruckers,  Champps  Americana  and Great Bagel & Coffee  Company  restaurants
through its subsidiaries.

The Company's  Fuddruckers and Champps  operations serve customers in casual and
upscale restaurant settings,  respectively,  throughout the United States and in
Canada  and  the  Middle  East.  Restaurant  operations  are  conducted  through
company-owned  and franchised  stores.  On June 28, 1998, the Company ceased all
operations  of the Great  Bagel & Coffee  business.  See  "Great  Bagel & Coffee
Company".  Great Bagel & Coffee served  coffee,  bagels and sandwich  items in a
cafe setting in western locations of the United States.

On July 31, 1998,  the Company agreed to sell its  Fuddruckers  business to King
Cannon,  Inc. ("King Cannon"),  a private company  controlled by Michael Cannon,
for $43.0  million in a  transaction  expected to close in  November,  1998 (the
"Proposed Fuddruckers Transaction"). See "The Proposed Fuddruckers Transaction".
As a result of these  events,  the  Company's  ongoing  operations  will consist
primarily of owning,  operating and franchising  Champps Americana  restaurants.
The Company also owns a 17% passive  investment  in La Salsa Fresh Mexican Grill
("La Salsa") and a 50% interest in Restaurant Consulting Services, Inc. ("RCS"),
a diversified  consulting  and  technology  company  offering  data  processing,
strategic  planning and other  technology  services on an outsource basis to its
customers.

On September 24, 1998, the Company announced it had retained Bear Stearns & Co.,
Inc. to assist the Company's  board of directors (the "Board") in evaluating and
seeking financial and strategic  alternatives,  including a possible sale of the
Company. There can be no assurance, however, that the Company will pursue a sale
or any other specific alternative or that it will be able to reach any agreement
or complete any transaction that it may undertake.

                                       1
<PAGE>



Although  formed on May 27, 1997,  for purposes of this Form 10-K and  financial
reporting  purposes,  the  Company has been  treated as if it was a  stand-alone
entity for all  periods  presented.  The  Company's  results of  operations  for
periods  prior to July 17,  1998,  as presented  in the  accompanying  financial
statements,  include  allocations and estimates of certain  expenses,  including
corporate accounting, tax, cash management,  information technology, legal, risk
management, purchasing and human resources, historically provided to the Company
by DAKA International.

Recent Trends in Operations

The  Company  reported a net loss of $27.7  million for fiscal  1998.  This loss
includes  charges for impairment and exit costs  associated with its Fuddruckers
and Great Bagel & Coffee  businesses of $24.6 million.  Excluding these charges,
the Company's results of operations would have been a loss of $3.1 million.  For
fiscal 1997, the Company reported a net loss of $39 million, and reported a loss
of $5.7 million in 1996.  Refer to the  Consolidated  Financial  Statements  and
Management's  Discussion  and Analysis of Results of  Operations  and  Financial
Condition  for  information  regarding the Company's  financial  performance  in
fiscal 1998, 1997 and 1996.

Champps

Operations

The Champps  Americana  concept is based upon  providing the best possible food,
value and  service to its  customers.  Although  food and  service  are the most
important  parts  of the  Champps  Americana  concept,  an  atmosphere  that  is
entertaining  and  energetic,  yet  comfortable,  is  also  critical.  The  food
offerings at Champps' restaurants combine a wide selection of appetizers, soups,
salads,  innovative  sandwiches,  pizza, burgers, and entrees including chicken,
beef,  fish,  pasta and  desserts.  Selections  reflect a variety  of ethnic and
regional cuisines and traditional  favorites.  Because Champps' menu is not tied
to any particular type of food,  Champps can introduce and eliminate items based
on  current  consumer  trends  without  altering  its theme.  Portion  sizes are
generous and each dish is attractively  presented.  Champps  believes that these
qualities give customers a sense of value.  Entree prices  currently  range from
$4.50  to  $14.25.   Champps  emphasizes  freshness  and  quality  in  its  food
preparation.  Fresh sauces,  dressings,  batters and mixes are prepared daily on
the premises,  generally from original  ingredients with fresh produce.  Champps
invests  substantial time in training and testing kitchen  employees to maintain
consistent food preparation.  Strict food standards at Champps-owned restaurants
have also been established to maintain quality.

The Champps  customer's  experience is enhanced by the attitude and attention of
restaurant  personnel.   Accordingly,  Champps  emphasizes  prompt  greeting  of
arrivals,  frequent visits to customer tables to monitor  customer  satisfaction
and service and  friendly  treatment of its  customers.  Service is based upon a
team concept so that  customers are made to feel that any employee can help them
and they are never left unattended.  Success of the Champps  restaurants depends
upon employee adherence to these standards. To maintain these standards, Champps
seeks to hire and train  personnel  who will work in  accordance  with  Champps'
philosophy and frequently rewards individual and restaurant  achievement through
several recognition programs intended to build and maintain employee morale. All
of the service  personnel at each Champps  restaurant  meet with the managers at
two daily pre-shift motivational meetings.  Restaurant promotions,  specials and
quality  control are all discussed and explained  during these  meetings.  Also,
employee enthusiasm is raised so that the employees can help increase the energy
level and excitement of the restaurant.

Champps-owned, franchised and licensed restaurants are designed and decorated in
a casual theme,  although they differ somewhat from each other. Existing Champps
restaurants range in size from 7,000 to 12,000 square feet while the new Champps
restaurant  prototype is  approximately  11,000 square feet.  Champps'  standard
restaurant  features a bar, open kitchen and dining on multiple levels including
a  diner-type  counter.  Customers  can also dine at the bar or  outside  on the

                                       2
<PAGE>

patio,  where  available.  The spacious design  facilitates  efficient  service,
encourages  customer  participation in entertainment and promotional  events and
allows customers to view the kitchen, dining area, and bar. Strategically placed
television screens stimulate  customer  perception of activity and contribute to
the total entertainment experience and excitement of the restaurant.

An  important  part  of  the  Champps   Americana   dining   experience  is  the
entertainment.  Patrons may watch one of several  sporting events that are being
broadcast,  or listen to a variety  of music  played by the disc  jockey,  music
which is changed for the time of day and season of the year. The exposed kitchen
offers  customers  the  opportunity  to  observe  the  cooks,  and,  in  certain
locations,  a discreetly  located game room is provided  for arcade  games.  The
entertainment  aspects of the Champps  restaurants  are  designed  to  encourage
repeat visits,  increase the length of a customer's  stay and attract  customers
outside of normal peak hours. In addition,  a variety of creative promotions and
activities  are  conducted  such  as  "Family  Bingo,"  "Spring  Time  Big  Bike
Give-Away"  and Karaoke.  These  promotions  and  activities  allow for customer
participation  and are  continually  changing.  Change of the  ambiance  is also
experienced  in each  restaurant  when the  restaurants  are  decorated  for the
holidays and when the dress of the restaurant  staff is changed for the seasons.
The  different  looks and  activities  of the  restaurant  provide  customers  a
different feel each time they visit, thus encouraging  repeat business.  Champps
sells  merchandise  such as T-shirts,  hats and sweatshirts  bearing the Champps
Americana name. Although not currently a significant source of revenue, the sale
of its merchandise is believed to be an effective means of promoting the Champps
name.

Champps restaurants are generally open from 11:00 a.m. to 1:00 a.m. seven days a
week serving lunch,  dinner and late night appetizers.  Closing times of Champps
restaurants will vary based upon state laws concerning  operating hours.  Sunday
brunch is served  beginning  at 10:00 a.m.  Each  Champps  restaurant  maintains
standardized  food preparation and service manuals which are designed to enhance
consistency of operations  among the restaurants.  Although Champps  restaurants
differ  in some  respects,  Champps  attempts  to have  each  Champps-owned  and
franchised restaurant operate under uniform standards and specifications.

Management

The management  staff of a Champps  restaurant is divided into three areas,  the
General Manager, Front-of-House Managers and Back-of-House Managers. The General
Manager has responsibility for the entire restaurant.  Front-of-House management
consists  of an  associate  manager,  two  floor  managers  and  a bar  manager.
Back-of-House  management consists of a kitchen manager,  two to three assistant
kitchen managers and a daily specials chef. All General Managers report directly
to the Directors of Operations.  Managers are compensated based on salary plus a
monthly bonus. The bonus is determined by means of monthly  restaurant sales and
profit goals.

Marketing

Champps has achieved its historical  success while expending  minimal amounts on
advertising  and  marketing.  Champps  restaurants  have relied on location  and
customer word-of-mouth.  However,  Champps-owned  restaurants expend a different
amount of resources on in-restaurant marketing and promotions.

Site Selection

Champps uses its own personnel and  consultants to analyze markets and sites for
new  restaurants,  obtain the required  zoning and other permits,  negotiate the
leasing or real estate  purchase  and  oversee  all aspects of the  construction
process.  Champps  believes  that  location  is a key  factor in a  restaurant's
ability to operate a profitable lunch and dinner business, and considers several
demographic  factors in selecting  sites,  including  the average  income of the
neighboring  residential  population,   the  proximity  of  retail,  office  and
entertainment facilities, traffic patterns and the visibility of the location.

                                       3
<PAGE>



The cost to construct a typical Champps restaurant, where Champps purchases real
estate,  depending  upon its location,  is  approximately  $4.5 to $5.5 million,
which includes approximately $1.0 million for furniture, fixtures and equipment,
$2.0 to $2.5  million for building  and  improvements,  $1.1 to $1.6 million for
land and site work, and $400,000 related to pre-opening costs of the restaurant.
In fiscal 1996,  Champps arranged for  sale-leaseback  financing whereby Champps
would acquire real estate,  construct a new  restaurant  and then sell and lease
back the property.  This has enabled  Champps to open new  restaurants  on sites
where a leasing arrangement was not available, with minimal capital investment.

The cost to  construct  a new Champps  restaurant  where  Champps  enters into a
leasing  arrangement is approximately $3.4 to $3.9 million which is comprised of
approximately $1.0 million for furniture,  fixtures and equipment,  $2.0 to $2.5
million for leasehold improvements, and $400,000 related to pre-opening costs of
the restaurant.

Future development of Champps restaurants will be accomplished primarily through
the  development of  Champps-owned  restaurants.  The  development of additional
restaurants  is  contingent  upon  locating   satisfactory   sites,   financing,
negotiating  satisfactory  leases  or,  alternatively,  leasing  and  converting
existing  restaurant sites into Champps  restaurants.  It is also dependent upon
securing appropriate governmental permits and obtaining liquor licenses.  During
fiscal 1998,  four new Champps  Company-owned  restaurants  were opened,  and on
February  2,  1998,  the  Company  sold a Champps  Company-owned  restaurant  in
Minnetonka, Minnesota. The restaurant was sold to Dean Vlahos, a former Director
of the Company and the former  President and Chief Executive  officer of Champps
Americana,  Inc., for $2.9 million representing the fair value of the restaurant
based upon an independent  appraisal.  The purchase price was settled  through a
cash payment by Mr. Vlahos of $1.5 million and the  cancellation  of Mr. Vlahos'
employment contract. The Company recognized a net gain of approximately $700,000
on this  transaction.  As part of this  transaction,  the Company entered into a
separation  agreement with Mr. Vlahos which grants Mr. Vlahos the right, subject
to certain restrictions,  to develop up to six franchised Champps restaurants in
the United  States by  February 2, 2006.  Under the  separation  agreement,  Mr.
Vlahos will not pay a franchise  fee with respect to such  restaurants  and will
pay a continuing  royalty of 1.25% of gross sales. At June 28, 1998, the Company
had three new  Champps  Company-owned  restaurants  under  construction  and one
Champps  restaurants  under  development,  which are  expected to open in fiscal
1999. Development of Champps-owned  restaurants will be concentrated in selected
markets with population density levels sufficient to support the restaurants.

Champps  believes its concept can be adapted to a variety of locations,  both in
terms of market  demographics and configuration of the restaurant.  The location
of Champps  restaurants are very  important.  Potential sites are reviewed for a
variety  of  factors,  including  trading-area  demographics,   such  as  target
population   density  and  household  income  levels;   an  evaluation  of  site
characteristics,   including  visibility,   accessibility,  traffic  volume  and
available  parking;  proximity to activity  centers,  such as shopping malls and
offices; and an analysis of potential competition.

Franchising

Champps  has  offered  franchises  in  markets  where it deems  expansion  to be
advantageous  to  the  development  of  the  Champps  concept  and a  system  of
restaurants.  Franchise  agreements grant  franchisees an exclusive  territorial
license to operate a single restaurant within a specified area. Currently, there
are two franchisees operating multiple restaurants.

A typical  franchisee pays an initial fee of $75,000 per restaurant,  of which a
part may be  associated  with a  development  fee, a  continuing  royalty fee of
3-1/4% of gross sales, and a regional and/or national advertising fee of 1/2% of
gross sales at such time as Champps establishes a regional/national  advertising
program.  Among the services and materials that Champps  provides to franchisees
are site selection  assistance,  assistance in design development,  an operating
manual that includes quality control and service procedures,  training,  on-site

                                       4

<PAGE>

pre-opening  supervision  and  consultation  relating  to the  operation  of the
franchised  restaurants.  Champps has granted  both single and  multi-restaurant
development  rights  depending upon market factors and franchisee  capabilities.
With respect to multi-restaurant  agreements,  the franchisee's continuing right
to obtain franchises is contingent upon the franchisee's  continuing  compliance
with the restaurant development schedule.

All  franchisees  are required to operate their  restaurants in accordance  with
Champps' standards and  specifications,  including controls over menu selection,
food quality and  preparation.  Champps  approves all restaurant site selections
and  applies  the same  criteria  used  for its own  restaurant  sites.  Champps
requires all new  franchisees  to provide at least annual  financial  statements
reviewed  by  an  independent  certified  public  accountant.  Periodic  on-site
inspections  are conducted to assure  compliance  with Champps  standards and to
assist  franchisees with operational  issues.  Franchisees bear all direct costs
involved in the development, construction and operation of their restaurants.

Champps Restaurant Locations

The following table sets forth the locations of restaurants  operated by Champps
and its franchisees as of October 2, 1998:

Company Owned Restaurant Locations           TEXAS
   Domestic - Total 16                          Addison
CALIFORNIA                                      San Antonio
   Irvine                                    VIRGINIA
COLORADO                                        Reston
   Denver
FLORIDA                                      Franchised Restaurant Locations
   Ft. Lauderdale                               Domestic - Total 11
ILLINOIS                                     MINNESOTA
   Livonia                                      Burnsville
   Schaumburg                                   Maple Grove
INDIANA                                         Maplewood
   Indianapolis                                 Minnetonka
MICHIGAN                                        New Brighton
   Troy                                         St. Paul
MINNESOTA                                       Woodbury
   Richfield                                 NEBRASKA
NEW JERSEY                                      Omaha
   Edison                                    NORTH CAROLINA
   Marlton                                      Charlotte
OHIO                                         SOUTH DAKOTA
   Columbus (2)                                 Sioux Falls
   Lyndhurst                                 WISCONSIN
                                                Greenfield

Fuddruckers

Operations

Fuddruckers restaurants,  with an average bill of $6.50 per person, are designed
to  appeal  to both  families  and  adults  seeking  value  in a  casual  dining
atmosphere.  The restaurants offer a distinctive  atmosphere  created by an open
grill area, a glassed-in  butcher shop, a display case  featuring  choice steaks
and  hamburgers  that have been  freshly-cut  or ground  and an open  bakery for
hamburger buns,  brownies and cookies.  Each  restaurant  offers a substantially
similar  menu that  prominently  features  Fuddruckers'  signature  hamburger in

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one-third  pound and one-half pound sizes.  Hamburgers are made from fresh beef,
cut and ground  daily at each  restaurant  and served on buns baked  daily "from
scratch"  at  each  restaurant.  The  hamburgers  are  available  with  optional
specialty  toppings  from the grill.  While the menu is focused on  Fuddruckers'
signature  hamburger,  which accounts for  approximately  60% of sales,  it also
includes fresh-cut,  ribeye steak sandwiches,  fresh-cut,  ribeye, chopped steak
and  chicken  platters  with baked  potatoes,  various  grilled  chicken  breast
sandwiches,  hot dogs,  a variety of tossed and  specially  prepared  salads and
soups, fish sandwiches,  french fries,  onion rings,  soft drinks,  high quality
milkshakes and bakery items.  Beer and wine are served and,  generally,  account
for  approximately  3% of restaurant  sales.  The  restaurants  permit guests to
participate in the  preparation of their meals by allowing them to garnish their
own entrees from a bountiful array of fresh lettuce,  tomatoes, onions, pickles,
relish and a variety of  condiments,  sauces and melted  cheeses at the "fixin's
bar."  Guests  generally  place their own orders and serve  themselves,  thereby
minimizing waiting time.

Each restaurant  contains a principal  dining area from which guests may observe
the preparation of their meals, and, in some  restaurants,  an additional dining
area with a patio motif.  Decor of the  principal  dining area of a  Fuddruckers
restaurant  generally includes an open warehouse style with neon beverage signs,
wood tables and chairs and, in some instances, original shipping containers from
certain foods sold by the restaurant. The open grill area enables guests to view
the preparation of their meals, all of which are cooked to order.

The  typical  Fuddruckers  restaurant  is  located  in  a  suburban  area  in  a
free-standing  building  or in a shopping  center.  The area  within a five-mile
radius of the  restaurant  is usually zoned for retail,  office and  residential
uses.  Fuddruckers'  guests have an average  household  income of  approximately
$50,000.  Fuddruckers'  restaurants  typically range in size from 6,000 to 8,000
square feet with 200 to 300 seats and parking for between 100 and 200  vehicles.
Restaurants built since fiscal 1995 are typically between 4,800 and 6,000 square
feet with 160 to 220 seats.

The restaurants  are open seven days a week,  generally from 11:00 a.m. to 10:00
p.m.,  for lunch,  dinner and late night  meals.  Certain  restaurants  are open
earlier to accommodate the sale of freshly-baked goods. Restaurants are designed
to enable guests to complete their visit within a convenient  40-minute  period,
which  attracts  the  business  person  on a  limited  luncheon  schedule.  This
contributes to Fuddruckers' higher percentage of lunch (45%) versus dinner (55%)
sales than the industry average for casual dining restaurants.

All  restaurants   are  operated  in  accordance   with  strict   standards  and
specifications for the quality of ingredients,  preparation of food, maintenance
of premises and  associates  conduct,  as set forth in  Fuddruckers'  policy and
procedures manuals. At each restaurant, Fuddruckers emphasizes uniform standards
for product quality,  portion  control,  courteous  service and cleanliness.  

Fuddruckers establishes  specifications and approves purchasing arrangements for
basic menu  ingredients  and supplies for all its restaurants in order to obtain
favorable  prices and ensure  consistent  levels of quality and freshness.  Food
products in  Fuddruckers-owned  and  franchised  restaurants  are  regularly and
systematically tested for quality and compliance with Fuddruckers' standards.

Fuddruckers  emphasizes simplicity in its operations.  Its restaurants generally
have a total staff of one General Manager,  two or three Assistant  Managers and
25 to 45 other associates,  including full-time and part-time associates working
in  overlapping  shifts.  Since  Fuddruckers  generally  utilizes a self-service
concept, it typically does not employ waiters or waitresses.

In  fiscal  1997  and  through  the  first  half of  fiscal  1998,  the  Company
experienced  negative  same store sales and  significantly  lower  margins.  The
Company  attributed  the  declining  sales to several  factors  including:  poor
operational  execution due to a rapid  expansion  program in 1995 and 1996; poor
real estate selection,  and in certain new markets,  consumer confusion over the
Fuddruckers core concept of the "World's Greatest  Hamburgers";  too narrow of a
base of  customers  given its  relatively  high  check  average  for a meal of a
hamburger,  fries and soft drink; and, deterioration of its customer base due to
its limited menu offerings.

 
                                      6
<PAGE>


In  response  to these  factors,  the  Company  adopted a number  of  strategies
including:  curtailment of expansion; exiting certain restaurants;  introduction
of new menu offerings  including  "platters" in the dinner period; and expanding
its "Kids Eat Free" program from Monday through  Thursday after 4:00 pm to seven
days a week from  January  through  Memorial  Day in  substantially  all Company
markets.  The Company also  introduced kids meals priced everyday at $0.99 after
Memorial  Day,  which  is  its  current  kids  meal  program  in   Company-owned
restaurants.

The Company  believes these  initiatives  were successful in improving sales and
profitability  over the course of fiscal 1998. See "Management's  Discussion and
Analysis of Results of Operations and Financial Condition".

Management

Fuddruckers restaurant operations for fiscal 1998 were divided into two regions,
each  supervised by a Senior Vice President of Operations.  The two regions were
further divided into a total of fifteen districts, each supervised by a Director
of  Operations.  On  average,  each  Director  of  Operations  supervises  eight
restaurants and reports to a Senior Vice President of Operations.

Marketing

Fuddruckers uses television, radio and print media to promote its various themes
in markets with a high  concentration of  Fuddruckers-owned  restaurants.  These
themes emphasize  Fuddruckers' unique name and fresh baked buns which are unique
characteristics  and  help  differentiate   Fuddruckers  from  other  restaurant
concepts.

Marketing research  conducted by Fuddruckers  indicates a strong consumer desire
for fresh,  high-quality  food.  Fuddruckers  restaurants,  which  feature fresh
produce  available at the "fixin's  bar," fresh beef ground daily and fresh buns
baked daily, address these consumer desires.

Fuddruckers has developed  local store marketing  manuals to assist its managers
and franchisees in the development of a marketing and public relations  strategy
for their geographic area.  Workshops,  seminars and marketing  manuals are made
available to all franchisees. In addition, Fuddruckers allows its franchisees to
use its  various  television,  radio  and  print  advertising  materials  in the
franchisees' markets for a nominal fee intended to cover Fuddruckers' cost.

Site Selection

Fuddruckers  uses  its own  personnel  to  analyze  markets  and  sites  for new
restaurants, obtain the required zoning and other permits, negotiate the leasing
or real estate  purchase  and oversee all aspects of the  construction  process.
Fuddruckers  believes that location is a key factor in a restaurant's ability to
operate a profitable lunch and dinner business and considers several demographic
factors in selecting  sites,  including  the average  income of the  neighboring
residential  population,  the  proximity  of retail,  office  and  entertainment
facilities, traffic patterns and the visibility of the location.

The average  total cost to  construct a typical  Fuddruckers  restaurant,  where
Fuddruckers purchases real estate, depending upon its location, is approximately
$1.5 million,  which includes  $265,000 for  furniture,  fixtures and equipment,
$510,000  for building and  improvements,  $680,000 for land and site work,  and
$50,000 related to pre-opening costs of the restaurant.  Since 1995, Fuddruckers
has arranged for  sale-leaseback  financing  whereby  Fuddruckers  acquires real
estate, constructs a new restaurant and then sells and leases back the property.
This has enabled  Fuddruckers  to open new  restaurants on sites where a leasing
arrangement was not available, with a minimal capital investment.

                                       7
<PAGE>



The  average  total  cost  to  construct  a  new  Fuddruckers  restaurant  where
Fuddruckers enters into a leasing arrangement is approximately $800,000 which is
comprised  of $265,000  for  furniture,  fixtures  and  equipment,  $485,000 for
leasehold improvements, and $50,000 related to pre-opening costs associated with
the  restaurant.  Fuddruckers  typically  receives  a  contribution  of  between
$300,000  and  $400,000  toward  the  construction  and  renovation  costs  from
landlords and believes that its growth enhances its ability to obtain attractive
leasing terms.  Despite this  favorable  condition,  there remains  considerable
competition among restaurant businesses for desirable sites.

If  the  Proposed  Fuddruckers  Transaction  is  not  consummated,  the  Company
anticipates  that  future   development  of  Fuddruckers   restaurants  will  be
accomplished   through  the  sale  of   franchises   and  the   development   of
Fuddruckers-owned  restaurants,  although no new  Company-owned  restaurants are
planned for fiscal 1999. The development of additional restaurants is contingent
upon locating satisfactory sites, financing, negotiating satisfactory leases or,
alternatively, leasing and converting existing restaurant sites into Fuddruckers
restaurants. It is also dependent upon securing appropriate governmental permits
and obtaining beer and wine licenses.

Franchising

Fuddruckers  offers  franchises  in  markets  where  it  deems  expansion  to be
advantageous  to the  development  of the  Fuddruckers'  concept  and  system of
restaurants.  Franchise  agreements  typically  grant  franchisees  an exclusive
territorial  license to operate a single  restaurant  within a  specified  area,
usually a four-mile radius  surrounding the franchised  restaurant.  Fuddruckers
has a close  relationship  with its franchisees and seeks to identify  potential
franchisees  with the  capability  and financial  resources to operate  multiple
restaurants. Of the 40 Fuddruckers franchisees, 20 operate multiple restaurants,
and 19 have operated Fuddruckers restaurants for more than five years.

Franchisees bear all direct costs involved in the development,  construction and
operation of their  restaurants.  In exchange for a franchise  fee,  Fuddruckers
provides its  franchisees  assistance in the following  areas:  site  selection,
prototypical  architectural  plans,  interior  and  exterior  design and layout,
training,  marketing and sales techniques,  assistance by a Fuddruckers "opening
team" at the time a franchised  restaurant  opens and  operations and accounting
guidelines set forth in various policies and procedures manuals.

All  franchisees  are required to operate their  restaurants in accordance  with
Fuddruckers'  standards and specifications,  including controls over menu items,
food quality and preparation.  Fuddruckers requires the successful completion of
its  training  program  by a  minimum  of three  managers  for  each  franchised
restaurant.  In addition,  franchised  restaurants  are  evaluated  regularly by
Fuddruckers for compliance with franchise  agreements,  including  standards and
specifications through the use of periodic, unannounced, on-site inspections and
standards evaluation reports.

The current standard franchise agreement provides for the payment to Fuddruckers
of a non-refundable  franchise fee of between $25,000 and $50,000 per restaurant
and  ongoing  royalties  of  5% of  gross  sales  of  each  restaurant.  Certain
multi-unit  franchisees  have  entered  into royalty  buy-down  agreements  with
Fuddruckers,  which  reduce  royalty  payments  required  under  the  respective
franchise  agreements.  The royalty buy-down agreements  generally provide for a
one-time payment to Fuddruckers  covering a period of twelve to fourteen months,
and an amendment of the underlying  franchise agreement to reduce the royalty to
3% of gross sales. Once a franchisee executes a buy-down agreement,  the royalty
on any subsequent franchise agreement will be reduced to 3%.


                                       8
<PAGE>



Fuddruckers Locations - Company Owned

The following  table sets forth the locations of restaurants  owned and operated
by Fuddruckers as of October 2, 1998:

Domestic - Total 111     Domestic (Cont'd)          Domestic (Cont'd)

ALABAMA                  KANSAS                     TEXAS
   Birmingham               Overland Park              Austin (3)
ARIZONA                  KENTUCKY                      Clearlake
   Flagstaff                Florence                   Houston (11)
   Glendale              MARYLAND                      Irving
   Mesa (2)                 Annapolis                  Kingwood
   Phoenix (2)              Baltimore                  Plano
   Scottsdale               Gaithersburg               San Antonio (4)
   Tempe                    Pikesville                 Stafford
   Tucson                   Rockville                  Woodlands
CALIFORNIA               MASSACHUSETTS              UTAH
   Burbank                  Boston                     Layton
   Chula Vista           MINNESOTA                     Orem
   La Mesa                  Bloomington                Sandy
   Lake Forest              Brooklyn Center            Salt Lake
   Lakewood                 Burnsville              VIRGINIA
   Pasadena                 Coon Rapids                Alexandria
   San Diego                Eden Prairie               Annandale
COLORADO                    Maple Grove                Chesapeake (2)
   Aurora                   Roseville                  Fairfax
   Marston Park             St. Louis Park             Fredericksburg
   Thornton              MISSOURI                      Herndon
GEORGIA                     Independence               Newport News
   Alpharetta               Maryland Heights           Richmond
   Atlanta                  St. Louis (2)              Vienna
   Duluth                OHIO                          Virginia Beach
   Kennasaw                 Cincinnati (2)             Woodbridge
   Marietta                 Columbus (4)            WISCONSIN
   Norcross                 Fields Ertel               Brookfield
   Peachtree City           Forest Park
   Snellville               Hilliard
   Tucker                   Norwood
ILLINOIS
   Addison
   Aurora
   Calumet City
   Downers Grove N
   Downers Grove S
   Highland Park
   Matteson
   Orland Park
   Palatine
   Schaumburg (2)


                                       9
<PAGE>



Fuddruckers Restaurants - Franchised Locations

The  following  table  sets  forth the  locations  of  restaurants  operated  by
Fuddruckers franchisees as of October 2, 1998:

Domestic - Total 80         Domestic (Cont'd)          Domestic (Cont'd)

CALIFORNIA                     Voorhees                TENNESSEE
   Buena Park                  Wayne                      Kingsport
   Citrus Heights           NEW YORK                      Murfreesboro
   Concord                     Amherst                    Nashville (2)
   Walnut Creek                Westbury                   Sevierville
FLORIDA                     NORTH CAROLINA             TEXAS
   Altamonte Springs           Asheville                  Beaumont
   Clearwater                  Charlotte                  Dallas
   Coconut Grove               Durham                     Kennewick
   Coral Springs               Fargo                      Killeen
   Ft. Lauderdale              Hickory                    Laredo
   Miami                       Huntersville               Lubbock
   N. Miami Beach              Jacksonville               McAllen
   Plantation                  Matthews                   Midland
   Tallahassee                 Wilmington                 San Antonio (2)
   Tampa                    NORTH DAKOTA                  Temple
LOUISIANA                      Fargo                      Waco
   Baton Rouge              OHIO                          Washington
MARYLAND                       Canton
   Owings Mills                Cleveland               International  - Total 13
MASSACHUSETTS               OREGON
   North Andover               Lake Oswego             BAHRAIN
   Saugus                      Portland                   Adliya
MICHIGAN                     PENNSYLVANIA                 Manama
   Detroit                     Harmarville             CANADA
   Flint                       Lancaster                  Edmonton
   Kentwood                    Philadelphia               Saskatoon
   Sterling Heights            Fairless Hill           KUWAIT
MONTANA                     SOUTH CAROLINA                Kuwait City
   Billings                    Columbia                OMAN
   Missoula                    Greenville (2)             Muscat
NEBRASKA                       Hilton Head             PUERTO RICO
   Omaha                       Myrtle Beach               Caguas
NEW JERSEY                     North Myrtle Beach         Carolina
   New Brunswick               Spartanburg              SAUDI ARABIA
   Paramus                  SOUTH DAKOTA                  Al Khobar
   Parsippany                  Rapids City                Jeddah (2)
   Tom's River                 Sioux Falls                Riyadh
   Turnersville                                         UNITED ARAB EMIRATES
   Union                                                  Dubai


                                       10
<PAGE>


The Proposed Fuddruckers Transaction

On July 31, 1998, the Company agreed to sell,  subject to shareholder  approval,
its   Fuddruckers   business   to  King  Cannon   (the   "Proposed   Fuddruckers
Transaction").  The  Board  believes  that  the  sale  of  Fuddruckers  is a key
strategic move for the Company. In July 1997 DAKA  International,  the Company's
predecessor,  sold its  foodservice  business to  alleviate a  significant  debt
burden and to position  the  Company  for  restoring  the  profitability  of its
restaurant  businesses,  Fuddruckers  and Champps.  Since then,  the Company has
accomplished  many of its goals for the continued  turnaround of Fuddruckers and
the expansion of Champps. However, such efforts have been constrained by limited
available  capital  resources.  As the  Board  continued  to  explore  strategic
alternatives  to  improve  shareholder  value,  it  concluded  that  a  sale  of
Fuddruckers  at this time would  allow the  Company to realize  the  benefits of
Fuddruckers' improved performance and provide the capital needed to position the
Company for future growth.

Pursuant to the terms of the Stock Purchase  Agreement,  the Company proposes to
sell  to  King  Cannon  all of the  issued  and  outstanding  capital  stock  of
Fuddruckers  (the "Shares").  The purchase price for Fuddruckers is $43 million,
subject  to certain  adjustments  based on,  among  other  things,  the level of
Fuddruckers'  fiscal 1998 EBITDA and closing  date  working  capital.  While the
adjustments  are without limit,  either the Company or King Cannon may refuse to
consummate  the  transaction if at the closing the purchase price less estimated
adjustments  is less than $40 million,  subject to the Company's  obligations to
pay to King Cannon liquidated damages of $1,000,000.

The Board considered the following factors in reaching the conclusion to approve
the Stock Purchase Agreement and the transactions contemplated thereby:

         The belief of the Company's management, which was adopted by the Board,
         that the  financial  and investor  community  viewed the  businesses of
         Fuddruckers and of Champps as targeting very different  segments of the
         casual dining market and that this viewpoint has had a negative  impact
         on the price of the Company's common stock as Fuddruckers was perceived
         as a constraint on Champp's growth prospects.

         The Board's  belief that the  Proposed  Transaction  represents  a more
         desirable  alternative than continuing to operate Fuddruckers.  In this
         connection,  the  Board  gave  consideration  to the fact  that,  while
         management has made significant  progress in the continuing  turnaround
         of Fuddruckers'  operations,  continuing to operate  Fuddruckers  would
         subject  the  Company  and its  shareholders  to the risk of failing to
         complete  the full  turnaround  strategy,  the burden of a  significant
         investment of management and financial resources and the uncertainty of
         the future long-term performance of Fuddruckers' as a casual restaurant
         concept.  After  evaluating such risks, the Board concluded that, while
         the Company's  turnaround  strategy could ultimately prove  successful,
         the risk that Fuddruckers will continue to experience  operating issues
         adversely  impacting  the  performance  of the  Company's  common stock
         justifies  a  sale  of  Fuddruckers  pursuant  to  the  Stock  Purchase
         Agreement.

         The Board's consideration that, while sales trends and same-store sales
         at Fuddruckers  restaurants  have shown  improvement in the last fiscal
         year and  Fuddruckers is an established  brand which  continues to show
         significant  consumer  acceptance,  if the  Company  were to retain the
         Fuddruckers  business  it  would  have  to  commit  to  the  continuing
         elimination of  under-performing  restaurants,  the  development of new
         restaurants and a series of new initiatives aimed at reinvigorating the
         Fuddruckers  concept,  introducing  new menu  items,  increasing  check
         averages, broadening the guest base and increasing guest frequency. The
         Board  viewed  the  Proposed  Transaction  as a  less  risky  and  more
         attractive   alternative   for  the  Company   shareholders   than  the
         development and execution of a long-term  operating and growth strategy
         for Fuddruckers.

         The sale of  Fuddruckers  will allow the Company's  management to focus
         its attention and devote  adequate  capital  resources to executing the
         Champps operating and growth strategies.

                                       11
<PAGE>



         The  consideration  to be paid by King Cannon to the  Company  consists
         entirely of cash thereby  enabling the Company to have funds  available
         for the  operation  and growth of Champps and other  general  corporate
         purposes.

         The Stock Purchase Agreement does not contain a financing condition for
         King Cannon and,  accordingly,  the Company is less exposed to the risk
         that King Cannon will be unable to obtain  financing  for the  Proposed
         Transaction. In the Stock Purchase Agreement, King Cannon has agreed to
         pay the Company liquidated damages equal to $5 million as the Company's
         sole and  exclusive  remedy  if King  Cannon  fails to  consummate  the
         Proposed  Transaction  for any  reason,  including  lack of  financing,
         assuming that all conditions to closing are otherwise satisfied and the
         Company has not breached the Stock Purchase Agreement.

         The Board's  determination that the consideration to be received by the
         Company  in  the  Proposed   Transaction   is  fair  to  the  Company's
         shareholders  from a financial point of view, which  determination  was
         based on the Board's  assessment of the business and financial  results
         of Fuddruckers.

The Board also considered the following risks and uncertainties  associated with
consummation of the Proposed Transaction:

         Following consummation of the Proposed Transaction,  the Company's sole
         remaining strategic business will be Champps and the Company's overhead
         will have to be covered from a smaller revenue base.

         The terms of the Stock Purchase  Agreement  provide that (i) should the
         Board change its  recommendation  that the Company's  stockholders vote
         for the  Proposed  Transaction,  the Company  would be obligated to pay
         King Cannon $1,720,000;  and (ii) should the Proposed  Transaction fail
         to close because the purchase price after estimated adjustments is less
         than $40 million or because the Company's  shareholders fail to approve
         it, the Company would be obligated to pay King Cannon $1,000,000.

In  analyzing  the  Proposed  Transaction  and related  transactions  and in its
deliberations regarding the recommendation of the Stock Purchase Agreement,  the
Board also considered a number of other factors,  including (i) its knowledge of
the business, operations,  properties, assets, financial condition and operating
results of Fuddruckers; (ii) judgments as to the Company's future prospects with
and without  Fuddruckers;  and (iii) the terms of the Stock Purchase  Agreement,
which were the product of extensive arm's length negotiations. The Board did not
find it practical to and did not quantify or attempt to attach  relative  weight
to any of the specific factors  considered by it. The Board did,  however,  find
that the positive  factors listed above  outweighed  the potential  risks of the
Proposed   Transaction,   and  found  the  opportunity  to  generate   increased
shareholder value through the sale of Fuddruckers compelling.

Notwithstanding  expectations of the Company's senior  management  regarding the
benefits to be realized from the Proposed Transaction, no assurance can be given
that the Company  will be able to realize such  benefits or compete  effectively
against certain other competitors that possess  significantly  greater resources
and marketing capabilities.

Terms of the Stock Purchase Agreement

The  following  discussion  of the terms and  conditions  of the Stock  Purchase
Agreement,  while materially complete, is qualified in its entirety by reference
to the provisions of the Stock Purchase Agreement,  which is filed as an Exhibit
to this Form 10K. Terms which are not otherwise defined in this summary have the
meaning set forth in the Stock Purchase Agreement, or an Exhibit thereto, as the
case may be. An index to all defined terms is set forth in Section 1.3(c) of the
Stock Purchase Agreement.

                                       12
<PAGE>



Purchase Price

The aggregate  purchase  price for the stock of  Fuddruckers is $43.0 million in
cash (the "Unadjusted Purchase Price") subject to adjustment as described below.
On the Closing Date (as defined below),  the Company will deliver to King Cannon
its good faith  statement  (the "Closing  Statement")  of  Fuddruckers'  Working
Capital (as defined in the Stock Purchase Agreement) as of the Closing Date (the
"Estimated  Working  Capital").  The  Unadjusted  Purchase  Price  shall  be (i)
decreased  by the  amount of the  EBITDA  Adjustment  (as  defined  in the Stock
Purchase  Agreement);  (ii)  increased by the amount that the Estimated  Working
Capital is more than $0 and decreased by the amount that the  Estimated  Working
Capital is less than $0, as the case may be;  (iii)  decreased  by the amount of
the  Maintenance  Expenditure  Adjustment  (as  defined  in the  Stock  Purchase
Agreement);  (iv)  decreased  by the amount of the Cash Payment  Adjustment  (as
defined in the Stock Purchase Agreement); and (v) decreased by the amount of the
Closed Store  Adjustment  (as defined in the Stock  Purchase  Agreement)  (as so
adjusted,  the "Estimated  Purchase Price"). On the Closing Date, King Cannon is
required  to pay, by wire  transfer  of  immediately  available  funds,  to such
account as the Company shall have  designated,  an amount equal to the Estimated
Purchase Price less (i) $1.0 million,  which will be placed in escrow to support
the  Company's  indemnification  obligations  to King  Cannon;  (ii) if  certain
required  consents  of  landlords  under  leases  covering  certain  Fuddruckers
restaurants  are not obtained  before the closing,  an additional  $1.0 million,
which  would  then  be  placed  in  escrow  to fund  possible  losses  from  the
termination of such leases or increases in rent; and (iii) if certain contingent
and long-term liabilities of Fuddruckers are not settled or satisfied before the
closing, additional amounts to fund the payment thereof which would be placed in
dedicated   escrow  accounts  until  payment  is  required.   The  term  "EBITDA
Adjustment"  is defined as an amount equal to five (5) times the amount by which
Fuddruckers'  earnings before  interest,  taxes,  depreciation  and amortization
(derived from the audited  financial  statements of  Fuddruckers  for the fiscal
year ended June 28, 1998,  with certain  adjustments  described in detail in the
Stock Purchase  Agreement) is less than $8.5 million.  The Company  believes its
EBITDA, calculated pursuant to the Stock Purchase Agreement, is in excess of the
minimum  required amount of $8.5 million.  Either the Company or King Cannon can
refuse to  consummate  the  Proposed  Transaction  if the  purchase  price after
estimated  adjustments as of the closing date is less than $40 million,  subject
to the Company's  obligation to pay to King Cannon  liquidated  damages equal to
$1.0 million.

In addition to the possible  reduction in the purchase  price as a result of the
various contingent  adjustments and the payment of funds in escrow as summarized
above,  the Company will be required to use a portion of the cash  proceeds from
the Proposed Transaction to satisfy accrued and contingent liabilities which are
required  by the Stock  Purchase  Agreement  to be  satisfied  prior to and as a
condition of closing.  The Company  currently  estimates that,  exclusive of the
possible impact of any contingent  adjustments and without deduction for amounts
deposited in escrow, it will have net cash proceeds  remaining from the Proposed
Transaction  between $33.0 million and $35.0 million after settling  transaction
costs and obligations of Fuddruckers not assumed by King Cannon.

By no later than 120 days after the  Closing  Date,  King Cannon may in its sole
discretion  require that the Company purchase from King Cannon any Current Asset
(as defined in the Stock Purchase  Agreement)  (other than Inventory (as defined
in the Stock Purchase Agreement),  cash and assumable prepaid expenses as of the
Closing  Date which are  reflected as Current  Assets on the Closing  Statement)
which had been reflected on the Company's Closing Statement,  at an amount equal
to (i) in the case of any Current  Receivable  (as defined in the Stock Purchase
Agreement),  the amount  thereof set forth in the  Company's  Closing  Statement
minus 100% of all amounts collected on account of such Current  Receivable since
the  Closing  Date by King  Cannon;  and (ii) in the case of any  other  Current
Asset,  the book value  thereof as of the date on which the purchase  thereof by
the Company takes place. The aggregate amount owed by the Company to King Cannon
on account of the foregoing asset transfers is the "Post-Closing  Asset Transfer
Adjustment."

                                       13
<PAGE>



The Estimated Purchase Price shall be (i) if necessary,  increased or decreased,
as the case may be, by the amount by which the Estimated Working Capital exceeds
or is exceeded by the Final Working Capital; and (ii) decreased by the amount of
the Post-Closing Asset Transfer Adjustment (as so adjusted,  the "Final Purchase
Price").

At the closing,  the Company will  transfer to  Fuddruckers  certain  furniture,
fixtures and equipment,  consisting  principally of office  furniture,  computer
workstations  and  related   equipment   located  at  the  Company's   corporate
headquarters  and used by employees of the Company who will become  employees of
Fuddruckers immediately after the closing.

The Closing

Upon the terms and subject to the  conditions of the Stock  Purchase  Agreement,
the closing of the  transactions  contemplated  by the Stock Purchase  Agreement
(the  "Closing")  is scheduled  to take place on or about  November 2, 1998 (the
"Closing Date").

Representations and Warranties

The Stock Purchase Agreement contains various  representations and warranties by
the Company and King Cannon. These include, without limitation,  representations
and warranties by the Company as to (i) the  organization,  good  standing,  and
capitalization  of  Fuddruckers  and its  subsidiaries;  (ii)  proper  corporate
authority, no conflicts, no violations and requisite approvals;  (iii) ownership
of the Shares;  (iv) accuracy of financial  statements,  books and records;  (v)
absence of undisclosed  liabilities and absence of material adverse change; (vi)
material  litigation;  (vii)  compliance with law; (viii) employee benefit plans
and employee  matters;  (ix) tax matters;  (x) title to and condition of assets;
(xi) leases and real  property;  (xii) certain  contracts  and licenses;  (xiii)
intellectual property matters; (xiv) insurance policies;  (xv) brokers,  finders
and fees; (xvi) franchises; and (xvii) environmental matters.

The Stock  Purchase  Agreement also contains  representations  and warranties of
King Cannon, including, without limitation, representations and warranties as to
(i) the  organization  and good standing of King Cannon;  (ii) proper  corporate
authority,  no conflicts,  no violations and requisite approvals;  (iii) minimum
net worth; (iv) capitalization;  (v) material  litigation;  (vi) compliance with
laws; and (vii) brokers, finders and fees.

For a description of the survivability of the representations and warranties and
related  indemnification,  see  "Survival  of  Representations  and  Warranties;
Indemnification."

Certain Covenants

The Stock  Purchase  Agreement also contains  various  covenants of the Company,
Champps and King Cannon.  During the period from the date of the Stock  Purchase
Agreement to the Closing Date, the Company will, among other things:

         (i) conduct  Fuddruckers  only in the ordinary  course  consistent with
         past  practice,  and use its  commercially  reasonable  efforts  to (a)
         maintain  Fuddruckers'  assets and those assets of the Company that are
         used in  Fuddruckers'  business in their current  condition  subject to
         additions,  deletions and normal wear and tear in the ordinary  course,
         (b) preserve  intact the current  business  organization of Fuddruckers
         and of the Company to the extent related to Fuddruckers'  business, (c)
         keep  available  the services of the current  officers,  employees  and
         agents of  Fuddruckers  and those  employees of the Company who perform
         services for Fuddruckers,  and (d) maintain the relations and good will
         with   suppliers,   customers,   landlords,   creditors,   franchisees,
         employees,  agents,  and others having material business  relationships
         with  Fuddruckers  or with the  Company  to the  extent  related to the
         Fuddruckers business;

                                       14
<PAGE>



         (ii) ensure that none of the changes or events listed in Section 4.1(E)
         of the Stock  Purchase  Agreement  occurs  without  the  prior  written
         consent of King Cannon;

         (iii) perform,  pay or discharge,  or cause Fuddruckers to perform, pay
         or discharge,  certain specified  liabilities including (a) the cost of
         terminating   certain  operating  leases  for  equipment  used  in  the
         Fuddruckers business,  (b) all non-current  liabilities of Fuddruckers,
         and (c)  the  anticipated  cost of  performing  certain  contingent  or
         deferred liabilities of Fuddruckers;

         (iv) transfer to itself,  or otherwise assume  responsibility  for in a
         manner and on terms reasonably  satisfactory to King Cannon, all assets
         and  liabilities  relating  to any  "Fuddruckers"  location  that is no
         longer operating as a "Fuddruckers" restaurant on the Closing Date;

         (v) pay and discharge all  liabilities in regard to any concluded legal
         proceeding  (except  for any such  legal  proceeding  as to  which  the
         Company is pursuing an appeal)  that (a) has been reduced to a judgment
         against   Fuddruckers  or  the  Company  to  the  extent   relating  to
         Fuddruckers'  business,  (b) is the subject of an  executed  settlement
         agreement, or (c) is otherwise concluded as of the Closing Date;

         (vi)  file,  or cause to be filed,  UCC-3  termination  statements  and
         obtain,  or cause to be  obtained,  any  other  releases,  consents  or
         similar  documents  necessary to release liens on Fuddruckers'  assets,
         the Company's  assets related to  Fuddruckers'  business or the Shares;
         and

         (vii)  spend  not less  than  $250,000  per month (or pro rated for any
         partial month) on capital expenditures.

In addition, at the closing, the Company expects to enter into an agreement with
King  Cannon  covering  certain  transitional  arrangements,  including  without
limitation  (i) causing the Company's data  processing  and consulting  services
provider  to  provide  such  services  to  Fuddruckers   after  the  closing  in
consideration  of a payment to the Company of $40,000 per month  toward the cost
of such services;  (ii)  providing to  Fuddruckers  10,000 square feet of office
space at the Company's corporate  headquarters at an all-inclusive  monthly rent
of $20 per square foot;  (iii)  cooperating with Fuddruckers with respect to the
hiring of any Company  employees who have been assigned to perform  services for
Fuddruckers; and (iv) other miscellaneous transitional matters.

Non-Competition

As part of the  consideration  under the Stock Purchase  Agreement,  each of the
Company and Champps agreed that, for a period of ten years following the Closing
Date, neither will (i) directly or indirectly,  own, manage,  operate,  finance,
join,  or control,  or  participate  in the  ownership,  management,  operation,
financing  or control of, or be  associated  as a partner or  representative  in
connection  with,  any  restaurant  business  that is in the  gourmet  hamburger
business or whose method of operation or trade dress is similar to that employed
in  the  operation  of  the  "Fuddruckers"  restaurants;  or  (ii)  directly  or
indirectly  solicit,  induce or attempt to induce any person  then  employed  by
Fuddruckers or King Cannon to enter the employ of the Company or Champps, or any
of their respective affiliates.

Nothing  contained  in the  Stock  Purchase  Agreement  limits  the right of the
Company  or  Champps  to operate  the  business  of  Champps as it is  currently
conducted  or  other  restaurant  concepts  that do not  compete  directly  with
Fuddruckers  or to own  less  than a 5%  legal or  beneficial  ownership  in the
outstanding equity securities of any publicly traded corporation.

                                       15
<PAGE>



The Company's Closing Conditions

The obligation of the Company to consummate the transactions contemplated by the
Stock Purchase  Agreement is subject to  satisfaction or waiver of the following
conditions:

         (i) each of King Cannon's  representations  and warranties in the Stock
         Purchase  Agreement  must have been  accurate in all respects as of the
         date of the  Stock  Purchase  Agreement  and  must be  accurate  in all
         respects as of the Closing Date as if made on the Closing Date,  except
         for such  breaches  as would  not,  in the  aggregate,  have a material
         adverse effect on King Cannon and which King Cannon  undertakes to cure
         within 30 days  following  the  Closing  Date with such  obligation  to
         survive the Closing Date as a covenant of King Cannon;

         (ii) each of the covenants and obligations that King Cannon is required
         to perform or to comply with pursuant to the Stock  Purchase  Agreement
         on or prior to the Closing  Date must be duly  performed  and  complied
         with and King Cannon must deliver each of the documents  required to be
         delivered by it;

         (iii) as of the Closing Date,  there shall be no effective  injunction,
         writ or preliminary restraining order or any order of any nature issued
         by a court or governmental entity of competent  jurisdiction  directing
         that  any of  the  transactions  contemplated  in  the  Stock  Purchase
         Agreement not be consummated,  and no legal  proceeding shall have been
         commenced or  threatened  in writing by any person  against the Company
         seeking to enjoin or obtain damages in respect of the  consummation  of
         any transaction contemplated by the Stock Purchase Agreement;

         (iv) the Proposed  Transaction  shall have been approved and adopted by
         the requisite vote of the Company's shareholders; and

         (v)  the Estimated Purchase Price shall not be less than $40,000,000.

King Cannon's Closing Conditions

The obligation of King Cannon to consummate the transactions contemplated by the
Stock Purchase  Agreement are subject to the  satisfaction or waiver at or prior
to the Closing Date of the following conditions:

         (i) each of the Company's  representations  and warranties in the Stock
         Purchase  Agreement  must have been  accurate in all respects as of the
         date of the  Stock  Purchase  Agreement,  and must be  accurate  in all
         respects as of the Closing Date as if made on the Closing Date,  except
         for such breaches as could not  reasonably be anticipated to result in,
         in the aggregate,  a material  adverse effect on Fuddruckers'  business
         and which the Company  undertakes to cure within 30 days  following the
         Closing  Date with such cure  obligation  to survive  the  Closing as a
         covenant of the Company;

         (ii) each of the covenants and obligations that the Company is required
         to perform or to comply with pursuant to the Stock  Purchase  Agreement
         as of or prior to the Closing Date must be duly  performed and complied
         with and the Company must deliver each of the documents  required to be
         delivered  by it  pursuant  to  Section  3.2(A) of the  Stock  Purchase
         Agreement;

         (iii) as of the Closing Date,  there shall be no effective  injunction,
         writ or preliminary restraining order or any order of any nature issued
         by a court or governmental entity of competent  jurisdiction  directing
         that  any of  the  transactions  contemplated  in  the  Stock  Purchase
         Agreement not be consummated,  and no legal  proceeding shall have been
         commenced or threatened in writing by any person against King Cannon or
         Fuddruckers  seeking  to enjoin or obtain  damages  in  respect  of the
         consummation  of any  transaction  contemplated  by the Stock  Purchase
         Agreement;

                                       16
<PAGE>



         (iv)  there  must not have been made or  threatened  in  writing by any
         person  any  claim  asserting  that such  person  is the  holder or the
         beneficial  owner  of,  or  has  the  right  to  acquire  or to  obtain
         beneficial ownership of, any of the Shares, or any equity securities in
         Atlantic  Restaurant  Ventures,  Inc. (other than the equity securities
         owned by North American Restaurants Limited Partnership);

         (v) King Cannon shall have obtained  current  appraisals  from an "MAI"
         appraiser  selected  by the  Company and  acceptable  to the  financial
         institution  providing  financing to King Cannon in connection with the
         transactions  contemplated by the Stock Purchase Agreement of the value
         of each of Fuddruckers'  owned real  properties,  which value shall not
         be, in the aggregate for all of such owned real  properties,  less than
         $12,500,000;

         (vi) King Cannon shall have  obtained,  at King  Cannon's sole cost and
         expense, updated Environmental Site Assessment ("ESA") reports for each
         of Fuddruckers' owned real properties (the "Updates") and except as set
         forth below, such Updates shall either (a) confirm that the conclusions
         and/or recommendations set forth in existing ESA reports or (b) set out
         modified conclusions and/or  recommendations which are determined to be
         acceptable to King Cannon in King Cannon's sole discretion; and

         (vii)  the Estimated Purchase Price shall not be less than $40,000,000.

Termination

The Stock  Purchase  Agreement may be terminated  (subject to a termination  fee
under  certain   circumstances   as  described   below)  and  the   transactions
contemplated by the Stock Purchase  Agreement may be abandoned at any time prior
to the Closing Date:

         (i)  by the mutual consent of King Cannon and the Company;

         (ii) by either King  Cannon or the Company if a material  breach of any
         provision of the Stock  Purchase  Agreement  has been  committed by the
         other  party and such  breach  has not been  waived by the  terminating
         party;

         (iii) (a) by King  Cannon if any of the  conditions  precedent  to King
         Cannon's  obligation to close have not been satisfied as of the Closing
         Date or if satisfaction of any such condition is or becomes  impossible
         (other  than  through  the  failure of King  Cannon to comply  with its
         obligations under the Stock Purchase Agreement) and King Cannon has not
         waived  such  condition  on or before the Closing  Date,  or (b) by the
         Company if any of the conditions  precedent to the Company's obligation
         to  close  have  not  been  satisfied  as of  the  Closing  Date  or if
         satisfaction of any such condition is or becomes impossible (other than
         through the failure of the Company to comply with its obligations under
         the Stock  Purchase  Agreement)  and the  Company  has not waived  such
         condition at or before the Closing Date;

         (iv) by the Company if (a) the Board withdraws or modifies its approval
         or recommendation to the Company's  shareholders of, or otherwise fails
         to approve or recommend,  the Proposed Transaction and the consummation
         of the transactions  contemplated by the Stock Purchase Agreement,  and
         (b) the Company  pays to King  Cannon an  alternative  transaction  fee
         equal to $1,720,000,  promptly upon such  withdrawal,  modification  or
         failure,  by wire  transfer  of  immediately  available  funds  to such
         account as shall have been designated by King Cannon; or

         (v) by  either  King  Cannon  or the  Company  if the  Closing  has not
         occurred  (other  than  through  the  failure  of any party  seeking to
         terminate  the  Stock  Purchase  Agreement  to  comply  fully  with its
         obligations  under the Stock Purchase  Agreement) on or before November
         2, 1998 (the  "Outside  Date") or such  later date as the  parties  may
         agree upon; provided,  however,  that  notwithstanding  anything to the

                                       17

<PAGE>
         contrary in the Stock Purchase Agreement (a) if on November 2, 1998 the
         applicable  waiting  periods under the  Hart-Scott-Rodino  Act have not
         expired or  terminated  then each of King Cannon and the Company  shall
         have the  independent  right,  exercisable  in its sole  discretion  by
         delivery of written notice  thereof to the other on or before  November
         2, 1998, to extend the Outside Date to the earlier of five (5) business
         days after such regulatory approvals have been obtained or December 15,
         1998 and (b) if on November 2, 1998 the  Company has not  obtained  the
         consents required to be delivered  pursuant to Section 3.2(A)(5) of the
         Stock  Purchase  Agreement,  then the  Company  shall  have  the  right
         exercisable  in its sole  discretion  by  delivery  of  written  notice
         thereof  to King  Cannon on or before  November  2, 1998 to extend  the
         Outside Date to December 15, 1998.

Termination Fees

In the event that the Closing does not occur on or prior to the Outside Date (as
the same may be extended) due to King Cannon's breach of its  obligations  under
the Stock Purchase  Agreement,  the Company's sole and exclusive  remedy against
King  Cannon  under  the  Stock  Purchase  Agreement  and  with  respect  to the
transactions  contemplated  thereby shall be to exercise its rights to terminate
the Stock Purchase Agreement and to receive the payment from King Cannon of cash
in an amount equal to  $5,000,000  as  liquidated  damages with respect to which
King Cannon has furnished a letter of credit for the benefit of the Company.  In
the event that the closing  does not occur on or prior to the  Outside  Date (as
the  same  may  be  extended)  due  to the  non-satisfaction  of the  conditions
contained in Section 8.7 or Section 9.5 of the Stock  Purchase  Agreement or the
failure of the Company's  shareholders to approve the Proposed Transaction where
the Board has  approved or  recommended  the same to the  shareholders  (without
modification  or  withdrawal of such  approval or  recommendation),  the Company
shall pay to King Cannon an amount equal to  $1,000,000  as  liquidated  damages
(and not as a penalty) in consideration of the time, the fees and expenses spent
or  incurred by King  Cannon,  or on its behalf,  in  connection  with the Stock
Purchase Agreement and the transactions contemplated hereby.

Survival of Representations and Warranties

All  representations  and  warranties  of the  parties  contained  in the  Stock
Purchase Agreement will survive the Closing and will expire on December 31, 2000
(the "Survival Period") except that (i)  representations  and warranties made by
the Company  relating to  environmental  matters  will  survive the Closing Date
until December 31, 2003, (ii) representations and warranties made by the Company
relating to  employee  matters and income  taxes will  survive the Closing  Date
until expiration of applicable statutes of limitations and (iii) representations
and  warranties  made by the Company in (a) Section 4.1(A) of the Stock Purchase
Agreement  with  respect  to the due  organization,  valid  existence  and  good
standing of the Company and Fuddruckers,  as well as with respect to the matters
referred to in the last two  sentences  of Section  4.1(A),  (b) Section  4.1(B)
(except for clause  (iv) and the last  sentence  thereof) of the Stock  Purchase
Agreement,  and (c) Section  4.1(C) shall survive the Closing  indefinitely.  In
addition,  any covenants or  agreements of the Company under the Stock  Purchase
Agreement,  and any and all indemnification  obligations  relating thereto shall
survive the Closing  indefinitely,  unless earlier  expiring in accordance  with
their  respective   terms,   including,   without   limitation,   the  Company's
indemnification obligations with respect to covenants and the items described in
Section 13.14(A)(2),  Section 13.14(A)(3),  and Section 13.14(A)(4) of the Stock
Purchase Agreement.

King Cannon's representations and warranties under the Stock Purchase Agreement,
and its  indemnification  obligations  arising  from  such  representations  and
warranties,  will survive the Closing and will expire and  terminate on December
31, 2000.  Any covenants or  agreements of King Cannon under the Stock  Purchase
Agreement,  and any and all  indemnification  obligations  relating thereto will
survive the Closing  indefinitely,  unless earlier  expiring in accordance  with
their respective terms.

                                       18
<PAGE>



The Company's and Champps' Indemnification Obligations

The Company and Champps will jointly and  severally  indemnify,  defend and hold
harmless  King  Cannon  and  Fuddruckers,  each  affiliates  of King  Cannon and
Fuddruckers,  and  each of the  employees,  officers,  directors,  stockholders,
members,  managers,  partners and  representatives  of any one of them, from and
against any losses,  assessments,  liabilities,  claims,  obligations,  damages,
costs or expenses (including without limitation  reasonable  attorneys' fees and
disbursements) which arise out of or relate to:

         (i) any  misrepresentation in, breach of or failure to comply with, any
         of  the  representations,   warranties,   undertakings,   covenants  or
         agreements of the Company,  Fuddruckers or any affiliate of any of them
         contained in the Stock Purchase Agreement;

         (ii) any  Environmental  Matters  (as  defined in Section  13.14 of the
         Stock Purchase Agreement);

         (iii) any  Retained  Liabilities  (as  defined  in the  Stock  Purchase
         Agreement); or

         (iv) obligations of the Company under Section 2.4 of the Stock Purchase
         Agreement with respect to Lease Termination Amounts and Rent Adjustment
         Amounts (as such terms are defined in the Stock Purchase Agreement).

The Company shall not have any obligation to indemnify King Cannon on account of
any breach of any  representation  or warranty as  described in clause (1) above
unless and until King Cannon's losses paid or incurred by King Cannon on account
of all such breaches of  representations  and warranties  exceed $100,000 in the
aggregate,  in which event King Cannon will be entitled to such  indemnification
in  respect  of all such  losses,  including  without  limitation  such  initial
$100,000.

King Cannon's Indemnification Obligations

King  Cannon  will  indemnify,  defend and hold  harmless  the  Company  and its
employees,  officers, directors, partners and representatives (other than any of
the foregoing as may become  employees of Fuddruckers or King Cannon at or after
the  Closing)  from and against any losses,  assessments,  liabilities,  claims,
obligations, damages, costs or expenses (including without limitation reasonable
attorneys' fees and disbursements) which arise out of or relate to:

         (i) any  misrepresentation in, breach of or failure to comply with, any
         of the  representations,  warranties,  covenants or  agreements of King
         Cannon contained in the Stock Purchase Agreement; or

         (ii)  Transferred   Liabilities  (as  defined  in  the  Stock  Purchase
         Agreement).

King Cannon will not have any  obligation to indemnify the Company on account of
any breach of any  representation  or  warranty  unless and until the  Company's
losses  paid,  incurred,  suffered  or accrued on  account  of all  breaches  of
representations and warranties exceed $100,000 in the aggregate,  in which event
the Company will be entitled to  indemnification  in respect of all such losses,
including without limitation such initial $100,000.

Indemnification Caps

The maximum  aggregate  liability of the Company on account of any breach of any
representation or warranty is limited to the amount of the Final Purchase Price.
There is no cap or limit on the  liability  of the  Company  to King  Cannon  on
account of any breach by the Company of any of its covenants or agreements under
the Stock  Purchase  Agreement  or on  account  of  indemnification  obligations
covering matters other than breaches of representations and warranties, provided
that,  if King  Cannon is  entitled to recover any losses in excess of the Final
Purchase  Price,  the Company may either (i) require  King Cannon to reconvey to

                                       19

<PAGE>

the  Company  full  ownership  and  control of the Shares and all assets (to the
extent  then owned by King  Cannon or  Fuddruckers)  that are being  transferred
pursuant  to the Stock  Purchase  Agreement  in such a manner as to rescind  the
transactions  contemplated  by the Stock Purchase  Agreement,  in which case the
Company  will pay King Cannon an amount  equal to (x) the Final  Purchase  Price
plus (y) all additional  investments  made in Fuddruckers  following the Closing
plus (z) an amount  equal to an internal  rate of return equal to 25% on the sum
of items (x) and (y); or (ii) pay to King Cannon all of the losses with  respect
to which King Cannon is entitled to indemnification.

The maximum  aggregate  liability of King Cannon on account of any breach of any
representation or warranty is limited to $5,000,000. There is no cap or limit on
the  liability  of King  Cannon to the  Company on account of any breach by King
Cannon of any of its covenants or agreements under the Stock Purchase  Agreement
or on  account  of  indemnification  obligations  covering  matters  other  than
breaches of representations and warranties.

Expenses

Whether or not the Proposed Transaction is consummated,  and except as otherwise
expressly  set forth in the Stock  Purchase  Agreement,  all costs and  expenses
(including  legal  and  financial   advisory  fees  and  expenses)  incurred  in
connection  with, or in  anticipation  of, the Stock Purchase  Agreement and the
transactions  contemplated  thereby  will be paid by the  party  incurring  such
expenses.  the  Company and King Cannon will each pay one half of the filing fee
required  under the  Hart-Scott-Rodino  Act.  the Company  will pay all fees and
expenses  related to filings  with  governmental  entities  relating to business
licenses, which filings are required to be made following the Closing.

Centralized Functions

During  fiscal  1998,  the  Company   provided   Fuddruckers  and  Champps  with
centralized  purchasing,  accounting and management  information  services.  The
Company has arranged with King Cannon to "share" certain  functions post closing
through June 1999.  The shared  functions,  which can be  terminated  on 30 days
notice,  are  purchasing,   payroll,   accounts  payable,  risk  management  and
technology support.

Purchasing

The Company capitalizes on the diversity of its businesses through a centralized
and coordinated  purchasing program and food distribution  network.  On November
15, 1997, the Company entered into a five-year distribution agreement with Sysco
Corporation ("Sysco") pursuant to which Sysco is entitled to distribute not less
than 80% of food and  food-related  purchases of  Fuddruckers  and Champps.  The
agreement  with  Sysco  is  cancelable  by  either  party  upon 60 days  notice.
Fuddruckers  and Champps  franchisees  also have the option of  purchasing  from
Sysco.

The Company  also acts as a  restaurant  equipment  dealer,  enabling it to take
advantage of dealer pricing, manufacturer discounts and rebates. The Company has
not  experienced  any difficulty in obtaining an adequate supply of quality food
products at acceptable prices from its suppliers.

                                       20
<PAGE>



Accounting and Management Information Systems

During  fiscal  1998,  the  Company   provided   Fuddruckers  and  Champps  with
centralized  financial and management  controls  through the use of an automated
data  processing  system  and  prescribed  reporting  procedures.   The  Company
continues  to upgrade its  computer  hardware  and  financial  software  and has
recently implemented a new point of sale system for its Fuddruckers restaurants.
The  restaurants  forward  weekly  sales  reports,   vendor  invoices,   payroll
information  and  other  operating   information  to  the  Company's   corporate
headquarters.  The  Company  utilizes  this  data to  centrally  monitor  sales,
product,  labor and other costs and to prepare periodic financial and management
reports.  The Company believes that its centralized  accounting,  payroll,  cash
management and information systems improve its ability to control and manage its
operations efficiently.

Effective July 1, 1997, the Company  entered into a sale and services  agreement
with RCS whereby the Company sold to RCS for an aggregate purchase price of $2.3
million certain data processing equipment.  The purchase price will be satisfied
through  the  repayment  of a  promissory  note due June 30,  2002  which  bears
interest at 6% per annum.  The promissory note was contributed to the Company as
part of the  Additional  Capital  Contribution.  The Company also  received DAKA
International's  50% interest in RCS at the Transaction Date. In connection with
this sale, the Company has entered into a management  agreement with RCS whereby
the  Company  has agreed to  provide  certain  managerial  services  to RCS.  In
addition, the Company has entered into a two year service agreement with RCS for
data processing and consulting  services for an annual fee of $1.8 million.  The
Company consolidates RCS operations until such time as the obligations of RCS to
the Company are satisfied.

Competition

The restaurant industry is highly  competitive.  Fuddruckers and Champps compete
with other  national and  international  restaurant  chains as well as local and
regional operations. Competition within the industry is based principally on the
quality,  variety and price of food products served.  Site location,  quality of
service  and  attractiveness  of  facilities  are also  important  factors for a
successful  restaurant.  The restaurant industry is affected by general economic
conditions, changing tastes, population, traffic patterns and spending habits of
guests.  Fuddruckers  believes  that their  competitive  position is enhanced by
providing   guests  with   moderately-priced   quality  food  in  a  comfortable
atmosphere.

The Company  believes  that the  businesses  of  Fuddruckers  and Champps  share
important  characteristics  in their desire to provide  guests with  discernible
value and the highest quality of customer service and dining atmosphere. Factors
such as service, cleanliness and atmosphere are as important in a guest's dining
decision as menu and food  quality.  In response to this trend,  the Company has
provided  training,  education and  motivational  programs for its associates to
focus on providing  quality service and to sustain a sensitivity to guest needs.
The Company  believes  that by  operating  in a  professional,  restaurant-style
manner  where each of its  associates  place the guest  first,  Fuddruckers  and
Champps can win guest loyalty.

Government Regulation

The Company is subject to various  federal,  state and local laws  affecting its
business.  Its operations are subject to various  health,  sanitation and safety
standards, federal and state labor laws, zoning restrictions and state and local
licensing.  Federal and state environmental  regulations have not had a material
effect on the  Company's  operations to date.  Fuddruckers  and Champps are also
subject to federal and state laws  regulating  franchise  operations  and sales.
Such laws impose registration and disclosure  requirements on franchisors in the
offer  and  sale  of  franchises,   or  impose  substantive   standards  on  the
relationship between franchisor and franchisee.

                                       21
<PAGE>



Fuddruckers and Champps restaurants are subject to state and local licensing and
regulation with respect to selling and serving alcoholic beverages.  The sale of
alcoholic  beverages accounted for approximately 3.0% of Fuddruckers' and 35% of
Champps' total restaurants sales during fiscal year 1998. The failure to receive
or retain,  or a delay in obtaining,  a liquor license in a particular  location
could adversely  affect  Fuddruckers',  Champps' or a franchisee's  operation in
that  location  and could  impair  Fuddruckers',  Champps' or such  franchisee's
ability  to obtain  licenses  elsewhere.  Typically,  licenses  must be  renewed
annually and may be revoked or suspended for cause.

Fuddruckers  and Champps  restaurants  are  subject to "dram  shop"  statutes in
certain states. These statutes generally give a person injured by an intoxicated
person the right to recover damages from the  establishment  that has wrongfully
served alcoholic  beverages to the intoxicated  person.  Fuddruckers and Champps
each  carry  liquor  liability  coverage  in the  amount  of  $1.0  million  per
occurrence  subject to a policy aggregate of $25.0 million.  However, a judgment
against  Fuddruckers  or  Champps  under a "dram  shop"  statute  in  excess  of
Fuddruckers'  or Champps'  liability  coverage,  or any inability to continue to
obtain  such  insurance  coverage  at  reasonable  costs,  could have a material
adverse effect on the Company, Fuddruckers or Champps.

Research and Development

The Company is engaged in research  activities  relating to the  development  or
improvement of new and existing  products or services.  Fuddruckers and Champps,
together  with their  franchisees,  utilize test kitchen  facilities  to develop
recipes,  test food  products  and  equipment  and set  nutritional  and quality
standards.  Fuddruckers,  Champps,  and their  franchisees  test additional menu
items in various  markets on an  on-going  basis.  These  tests are  coordinated
through  the  corporate  headquarters.   Furthermore,   the  Company  employs  a
professional support staff to establish,  maintain and enforce high standards of
sanitation and safety in all phases of food preparation and service. The cost of
research and  development  currently is not  material to the  Company's  cost of
operations.

Service Marks

The Company,  through its  operating  subsidiaries,  has  registered a number of
trademarks and service marks with the United States Patent and Trademark  Office
and with  certain  states,  including  the trade  names:  "Fuddruckers"  and the
"Fuddruckers  --  World's  Greatest  Hamburgers"  logo;  "Champ's",   "Champps",
"Champps American Sports Cafe" and "Champps  Entertainment";  "The Great Bagel &
Coffee  Company";  the  "French  Quarter  Coffee  Co.;  and,  "Leo's  Deli",  in
connection  with providing bar and restaurant  services,  and in connection with
the sale of related food products (collectively, the "Marks").

Pursuant to a Master Agreement dated February 1, 1994,  whereby Champps acquired
certain "Champ's" and "Champps"  service marks,  trademarks and trade names from
Champs  Restaurants,  Inc. ("CRI"),  Champps pays CRI an annual fee equal to the
lesser of  approximately  $260,000 or one-quarter  percent  (0.25%) of the gross
sales of Champps restaurants, but in no event less than $40,000. The maximum fee
payable by Champps is  increased  annually by the lesser of the  increase in the
Consumer Price Index or 4%.

All  of the  service  marks,  trade  names  and  trademarks  are of  significant
importance to the businesses of Fuddruckers and Champps. Fuddruckers and Champps
have also registered  various service marks in several  foreign  countries.  The
Company and its  subsidiaries  intend to protect  their  service  marks  through
registration with appropriate governmental authorities.

Seasonality

Fuddruckers  and  Champps  sales  are  historically  higher  in the  spring  and
summer-time  months, due primarily to dining habits of its guests and eating out
trends of the general public.

                                       22
<PAGE>



Corporate Offices and Associates

The Company is incorporated  under the laws of the State of Delaware and employs
approximately  50  associates on a full-time  basis,  two of which are executive
officers.

Fuddruckers  is  incorporated  under the laws of the State of Texas and  employs
approximately 5,000 associates on a full-time and part-time basis.

Champps is  incorporated  under the laws of the State of  Minnesota  and employs
approximately 3,000 associates on a full-time and part-time basis. Substantially
all restaurant associates,  other than restaurant management, are compensated on
an hourly basis.

None of the Company's or its  subsidiaries'  employees are covered by collective
bargaining  agreements.  The Company considers its relations with its associates
to be good.

The Company and Fuddruckers  maintain their principal  executive  offices at One
Corporate Place, 55 Ferncroft Road, Danvers,  Massachusetts 01923. The telephone
number for the Company is (978) 774-6606.

Champps  maintains  its  principal  executive  offices at 153 East Lake  Street,
Wayzata, Minnesota, 55391. The telephone number for Champps is (602) 449-4841.

Spin-off Transaction

On May 27, 1997, DAKA International and its wholly-owned subsidiary, Daka, Inc.,
a  Massachusetts  corporation  ("Daka"),  entered into an Agreement  and Plan of
Merger  (the  "Merger  Agreement")  with  Compass  Interim,   Inc.,  a  Delaware
corporation,  a wholly-owned  subsidiary of Compass  Holdings,  Inc., a Delaware
corporation,  a  wholly-owned  subsidiary of Compass Group PLC  incorporated  in
England and Wales  (collectively  "Compass"),  pursuant to which Compass agreed,
upon the  satisfaction  of certain  conditions,  to commence a tender offer (the
"Offer") for all of the outstanding  shares of DAKA  International  common stock
(the "Merger"). The Offer was consummated on July 17, 1997. Immediately prior to
the  consummation  of  the  Offer,  pursuant  to  a  plan  of  contribution  and
distribution as described in the Reorganization  Agreement (the  "Reorganization
Agreement"),  dated as of May 27, 1997, by and among DAKA  International,  Daka,
the Company and Compass,  DAKA  International  and certain of its  subsidiaries,
including Daka and the Company,  made various contributions of assets and equity
interests to each other in the form of dividends  and capital  contributions  in
order to divest  DAKA  International  of its  restaurant  businesses  which were
contributed to the Company.

Certain  non-restaurant  operating assets and liabilities of DAKA  International
were also  contributed to the Company (the  "Additional  Capital  Contribution")
consisting of notes receivable, property and accounts payable, accrued expenses,
and contingent liabilities.  These net assets and liabilities, which resulted in
a decrease to stockholders' equity of approximately $1.5 million,  were recorded
within their respective captions during fiscal 1998.

Following  the  consummation  of the Offer,  Compass  merged  with and into DAKA
International.  Pursuant to the Offer,  DAKA  International  distributed to each
holder of record of shares  of DAKA  International  common  stock,  one share of
common stock of the Company for each share of DAKA  International  owned by such
stockholder   (the   "Distribution").   No   consideration   was  paid  by  DAKA
International's  stockholders for the shares of the Company's common stock. As a
result  of the  Distribution,  the  Company  ceased to be a  subsidiary  of DAKA
International  and began operating as an independent,  publicly-held  company on
July 17, 1997.

                                       23
<PAGE>


The following summary of certain  provisions of the Agreements with Compass does
not purport to be complete  and is qualified in its entirety by reference to the
full text of such  Agreements  (copies of which have been filed as an exhibit to
the  Registration  Statement No.  000-22639 on Form 10 originally  filed June 3,
1997).

The Tax-Allocation Agreement

The Company,  DAKA  International and Compass have entered into a tax allocation
agreement which sets forth each party's rights and  obligations  with respect to
payments  and refunds,  if any, of federal,  state,  local or foreign  taxes for
periods  before and after the Merger and related  matters  such as the filing of
tax  returns and the  conduct of audits and other tax  proceedings.  In general,
under the tax allocation agreement,  the Company will be responsible for all tax
liabilities  of DAKA  International  and Daka and the  Company  for  periods (or
portions of periods) ending on or before the effective date of the  Distribution
and will have the benefit of any tax refunds,  tax credits or loss carryforwards
arising in such  pre-Distribution  periods. For periods (or portions of periods)
beginning after the effective date of the Distribution,  in general, the Company
will be responsible for tax liabilities of the Company,  and DAKA  International
will be responsible for tax liabilities of DAKA International and Daka.

Indemnification by the Company

The  Post-Closing   Covenants   Agreement  provides  that  except  as  otherwise
specifically  provided the Company,  will  indemnify,  defend and hold  harmless
Compass,  from and  against,  and pay or  reimburse  Compass  for,  all  losses,
liabilities,  damages,  deficiencies,   obligations,  fines,  expenses,  claims,
demands,  actions,  suits,  proceedings,  judgments  or  settlements,  including
certain interest and penalties, out-of-pocket expenses and reasonable attorneys'
and accountants'  fees and expenses  incurred in the investigation or defense of
any of the same or in asserting,  preserving or enforcing any of Compass' rights
suffered by Compass ("Indemnifiable Losses"), as incurred relating to or arising
from  the  Assumed   Liabilities,   including  without  limitation  the  Special
Liabilities (as defined in the Post Closing Covenants Agreement)  (including the
failure by the Company or any of its  subsidiaries to pay,  perform or otherwise
discharge such Assumed Liabilities in accordance with their terms), whether such
Indemnifiable  Losses  relate to or arise  from  events,  occurrences,  actions,
omissions, facts or circumstances occurring,  existing or asserted before, at or
after the  Spin-off.  The scope and amount of such  liabilities  is subject to a
high degree of  uncertainty  and risk.  Although the Company has  estimated  the
amount of  liabilities  due,  there can be no assurance  that such amounts to be
ultimately paid will not differ from the Company's  estimate and such difference
could  be  material.  Under  the  terms  of the  Merger  Agreement  and  related
agreements, the Company is required to collateralize or otherwise ensure for the
benefit  of Compass  its  ability to meet its  obligations  with  respect to its
indemnification  obligations and other liabilities.  Such requirement may reduce
the Company's access to cash balances for a significant period of time after the
Spin-off and may also constrain the Company's cash flow.

Covenant Not to Compete

In the Post-Closing  Covenants Agreement,  the Company agreed that, for a period
of five years  following  the  Spin-off,  it would not  directly or  indirectly,
either individually or as an agent, partner,  shareholder,  investor, consultant
or in any other  capacity,  (i)  participate  or engage in, or assist  others in
participating  or engaging  in, the  business of  providing  contract  catering,
contract  food and  vending  services  to  business  and  industry,  educational
institutions,  airports,  healthcare or museums or similar leisure facilities in
the  continental  United  States but  excluding  food service at certain  retail
outlets (the "Restricted Business");  (ii) influence or attempt to influence any
customer of Compass or Daka to divert its  business  from Compass or Daka to any
person then engaged in any aspect of the Restricted Business in competition with
Compass or Daka;  or (iii) solicit or hire any of the  foodservice  employees at
the district  manager  level or above,  either  during the term of such person's
employment by DAKA International or Daka or within 12 months after such person's
employment  has ceased for any reason,  to work for the Company or any person in
any aspect of  foodservice  (including  vending  service)  in  competition  with
Compass, or Daka.

                                       24
<PAGE>



Item 2.     Properties.

As of June 28, 1998,  the Company  leased  approximately  44,000  square feet of
office space at its  corporate  headquarters  in Danvers,  Massachusetts,  at an
average annual rent of $722,000  through  November 30, 2001.  Compass  subleased
approximately 20,000 square feet from the Company in fiscal 1998 at a rent equal
to one-half the Company's annual rent.  Compass is expected to continue to lease
this space on the same terms through December, 1998; and may lease the space for
up to 30 days thereafter. King Cannon has agreed to sub-lease 10,000 square feet
at a monthly rent  consistent with the Company's rent on a per square foot basis
for an indefinite  period  subject to a 120 day  termination  notification.  The
Company will seek a sub-lease tenant to replace Compass in fiscal 1999.

Fuddruckers   owns  the  land  and  related   improvements  at  12  of  the  111
Fuddruckers-owned  restaurants  with the  balance  of the  restaurants  operated
pursuant to long-term leases.

Champps leases approximately 4,000 square feet for its corporate office, located
in Wayzata,  Minnesota,  pursuant to a five-year lease at an average annual rent
of $70,800.

Item 3.     Legal Proceedings.

On October 18,  1996, a purported  class action  lawsuit was filed in the United
States District Court for the District of Massachusetts on behalf of persons who
acquired  DAKA  International's  common  stock  between  October  30,  1995  and
September 9, 1996 (Venturino et al. V. DAKA  International,  Inc. and William H.
Baumhauer,  Civil Action No. 96-12109-GAO).  The complaint alleges violations of
federal  and  state   securities   laws  by,  among  other   things,   allegedly
misrepresenting  and/or omitting material information concerning the results and
prospects of Fuddruckers during that period and seeks  compensatory  damages and
reasonable costs and expenses, including counsel fees. On December 19, 1997, the
parties entered into a Stipulation and Agreement of Settlement pursuant to which
defendants deny any wrongdoing,  and the parties agree to settle the matter as a
class action,  subject to the court's approval,  with payment of $3.5 million to
the class.  The Company has agreed to indemnify  Compass (the successor owner of
DAKA  International,  Inc.)  for any  losses  or  expenses  associated  with the
complaint.  On February 10, 1998,  the Company  announced  that it had agreed to
settle the case for $3.5 million.  While  defendants deny all of the allegations
in the complaint and any wrongdoing whatsoever,  they believe that settlement of
the case was in the best interests of the Company and its  shareholders to avoid
the costs and risks of  litigation.  The  settlement had no impact on results of
operations and the settlement  payment was funded from  restricted cash deposits
previously  set  aside  for this  contingency.  As a result  of the  settlement,
approximately  $1.5 million in  restricted  cash  deposits  were returned to the
Company.  On January 27, 1998, the court  preliminarily  approved the settlement
and set the timetable for granting final  approval.  The court concluded a final
settlement hearing on April 27, 1998. The court took the matter under advisement
and has not yet made its final  determination  concerning the settlement.  While
the Company cannot predict when the court will make that  determination  or what
the court's  determination  ultimately  will be, the Company  believes  that the
ultimate  outcome of this matter will not have a material  adverse effect on the
Company's consolidated financial condition, results of operations or cash flows.

The  Company  has  agreed  to  assume  certain  contingent  liabilities  of DAKA
International  in  connection  with  the  Spin-off  in  addition  to the  matter
discussed above.  Further,  the Company is also engaged in various other actions
arising in the ordinary  course of business.  The Company  believes,  based upon
consultation with legal counsel,  that the ultimate  collective outcome of these
other  matters  will  not  have a  material  adverse  effect  on  the  Company's
consolidated financial condition, results of operations or cash flows.

                                       25
<PAGE>



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

There  were no  matters  submitted  by the  Company  to a vote of  Stockholders,
through the  solicitation of proxies or otherwise,  during the fourth quarter of
the fiscal  year for which this report is filed.  The Company  expects to submit
the Fuddruckers  transaction to a vote of stockholders  during October 1998. See
"The Proposed Fuddruckers Transaction."

                                     PART II

Item 5.     Market for the  Registrant's  Common  Stock and Related  Stockholdee
            Matters.

The  Company's  common  stock has been  listed  on the  Nasdaq  National  Market
("Nasdaq")  under the symbol  "UNIQ" since July 17, 1997,  the date on which the
Company  became a publicly  trade company as a result of its spin-off from DAKA.
The  table  below  sets  forth,  since  such date and for the  calendar  periods
indicated,  the high and low intra-day sales price per share of the Common Stock
as reported on the  Nasdaq.  The Company has no history of market  price for its
common  stock  prior to such date and data with  respect to the common  stock of
DAKA, as predecessor of the Company,  which was listed on Nasdaq before July 17,
1997, would not be meaningful.

<TABLE>
<CAPTION>

                                                        High              Low
<S>                                                  <C>               <C>
Fiscal 1998
First Fiscal Quarter (after July 17, 1997)           $   7.44          $   6.13
Second Fiscal Quarter                                    7.06              5.75
Third Fiscal Quarter                                     7.00              5.81
Fourth Fiscal Quarter                                    6.50              5.13

Fiscal 1999
First Fiscal Quarter                                     7.38              4.50
Second Fiscal Quarter (through October 2, 1998)          5.75              4.88
</TABLE>


On October 2, 1998,  there were 2,852 holders of record of the Company's  Common
Stock .

The Company has never paid cash dividends on shares of its Common Stock and does
not expect to pay dividends in the  foreseeable  future.  The Company intends to
retain all of its otherwise  available  funds for the operation and expansion of
its business.

                                       26
<PAGE>



Item 6.     Selected Financial Data.

                             SELECTED FINANCIAL DATA

The following table presents selected consolidated  statements of operations and
balance  sheet data of the Company.  The balance  sheet data as of June 28, 1998
and June 29, 1997 and 1996 and the statements of operations data for each of the
four fiscal years in the period ended June 28, 1998 presented  below are derived
from the Company's audited consolidated financial statements.  The balance sheet
data as of July 1, 1995 and July 2, 1994, and the statements of operations  data
for the fiscal year ended July 2, 1994,  have been  derived  from the  Company's
unaudited internal financial statements.

For purposes of this Form 10-K and financial reporting purposes, the Company has
been treated as if it was a stand-alone  entity for all periods  presented.  The
Company's  results of  operations,  as presented in the  accompanying  financial
statements for periods prior to July 17, 1997, include allocations and estimates
of certain  expenses,  including  corporate  accounting,  tax, cash  management,
information technology, legal, risk management,  purchasing and human resources,
historically provided to the Company by DAKA International.

The selected consolidated  financial data should be read in conjunction with the
consolidated  financial  statements and related notes thereto of the Company and
"Management's  Discussion  and Analysis of Results of  Operations  and Financial
Condition" included elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>

                                                                                    As of and for the Fiscal Years Ended
                                                                      --------------------------------------------------------------
                                                                      June 28,     June 29,      June 29,       July 1,      July 2,
                                                                        1998         1997          1996          1995         1994
                                                                        ----         ----          ----          ----         ----
                                                                                   (in thousands, except per share data)
<S>                                                                 <C>           <C>           <C>           <C>          <C>
Statements of Operations Data:
Total revenues                                                      $ 215,321     $ 205,884     $ 183,755     $ 137,730    $ 100,677
Income (loss) from continuing operations
   before income taxes, minority interests and cumulative
   effect of change in accounting for preopening costs
                                                                      (26,748)      (42,832)       (6,931)        4,697        3,980
Net income (loss)                                                     (27,735)      (39,043)       (5,670)        1,798        1,300
Basic and diluted loss per share                                        (2.41)         --            --            --           --
Pro forma basic and diluted loss per share                               --           (3.42)         --            --           --

Balance Sheet Data:
Total assets                                                           92,546       125,209       142,348       102,431       78,365
Long-term debt, including current portion                               6,966         5,128         6,366         4,009        3,372
Total equity                                                           50,398        79,053       108,894        73,979       57,666
</TABLE>


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

General

The following Management's  Discussion and Analysis of Results of Operations and
Financial  Condition  is  based  upon  the  historical   consolidated  financial
statements of the Company,  which present the Company's  results of  operations,
financial  position  and  cash  flow.  Prior  to  July  17,  1997,  the  Company
historically   operated  as  part  of  DAKA   International.   These  historical
consolidated  financial statements include the assets,  liabilities,  income and
expenses  that  were  directly  related  to the  restaurant  business  as it was
operated  within  DAKA  International  prior  to  the  Spin-off.  The  Company's
statement of  operations  includes all of the related  costs of doing  business,

                                       27

<PAGE>

including  charges for the use of  facilities  and for  employee  benefits,  and
includes an allocation of certain general  corporate  expenses,  including costs
for corporate logistics, information technologies,  finance, legal and corporate
executives.  These  allocations  of general  corporate  expenses were based on a
number of factors  including,  for  example,  personnel,  labor  costs and sales
volumes.  Management  believes  these  allocations  as well  as the  assumptions
underlying the  preparation  of the Company's  separate  consolidated  financial
statements to be reasonable.

Certain  other   non-restaurant   operating   assets  and  liabilities  of  DAKA
International  were  contributed  to  the  Company  as  described  in  Note 2 to
Financial  Statements.   Those  assets  and  liabilities   consisting  of  notes
receivable,   property,  accounts  payable,  accrued  expenses,  and  contingent
liabilities  have been recorded within their  respective  captions during fiscal
1998 and resulted in a decrease to stockholders' equity of $1.5 million.

Forward-Looking Statements

Except for the historical information contained herein, the matters discussed in
the following Management's  Discussion and Analysis of Results of Operations and
Financial  Condition of the Company and  elsewhere in this Annual Report on Form
10-K are  forward-looking  statements  within the  meaning of Section 27A of the
Securities  Act and Section 21E of the Exchange  Act.  Words such as  "believe",
"anticipate",  "estimate",  "project",  and similar  expressions are intended to
identify  such  forward-looking  statements.  Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of their
respective dates.  Forward-looking  statements  involve risks and uncertainties,
many of which may be beyond the Company's  control.  Should one or more of these
risks or uncertainties materialize,  or should any of the underlying assumptions
prove  incorrect,  actual  results of current  and  future  operations  may vary
materially  from those  anticipated,  estimated or  projected.  Factors that may
cause such a difference include, among others, the following: the ability of the
Company to successfully  implement strategies to improve overall  profitability;
the completion of the sale of Fuddruckers;  the impact of increasing competition
in the casual and upscale  casual dining  segments of the  restaurant  industry;
changes in general  economic  conditions  which  impact  consumer  spending  for
restaurant occasions;  adverse weather conditions,  competition among restaurant
companies for attractive sites and unforeseen  events which increase the cost to
develop and/or delay the development and opening of new  restaurants;  increases
in the costs of product,  labor,  and other  resources  necessary to operate the
restaurants;  unforeseen  difficulties in integrating acquired  businesses;  the
availability  and terms of  financing  for the  Company  and any changes to that
financing;  the  revaluation  of  any  of  the  Company's  assets  (and  related
expenses); and the amount of, and any changes to, tax rates.







                  [Remainder of page left intentionally blank]

                                       28
<PAGE>



                              RESULTS OF OPERATIONS

Overview

The Company  incurred an operating  loss before  income tax benefit and minority
interests of $27.7 million for the fiscal year ended June 28, 1998,  compared to
a comparable  operating  loss of $42.8  million last year.  Included in the loss
before income tax benefit and minority interest for fiscal 1998 were impairment,
exit and other charges of $24.6 million. Exclusive of these expense charges, the
Company  would have  reported a net loss of $3.1  million  for fiscal  1998.  As
discussed further below,  results for the current fiscal year include a net gain
of $0.7 million on the sale of a Champps restaurant.  While the Company believes
it has  strategies  that will give it the best  opportunity to return to overall
profitability,   there  can  be  no  assurance  that  such  strategies  will  be
implemented within the anticipated time frame or at all, or if implemented, will
be successful.  Accordingly,  the Company may continue to incur  substantial and
increasing  operating  losses  over the next  several  years.  The amount of net
operating  losses  and the time  required  by the  Company  to  reach  sustained
profitability  are highly  uncertain  and to achieve  profitability  the Company
must,   among  other   things,   successfully   reduce   selling,   general  and
administrative  expenses as a percentage of sales from  historical  levels while
continuing to increase net revenues from its existing and continuing restaurants
and  successfully   execute  its  growth  strategy  for  the  Champps  Americana
restaurant  chain.  While  progress has been made in the current  fiscal year in
many of these areas,  there can be no assurance that the Company will be able to
achieve profitability at all or on a sustained basis.

On September 24, 1998, the Company announced it had retained Bear Stearns & Co.,
Inc. to assist the Company's  board of directors (the "Board") in evaluating and
seeking financial and strategic  alternatives,  including a possible sale of the
Company. There can be no assurance, however, that the Company will pursue a sale
or any other specific alternative or that it will be able to reach any agreement
or complete any transaction that it may undertake.

The Company's Champps Americana  restaurant chain is in the expansion phase. The
timing of revenues and expenses  associated  with the opening of new restaurants
or the closing or repositioning  of existing  restaurants are expected to result
in fluctuations in the Company's quarterly results.  In addition,  the Company's
results, and the results of the restaurant industry as a whole, may be adversely
affected  by changes in  consumer  tastes,  discretionary  spending  priorities,
national,  regional or local economic conditions,  demographic trends,  consumer
confidence  in the  economy,  traffic  patterns,  weather  conditions,  employee
availability and the type, number and location of competing restaurants. Changes
in any of these factors could adversely affect the Company.

Among other  factors,  the success of the  Company's  business and its operating
results are  dependent  upon its ability to  anticipate  and react to changes in
food and liquor costs and, particularly for Champps Americana  restaurants,  the
mix between  food and liquor  revenues.  Various  factors  beyond the  Company's
control, such as adverse weather changes, may affect food costs and increases in
federal,  state  and local  taxes may  affect  liquor  costs.  While in the past
Fuddruckers  and Champps have been able to manage their  exposure to the risk of
increasing  food and liquor costs through  certain  purchasing  practices,  menu
changes and price  adjustments,  there can be no assurance that the Company will
be able to do so in the future or that  changes in its sales mix or its  overall
buying power will not adversely affect the Company's results of operations.

In recent periods the Company's  Fuddruckers  restaurant  chain has  experienced
operational difficulties which have impacted its profitability. The Company also
believes  certain of its Fuddruckers  locations  opened in fiscal 1995, 1996 and
1997 have  underperformed  principally due to poor real estate selection and, in
certain new markets, consumer confusion over the Fuddruckers core concept of the
"World's Greatest  Hamburger".  The Company believes such consumer confusion was
due in part to design changes to its restaurants opened in the last three fiscal

                                       29

<PAGE>

years  which  de-emphasized  the  Butcher  Shop and Bakery  which,  the  Company
believes, resulted in new customers not realizing the quality of the ingredients
and freshness of the products used in making its sandwiches and other menu items
when compared with its competitors.  The Company believes it has addressed these
issues  for  future  Fuddruckers  locations,  although  no  Company  Fuddruckers
restaurants are presently  planned to open in fiscal 1999. As discussed  further
below and under the caption "The Proposed Fuddruckers Transaction",  the Company
has decided to sell its Fuddruckers  business in a transaction expected to close
in November, 1998.

Notwithstanding these risks, the Company believes that its near-term strategies,
including,  but not  limited  to,  continued  expansion  of  Champps,  improving
operational   excellence,   and   anticipated   continued   lower   general  and
administrative  expenses from  historical  levels  resulting  from actions taken
since June 29, 1997 and the effects of the  Spin-off,  the Proposed  Fuddruckers
Transaction,  and other related  transactions,  should  provide it with the best
opportunity for improved overall profitability.

Overall Results of Operations

Revenues grew $9.4 million,  or 4.6%, to $215.3  million in fiscal 1998 compared
with $205.9  million for fiscal 1997.  The  increase in revenues,  as more fully
explained in the segment  discussion  which follows,  resulted from increases in
Champps  revenues  offset,  in part, by decreases in  Fuddruckers  and Specialty
Concepts  revenues.  Cost of  sales  and  operating  expenses  were  essentially
unchanged on a  consolidated  basis at 90.2% of restaurant  sales in fiscal 1998
compared  with  89.0% in  fiscal  1997.  However,  each  segment's  results  are
separately discussed below.

The Company recorded impairment, exit and other costs of $24.6 million in fiscal
1998, and $21.7 million in fiscal 1997. Included in the fiscal 1998 amounts were
$1.4 million  related to the write-off of net assets and exit costs of the Great
Bagel & Coffee  business,  $17.9 million  related to  impairment of  Fuddruckers
assets, $4.3 million related to the Company's put/call agreement with respect to
a  minority  interest  in 22  Fuddruckers  restaurants,  and exit  costs of $0.3
million  associated  with closing two  Fuddruckers  restaurants  and  impairment
charges of $0.7 million on Fuddruckers  stores sold to a franchisee at year end.
The Company expects to incur  additional  expenses  aggregating  $6.1 million in
connection with the Proposed Fuddruckers  Transaction which will be incurred and
recorded  during  the first and  second  quarter  of fiscal  1999.  The  Company
estimates that approximately  $12.3 million of these impairment,  exit and other
costs represent future cash outlays.

In the fourth  quarter of fiscal 1997,  the Company made  decisions to close its
non-traditional   Specialty  Concepts  segment   restaurants  and  to  close  or
refranchise certain underperforming  Fuddruckers restaurants which resulted in a
pre-tax  charge of  approximately  $16.2  million.  Included in these costs were
charges for  impairment to the carrying  value of assets closed or  refranchised
during fiscal 1998,  reacquired  franchise  rights,  lease  termination fees and
other exit costs, including severance costs,  associated with the restaurants to
be closed.

In fiscal 1996,  the Company  adopted the  provisions  of Statement of Financial
Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of Long-Lived
Assets and  Long-Lived  Assets to Be  Disposed  Of," which  resulted in a pretax
charge of approximately $3.0 million in 1996. The provision included charges for
impairments  to the  carrying  value of certain  restaurant  assets,  reacquired
franchise rights, investments and certain other assets.




                                      30


<PAGE>



Champps

The following table sets forth certain financial information for Champps.

<TABLE>
<CAPTION>
                                                                                                   (In thousands)
                                                                                    1998                1997                1996
                                                                                    ----                ----                ----
<S>                                                                              <C>                 <C>                 <C>
Restaurant sales                                                                 $  73,387           $  57,832           $  41,593
                                                                                 =========           =========           =========

Sales from Champps restaurants                                                       100.0%              100.0%              100.0%
Operating expenses:
   Labor costs                                                                       (33.0)              (33.0)              (33.1)
   Product costs                                                                     (29.0)              (28.9)              (28.8)
   Other operating expenses                                                          (27.8)              (25.7)              (23.2)
   Depreciation and amortization                                                      (4.0)               (8.2)               (8.6)
   Impairment, exit costs and other charges                                         --                  --                    (0.2)
   Merger costs                                                                     --                  --                    (6.3)
                                                                                 ---------           ---------           ---------
Restaurant unit contribution                                                           6.3%                4.2%               (0.2)%
                                                                                 =========           =========           =========

Restaurant unit contribution                                                    $    4,622          $    2,435         $       (74)
Gain on sale of franchise                                                              677                --                  --
Franchising and royalty income                                                         644                 539                 555
                                                                                 ---------           ---------           ---------
Restaurant unit, franchising and royalty contribution                           $    5,943          $    2,974         $       481
                                                                                 =========           =========           =========
</TABLE>


Comparison of Fiscal Years Ended June 28, 1998 and June 29, 1997

Sales in Champps-owned  restaurants  increased  approximately  $15.6 million, or
27%, to $73.4  million for fiscal 1998  compared  with $57.8 million a year ago.
The increase  primarily  reflects three new Champps-owned  restaurants in fiscal
1997 opened for the full current fiscal year, four new Champps-owned restaurants
opened  during 1998,  and higher per  restaurant  average  sales  volumes  ($5.6
million annually for same stores).  Same store sales increased  approximately 1%
in 1998.

Restaurant  unit  contribution,  for fiscal 1998  increased  approximately  $2.2
million  to $4.6  million  compared  with $2.4  million in the  preceding  year.
Operating margins for 1998 were impacted by lower depreciation  offset, in part,
by higher occupancy costs.  Other operating  expenses in 1998 include preopening
costs directly incurred totaling $1.9 million. Preopening costs incurred in 1997
and prior years were capitalized and amortized over 12 months. Such amortization
expense  totaled  $1.6  million in 1997 and was  included  in  depreciation  and
amortization.

Comparison of Fiscal Years Ended June 29, 1997 and June 29, 1996

Sales in Champps-owned  restaurants  increased  approximately  $16.2 million, or
39%, to $57.8 million for fiscal 1997  compared with $41.6 million in 1996.  The
increase  primarily  reflected  six new  Champps-owned  restaurants  during 1996
opened for all of 1997, three new Champps-owned  restaurants opened in 1997, and
higher  per  restaurant  average  sales  volumes.  Same  store  sales  increased
approximately 1% in 1997.

Restaurant unit contribution, excluding impairment, exit costs and other charges
and merger costs, for fiscal 1997 decreased  approximately  $0.2 million to $2.4
million compared with $2.6 million a year ago.  Operating  margins for 1997 were
impacted by higher other operating expenses, primarily occupancy, lease and bank
charges and initial higher  operating  expenses  expressed as a percent of sales
for new restaurants opened in 1997 during their first few months of operations

                                       31
<PAGE>



Fuddruckers

The following table sets forth,  for the periods  presented,  certain  financial
information for Fuddruckers.

<TABLE>
<CAPTION>
                                                                                                  (In thousands)
                                                                                  1998                 1997                 1996
                                                                                  ----                 ----                 ----
<S>                                                                           <C>                  <C>                  <C>
Restaurant sales                                                              $  133,858           $  137,624           $  131,592
                                                                              ==========           ==========           ==========

Sales from Fuddruckers-owned restaurants                                           100.0%               100.0%               100.0%
Operating expenses:
   Labor costs                                                                     (30.2)               (32.8)               (31.9)
   Product costs                                                                   (27.1)               (28.0)               (29.0)
   Other operating expenses                                                        (32.7)               (28.1)               (23.3)
   Depreciation and amortization                                                    (4.2)                (6.6)                (6.1)
   Impairment, exit costs and other charges                                        (16.3)                (6.6)                (1.9)
                                                                              ----------           ----------           ----------
Restaurant unit contribution                                                       (10.5)%               (2.1)%                7.8%
                                                                              ----------           ----------           ----------

Restaurant unit contribution                                                  $  (14,116)          $   (2,952)          $   10,323
Franchising and royalty income                                                     3,763                4,021                6,574
                                                                              ----------           ----------           ----------

Restaurant unit, franchising and royalty contribution                         $  (10,353)          $    1,069           $   16,897
                                                                              ----------           ----------           ==========
</TABLE>

Comparison of Fiscal Years Ended June 28, 1998 and June 29, 1997

Sales  decreased  $3.8  million,  or 2.7%, in fiscal 1998 compared with the same
period a year ago.  This  decrease  reflects  the impact of the Company  closing
eight units in fiscal 1998 pursuant to  previously  announced  plans offset,  in
part, by an increase in same store sales of 1%.  Restaurant  unit  contribution,
excluding  impairment,  exit and other charges, was 5.8% in fiscal 1998 compared
with 4.5% in fiscal  1997.  This  improvement  reflects  lower  labor  costs and
product costs offset,  in part, by higher discounts and coupons  associated with
the  Company's  "Kids  Eat Free  Everyday"  promotion  from  January  1, 1998 to
Memorial Day in fiscal 1998,  and its subsequent  promotion,  "Kids Eat for $.99
Everyday", introduced after Memorial Day. Depreciation and amortization expenses
in fiscal  1998  were  lower at 4.2% of sales  compared  with 6.6% last year and
reflect the impact of  insignificant  amortization  of  preopening  costs in the
current  year  compared  with $2.2  million a year ago,  and  closure of certain
restaurants in 1998.

Franchising and royalty income decreased  approximately  $0.2 million for fiscal
1998.  During  fiscal  1998,  the  Company  did not  execute  any  international
multi-unit  development  agreements.  Royalty  income from  domestic  franchised
restaurants remained consistent for fiscal 1998 compared to the previous year.

Comparison of Fiscal Years Ended June 29, 1997 and June 29, 1996

Sales from Fuddruckers-owned  restaurants increased  approximately $6.0 million,
or 4.6%,  to $137.6  million for fiscal 1997  compared  with $131.6  million for
fiscal 1996.  This increase  reflects the addition of six new  Fuddruckers-owned
restaurants during fiscal 1997 and the impact of a full year of operations of 26
restaurants  opened  in fiscal  1996,  offset by a 6.6%  decline  in  comparable
restaurant sales.

                                       32
<PAGE>



Restaurant  unit  contribution,  excluding  impairment,  exit  costs  and  other
charges, decreased approximately $6.6 million. Operating margins continued to be
negatively  impacted  by poor  sales  levels,  higher  labor and other  non-food
operating costs, and higher  depreciation and amortization  expenses offset,  in
part,  by the impact of menu  changes,  a 3% price  increase  effective in early
December  1996 and  improved  product  costs as a percentage  of sales.  Changes
between years in labor costs, other non-food operating expenses and depreciation
and  amortization  expressed  as a percent of sales  reflect the impact of lower
average  sales  which  reduced  the  ability of the  Company to  leverage  these
relatively fixed expenses.

Franchising and royalty income decreased  approximately  $2.6 million for fiscal
1997.  During  fiscal  1997,  the  Company  did not  execute  any  international
multi-unit  development  agreements.  Royalty  income from  domestic  franchised
restaurants remained consistent for fiscal 1997 compared to 1996.

Specialty Concepts

On June 28, 1998,  the Company ceased the operations of its Great Bagel & Coffee
business, which represented the sole remaining business of its former "Specialty
Concepts"  segment.  This decision resulted in a charge of $1.4 million for exit
costs  associated with the  termination of leases,  severance and write-downs of
fixed  assets  abandoned.  Specialty  Concepts  has  historically  included  the
operations  of the Great Bagel & Coffee  Company and the  operations  of certain
non-traditional  foodservice venues such as restaurant  operations  conducted by
the Company in Home Depot locations under the names Leo's  Delicatessen and Fudd
Cafes.  During  the  fourth  quarter  of fiscal  1997,  the  Company  decided to
terminate its non-traditional restaurant operations leaving only the Great Bagel
& Coffee business operating. The Specialty Concepts segment generated restaurant
sales of $3.3 million in 1998, $5.3 million in 1997, and $2.9 million in 1996.

Selling, General and Administrative Expenses

Comparison of Fiscal Year Ended June 28, 1998 and June 29, 1997

Selling,  general and  administrative  expenses  were 9.2% of revenues in fiscal
1998 compared with 15.8% in fiscal 1997. This improvement  relates  primarily to
head count and other  reductions  taken in 1998 coupled with the actual costs of
maintaining  the  corporate  overhead  of the  Company  when  compared  with the
allocation  of  DAKA  International's  overhead  estimated  in  fiscal  1997  as
previously  discussed.  The  decrease in the current  year also  reflects  lower
marketing costs at Fuddruckers  during 1998 as compared to 1997 as the Company's
strategy in this segment in fiscal 1998 was to utilize the kid's meal  promotion
in lieu of marketing.

Comparison of Fiscal Year Ended June 29, 1997 and June 29, 1996

Selling,  general  and  administrative   expenses,   including  a  component  of
depreciation and amortization  related to corporate assets of DAKA International
allocated to the Company,  increased approximately $8.4 million to $32.6 million
for fiscal  1997.  This  increase  primarily  reflects  the impact of  increased
marketing  efforts  and  costs  for  Fuddruckers,   higher  overhead,  including
severance  costs,  associated  with the Specialty  Concepts  segment and ongoing
investment  in  corporate   infrastructures.   Amounts  for  1997  also  include
establishment of legal and other reserves.

                                       33
<PAGE>



Income Taxes

Prior to July 17, 1997, the operations of the Company were generally included in
the  consolidated  U.S.  federal  income  tax return and  certain  combined  and
separate state and local tax returns of DAKA International. A benefit in lieu of
taxes for 1997 and 1996 has been  presented  as if the  Company  was a  separate
taxpayer.  Given the Company's  history of losses,  no benefit for net operating
losses were recognized in fiscal 1998. The Company's  effective tax benefit rate
was approximately 8.7% for 1997,  compared with an effective tax benefit rate of
approximately  7.7% for the comparable  period of 1996. As of June 28, 1998, the
Company had net operating loss carryforwards of approximately $24.5 million. The
carryforwards  expire  at  various  dates  through  2012 and a  portion  of such
carryforwards  can only be applied against the taxable income of Fuddruckers and
a portion against the earnings of the Company's 63% owned  subsidiary,  Atlantic
Restaurant Ventures, Inc.

Accounting Pronouncements Not Yet Adopted

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 130,  "Reporting  Comprehensive
Income" and SFAS No. 131,  "Disclosures  about  Segments  of an  Enterprise  and
Related  Information."  In June 1998, the FASB issued SFAS No. 133,  "Accounting
for Derivative  Instruments and Hedging Activities." The Company will adopt SFAS
No.'s 130 and 131 during  fiscal  year 1999 and SFAS No. 133 during  fiscal year
2000. Management does not expect that the adoption of these statements will have
a material impact on the consolidated financial statements.

Year 2000 Compliance

The Company has an Information  Technology  Steering Committee (the "Committee")
which has been given the assignment of evaluating  year 2000  compliance for all
of the  Company's  primary and mission  critical  software and  hardware  assets
("core systems") to correct or mitigate year 2000 compliance exposure.  Based on
the  Committee's  review,  the Company has  segregated its core systems into the
following categories:  consolidated accounting and financial reporting; payroll;
restaurant sales and accounting; data transmission;  office support; and banking
services. Except for banking services, the Committee has completed its review of
each of these categories and, as discussed further below, has identified several
areas  of  non-compliance  including  Fuddruckers  point of sale  devices  (cash
registers)  and payroll  processing  hardware and software as systems  requiring
upgrades and/or replacement in order to be year 2000 compliant.

With respect to  consolidated  accounting and financial  reporting core systems,
the Company  utilizes  nationally  recognized  systems such as Oracle,  Windows,
Novell and Xcellenet which are, or with readily available upgrades will be, year
2000  compliant.  The Company  estimates  the costs to upgrade these systems are
insignificant  and its  exposure  to  catastrophic  year  2000 risk to be highly
unlikely.

With  respect to its payroll core  systems,  the  Company's  version of Ceridian
software  and the related  hardware  are year 2000  deficient.  Ceridian and the
Company are working  together to provide a solution and the Company  expects the
solution to be in place by January 1, 1999. The Company presently  estimates the
cost to bring its payroll core systems year 2000  compliant to be  approximately
$200,000.  The payroll  core system is  important  to the  Company's  day to day
operations. A failure of the payroll core system will be mitigated,  however, by
the  reduction  in  force  that  will  occur  after  the  proposed   Fuddruckers
transaction  closes.  The  Company  believes  that it could  manage its  payroll
processes manually after the sale is completed.

                                       34
<PAGE>



The  Company's  restaurant  sales and  accounting  core  systems are  segregated
between  Champps and  Fuddruckers.  The Champps systems are year 2000 compliant.
The Fuddruckers systems will require upgrades of hardware and software which are
currently available and are estimated to cost approximately  $250,000.  However,
pending the sale of Fuddruckers, no action is planned at this time.

The Company's  data  transmission  and office support core systems are year 2000
compliant in all  significant  respects.  An analysis of the  Company's  banking
services  core  systems  will be delayed  until  after the  pending  Fuddruckers
transaction  is  completed.  The  Company  believes  the  size of the  remaining
business will greatly reduce any exposure in these core systems.

The Company has not  completed  its  evaluation  of year 2000  compliance of its
primary  vendors for impact on the  Company.  However,  the  Committee  does not
believe the Company  faces any  significant  exposure  from any vendor year 2000
issues given the availability of inventory,  the size and stature of its primary
vendors, and the relatively low technology nature of its business.

                        FINANCIAL CONDITION AND LIQUIDITY

At June 28, 1998, the Company had a working capital deficiency of $13.9 million.
The working  capital needs of companies  engaged in the restaurant  industry are
generally low as sales are made for cash and inventory and labor costs and other
operating  expenses are generally paid on terms.  The Company has been unable to
obtain a line-of-credit with a bank during fiscal 1998, although equipment lease
financing was obtained and remains available for future  construction  projects,
if  necessary.  Given  the  Company's  plans  for the  sale  of its  Fuddruckers
restaurant  chain,  and  existing  sources of financing  through  sale-leaseback
facilities,  the Company does not  anticipate any  significant  need for working
capital for its primary  business over the next twelve months.  However,  should
the Proposed Fuddruckers  Transaction fail to close, the effect on the Company's
near-term  liquidity  could be  adversely  affected.  Nonetheless,  the  Company
believes its financial  resources are sufficient to sustain  operations  through
fiscal 1999.  In the event that such  resources are less than  anticipated,  the
Company has the ability to curtail  its  Champps  expansion  program and further
reduce non-essential  operating costs to conserve working capital.  Further, the
Company  believes that certain of its existing  restaurant  units can be used as
collateral  for  obtaining  loans and could  provide  working  capital  within a
relatively short timeframe.

Capital  expenditures  for restaurant  expansion  during fiscal 1998 were funded
primarily through $16.5 million of sale-leaseback and equipment  financing under
existing  facilities and $5.7 million in cash  contributions from operations and
proceeds from the sale of property and equipment.

In December 1995, Champps obtained $40.0 million of sale-leaseback financing for
the  construction  of  new  Champps  restaurants.  As  of  June  28,  1998,  the
construction  of four  Champps  restaurants  had been  fully  funded  under this
commitment and two had been partially  funded.  At June 28, 1998,  $20.9 million
was available for use. Any unused commitment expires on December 31, 1998.

During the first and second  quarters of fiscal  1999,  the  Company  expects to
incur $6.1  million  additional  expenses  related to the  Proposed  Fuddruckers
Transaction.  The Company  estimates  that it will expend $12.3  million in cash
related to charges recorded during fiscal 1998 and the aforementioned additional
expenses.

Item 7a.    Quantitative and Qualitative Disclosures About Market Risk

As of June 28,  1998,  the  Company  maintains  a  portion  of its cash and cash
equivalents in financial instruments with original maturities of three months or
less.  These  financial  instruments are subject to interest rate risk, and will
decline in value if interest rates increase.  Due to the short duration of these
financial instruments,  an immediate 10 percent increase in interest rates would
not have a material effect on the Company's financial condition.

                                       35
<PAGE>



The  Company's  outstanding  long-term  debt at June 28, 1998 bears  interest at
fixed  rates;  therefore,  the  Company's  results of  operations  would only be
affected by interest rate changes to the extent that  variable  rate  short-term
notes payable are outstanding.  Due to the short-term  nature and  insignificant
amount of the  Company's  notes  payable,  an  immediate  10  percent  change in
interest  rates  would not have a material  effect on the  Company's  results of
operations over the next fiscal year.

The Company's  put  obligations  related to an  obligations  to  repurchase  the
remaining 37% interest in Atlantic Restaurant Ventures, Inc. ("ARVI") is subject
to market risk if the historical operations of ARVI improve. Based on historical
trends and  anticipated  continued  poor  operational  performance,  the Company
believes  that the  likelihood  of an increase to the minimum put  obligation of
$5.4 million is not likely to occur.

Item 8.     Financial Statements and Supplementary Data.

The  information  required  under this Item 8 is set forth on pages F-1  through
F-28 of this Report.

Item 9.     Changes in  and  Disagreements with  Accountants  on  Accounting and
            Financial Disclosure.

Not applicable.































                  [Remainder of page left intentionally blank]

                                       36

<PAGE>




                                    PART III

Item 10.     Directors and Executive Officers of the Registrant.

Directors of the Registrant

There is incorporated in this Item 10 by reference that portion of the Company's
definitive Proxy Statement relating to its Annual Meeting to be held on or about
January 20, 1999,  appearing therein under the captions  "Election of Directors"
and "Directors and Committees."

Executive Officers of the Registrant

Certain  information is set forth below concerning the executive officers of the
Company, each of whom has been elected to serve until the regular meeting of the
Board of Directors  and until his successor is duly elected and  qualified.  The
executive officers of the Company are as follows:

Name                        Age        Position
----                        ---        --------

Donald C. Moore              44        Director, Chief Executive Officer,
                                         Chief Financial Officer and Treasurer

Donna L. Depoian             38        Vice President,
                                         General Counsel and Secretary

Donald C.  Moore has served as Chief  Executive  Officer  and a Director  of the
Company since July 21, 1998. He has served as Executive Vice President and Chief
Financial  Officer and  Treasurer of the Company  since June 1998 and was Senior
Vice  President  and Chief  Financial  Officer and  Treasurer  from May 1997. He
served as Senior Vice  President  and Chief  Financial  Officer and Treasurer of
DAKA  International  from January 1997 to May 1997.  From  November 1995 through
October 1996 he served as Senior Vice President and Chief Financial  Officer for
Al Copeland  Investments,  a multi-business,  privately held  corporation.  From
August 1990 until August 1995 he served principally as Senior Vice President and
Chief Financial Officer of Rally's Hamburgers,  Inc., a publicly held multi-unit
quick service hamburger operator and franchiser.

Donna L. Depoian has served as Secretary,  Vice President and General Counsel of
the Company since May 1998. She served as Assistant Secretary and Acting General
Counsel from February 1998 to May 1998 and as Assistant  Secretary and Corporate
Counsel  since July 1997.  Ms.  Depoian also served as Assistant  Secretary  and
Corporate Counsel for DAKA  International,  Inc. since April 1994. From May 1989
to April 1994,  she practiced as an attorney for Bass & Doherty,  P.C., a Boston
law firm  concentrating  in business and commercial  real estate.  From February
1988 to April  1989 she  practiced  as an  attorney  for  Rossman,  Rossman  and
Eschelbacher, a Boston based law firm.

Item 11.   Executive Compensation.

There is incorporated in this Item 11 by reference that portion of the Company's
definitive Proxy Statement relating to its Annual Meeting to be held on or about
January 20, 1999, appearing therein under the caption "Executive Compensation."

                                       37
<PAGE>



Item 12.   Security Ownership of Certain Beneficial Owners and Management.

There is incorporated in this Item 12 by reference that portion of the Company's
definitive Proxy Statement relating to its Annual Meeting to be held on or about
January 20, 1999, appearing therein under the caption "Principal Stockholders."

Item 13.   Certain Relationships And Related Transactions.

There is incorporated in this Item 13 by reference that portion of the Company's
definitive proxy statement  relating to it Annual Meeting to be held on or about
January 20, 1999, appearing therein under the caption "Certain Relationships and
Related Transactions".

                                     PART IV

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

The following are being filed as part of this Annual Report on Form 10-K.

A.       Financial Statements:

         Independent Auditors' Report

         Consolidated Balance Sheets - June 28, 1998 and June 29, 1997

         Consolidated Statements of Operations - Years ended June 28, 1998, June
         29, 1997 and 1996.

         Consolidated Statements of Cash Flows - Years ended June 28, 1998, June
         29, 1997 and 1996.

         Consolidated  Statements  of  Changes in  Stockholders'  Equity - Years
         ended June 28, 1998, June 29, 1997 and 1996.

         Notes to Consolidated Financial Statements - Years ended June 28, 1998,
         June 29, 1997 and 1996.

B.       Financial Statement Schedules:

         There  are no  Financial  Statement  Schedules  required  to be  filed.
         Information  required by Article 12 of  Regulation  S-X with respect to
         Valuation and Qualifying Accounts has been included in the Notes to the
         Consolidated Financial Statements.
  

                                       38

<PAGE>



C.         Exhibits:

*  2.1     Agreement and Plan of Merger, dated as of May 27, 1997,  by and among
           Compass Interim,  Inc. ("Compass  Interim"),  Compass Holdings,  Inc.
           ("Purchaser"),  Compass Group PLC ("Parent") and DAKA  International,
           Inc. ("DAKA International").

*  2.2     Reorganization  Agreement dated as of May 27, 1997, by and among
           DAKA  International,  Daka, Inc.  ("Daka"),  the Company,  Parent and
           Compass Holdings, together with certain exhibits thereto.

*  2.3     Agreement  and  Plan of  Merger  among  Champps  Entertainment,  Inc.
           ("Champps"),  DAKA and CEI Acquisition Corp., dated as of October 10,
           1995,   incorporated  herein  by  reference  to  DAKA's  Registration
           Statement on Form S-4 (File No. 33-65425) ("1996 DAKA Form S-4").

** 2.4     Series D Convertible  Preferred Stock and Warrant Purchase Agreement,
           dated as of January 12, 1996,  by and among La Salsa  Holding Co. and
           Casual Dining Ventures, Inc. Pursuant to Item 601(b)(2) of Regulation
           S-K, the  Schedules to the Series D Convertible  Preferred  Stock and
           Warrant Purchase Agreement are omitted. The Company hereby undertakes
           to  furnish  supplementally  a copy of any  omitted  Schedule  to the
           Commission upon request.

** 2.5     Stock  Purchase  Agreement,  dated as of March 18, 1996, by and among
           Casual Dining Ventures,  Inc., DAKA, Champps Development Group, Inc.,
           Steven J. Wagenheim,  Arthur E. Pew, III, PDS Financial  Corporation,
           Douglas B. Tenpas and certain other  stockholders of Americana Dining
           Corp.  Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to
           the  Stock  Purchase  Agreement  are  omitted.   The  Company  hereby
           undertakes to furnish  supplementally  a copy of any omitted Schedule
           to the Commission upon request.

** 2.6     Asset Purchase  Agreement,  dated March 18, 1996,  between  Americana
           Dining Corp., as Seller, and New Brighton  Ventures,  Inc., as Buyer.
           Pursuant to Item  601(b)(2) of  Regulation  S-K, the Schedules to the
           Asset Purchase  Agreement are omitted.  The Company hereby undertakes
           to  furnish  supplementally  a copy of any  omitted  Schedule  to the
           Commission upon request.

** 2.7     Stock Purchase Agreement, dated as of March 29,  1996,  by and  among
           DAKA, The Great Bagel & Coffee Franchising Corp., GBC Credit Company,
           Gemini Production  Facility,  Inc., The Great Bagel & Coffee Company,
           Mark C. Gordon,  Brian H. Loeb, Jason R. Olivier,  Michael F. Zerbib,
           Nicholas D. Zerbib, and Thierry E. Zerbib. Pursuant to Item 601(b)(2)
           of Regulation S-K, the Schedules to the Stock Purchase  Agreement are
           omitted.  The Company hereby  undertakes to furnish  supplementally a
           copy of any omitted Schedule to the Commission upon request.

** 2.8     Stock  Purchase  Agreement,  dated as of March 31, 1996, by and among
           Casual Dining Ventures,  Inc., DAKA and Edgebrook,  Inc.  Pursuant to
           Item 601(b)(2) of Regulation S-K, the Schedules to the Stock Purchase
           Agreement  are  omitted.  The Company  hereby  undertakes  to furnish
           supplementally  a copy of any omitted Schedule to the Commission upon
           request.

*  3.1     Certificate of Incorporation of the Company.

*  3.2     By-laws of the Company

*  3.3     Form  of  Amended and  Restated  Certificate of  Incorporation of the
           Company.

                                       39

<PAGE>



*  3.4     Form of Amended and Restated By-laws of the Company.

   3.5     Certificate of  Designations,  Preferences  and Rights of a Series of
           Preferred Stock of the Company, dated January 30, 1998,  incorporated
           herein by reference to the Company's Current Report on Form 8-K filed
           February 2, 1998.

   4.2     Amended  and  Restated  Shareholder  Rights  Agreement,  dated  as of
           January 30, 1998, between the Company and American Stock Transfer and
           Trust Company,  as Rights Agent,  incorporated herein by reference to
           the Company's Current Report on Form 8-K filed February 2, 1998.

*  4.1     Specimen Stock Certificate for shares of the UCRI Common Stock.

*  10.1    Tax Allocation Agreement dated as of May 27, 1997, by and among DAKA,
           the Company, and Parent.

*  10.2    Post-Closing  Covenants  Agreement,  dated as of May 27, 1997, by and
           among DAKA,  Daka,  Inc., the Company,  Champps,  Fuddruckers,  Inc.,
           Purchaser and Parent.

*  10.3    Stock Purchase Agreement, dated as of  May  26,  1997, between  DAKA,
           Parent,  Purchaser,  First Chicago  Equity  Corporation,  Cross Creek
           Partners I and the other holders of Series A Preferred Stock of DAKA.

*  10.4    Form of the Company's 1997 Stock Option and Incentive Plan.

*  10.5    Form of the Company's 1997 Stock Purchase Plan.

* 10.6     Form of Indemnification Agreement, by and  between  the  Company  and
           directors and officers of DAKA.

*  10.7    Employment Agreement, dated as  of January 1, 1997, by  and  between 
           DAKA and William H. Baumhauer.

*  10.8    Employment Agreement,  dated  as of January 1, 1997, by  and between 
           DAKA and Allen R. Maxwell.

*  10.9    Employment Agreement,  dated as of  February 21, 1996,  by and among 
           Dean P. Vlahos, DAKA and Champps.

**10.10    Third  Amended and Restated  Registration  Rights  Agreement,  dated 
           as of January 12, 1996,  by and among La Salsa  Holding Co., FMA High
           Yield Income L.P.,  WSIS Flexible  Income  Partners  L.P.,  WSIS High
           Income L.P., Howdy S. Kabrins,  La Salsa, Inc., Crown Associates III,
           L.P., Crown-Glynn Associates, L.P., Nueberger & Berman as Trustee for
           the Crown Trust, Theodore H. Ashford, Noro-Moseley Partners II, L.P.,
           Seidler  Salsa,  L.P.,  Bankers Trust  Company as Master  Trustee for
           Hughes Aircraft  Retirement Plans,  Charles A. Lynch,  Sienna Limited
           Partnership I, Sienna Limited Partnership II, Sienna Holdings,  Inc.,
           as Nominee,  InterWest  Partners IV, Donald  Benjamin,  Vicki Tanner,
           Ronald  D.  Weinstock,  Inc.,  Frank  Holdraker,  and  Casual  Dining
           Ventures, Inc.

                                       40
<PAGE>


**10.11    Fourth  Amended and Restated  Restricted  Stock  Agreement,  dated as
           of January 12,  1996,  by and among La Salsa  Holding  Co.,  Howdy S.
           Kabrins, La Salsa, Inc., InterWest Partners IV, Sienna Holding, Inc.,
           Sienna Limited Partnership I, Charles A. Lynch,  Theodore H. Ashford,
           Crown Associates III, L.P., Crown-Glynn Associates, L.P., Nueberger &
           Berman as Trustee  for The Crown  Trust,  Noro-Moseley  Partners  II,
           L.P., Seidler Salsa, L.P., Bankers Trust Company,  as Master Trustee,
           for Hughes  Aircraft  Retirement  Plans,  FMA High Yield Income L.P.,
           WSIS  Flexible  Income  Partners  L.P.,  WSIS High Yield Income L.P.,
           Sienna Limited Partnership II, Donald Benjamin,  Vicki Tanner, Ronald
           D. Weinstock, Inc., Frank Holdraker, and Casual Dining Ventures, Inc.

**10.12    La  Salsa  Holding  Co.  Warrant  to  Purchase  Shares  of  Series  D
           Convertible  Preferred Stock, dated as of January 12, 1996, issued to
           Casual Dining Ventures, Inc. by La Salsa Holding Co.

**10.13    Severance, Non-Competition  and Confidentiality  Agreement,  dated as
           of March 18, 1996,  between Steven J. Wagenheim and Americana  Dining
           Corp.

**10.14    La  Salsa  License  Agreement,  dated as of February 14, 1996, by and
           between La Salsa Franchise, Inc. and La Salsa Holding Co.

  10.15    Separation Agreement, dated as of February 2, 1998, by and among Dean
           P. Vlahos, the Company and Champps.

  10.16    Asset  Purchase  Agreement,  dated  as  of  February 2, 1998,  by and
           between Dean P. Vlahos and Champps.

  10.17    Champps Restaurant  Development  Agreement,  dated  as of February 2,
           1998, by and between Dean P. Vlahos and Champps.

  10.18    Venturino Settlement  Agreement,  dated as of December,  1997, by and
           among Rita Venturino,  Cosmos Phillips and Matthew  Minogue,  et. al.
           and DAKA International, Inc. and William H. Baumhauer.

  10.19    Stock Purchase  Agreement,  dated as of July 31, 1998, by and between
           King Cannon, Inc. and Unique Casual. Restaurants, Inc.

  10.20    Employment  Agreement,  dated  as of August 12, 1998,  by and between
           Unique Casual Restaurants, Inc. and Donald C. Moore.

   21.1    Subsidiaries of the Company.

   23.1    Consent of Deloitte & Touche LLP

   24.1    Powers of Attorney.

*  Incorporated  herein  by reference to the  Company's  Registration  Statement
   on Form 10 filed June 3, 1997, as amended.

** Incorporated  herein by reference to the Annual  Report on Form 10-K  of DAKA
   International for the year ended June 29, 1996.

D. Reports on Form 8-K

   Not applicable.

                                       41
<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.


                                           UNIQUE CASUAL RESTAURANTS, INC.
                                           (Registrant)


                                           By:  /s/Donald C. Moore
                                           Donald C. Moore
                                           Director, Chief Executive Officer,
                                           Chief Financial Officer and Treasurer
                                           (Principal Executive, Financial and
                                           Accounting Officer)

Date:  October 9, 1998


Pursuant to the requirement 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 date indicated.

Signature                                 Title

E. L. Cox*                                Chairman of the Board

Joseph W. O'Donnell*                      Director

Erline Belton*                            Director

Alan D. Schwartz*                         Director

/s/Donald C. Moore                        Director, Chief Executive Officer,
------------------------                  Chief Financial Officer and Treasurer
Donald C. Moore                           (Principal  Executive, Financial and
                                          Accounting Officer)

*By: /s/Donna L. Depoian                  Date:  October 9, 1998
    --------------------
Donna L. Depoian
Attorney-In-Fact

                                       42
<PAGE>





INDEPENDENT AUDITORS' REPORT


Unique Casual Restaurants, Inc.:


We have audited the  accompanying  consolidated  balance sheets of Unique Casual
Restaurants, Inc. and subsidiaries as of June 28, 1998 and June 29, 1997 and the
related  consolidated  statements  of  operations,  cash  flows and  changes  in
stockholders'  equity for each of the three  years in the period  ended June 28,
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,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial position of the companies as of June 28, 1998
and June 29, 1997 and the results of their  operations  and their cash flows for
each of the three years in the period ended June 28, 1998,  in  conformity  with
generally accepted accounting principles.

As discussed in Note 4 to the consolidated financial statements, during the year
ended June 28, 1998, the Company adopted the provisions of Statement of Position
98-5, "Reporting on the Costs of Start-up Activities."



Deloitte & Touche LLP

Boston, Massachusetts
October 2, 1998


                                      F-1
<PAGE>



                         UNIQUE CASUAL RESTAURANTS, INC.
                           CONSOLIDATED BALANCE SHEETS
                      As of June 28, 1998 and June 29, 1997
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                           1998               1997
                                                                                                           ----               ----
<S>                                                                                                     <C>                 <C>
ASSETS:
Current assets:
   Cash and cash equivalents (overdraft)                                                                $   (646)           $    172
   Restricted cash (Note 4)                                                                                2,602               5,000
   Accounts receivable, net                                                                                2,652               4,376
   Inventories (Note 4)                                                                                    4,168               3,975
   Prepaid expenses and other current assets                                                               1,567               1,387
                                                                                                        --------            --------
     Total current assets                                                                                 10,343              14,910
Property and equipment, net (Note 7)                                                                      73,723              94,673
Investments (Note 6)                                                                                       5,000               5,000
Other assets, net (Note 9)                                                                                 3,480              10,626
                                                                                                        --------            --------
   Total assets                                                                                         $ 92,546            $125,209
                                                                                                        ========            ========

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
   Accounts payable                                                                                     $ 10,811            $ 10,397
   Accrued expenses (Note 10)                                                                              9,418              11,548
   Accrued transaction costs (Note 4)                                                                      1,800               6,347
   Current portion of long-term debt (Note 8)                                                              2,209               1,102
                                                                                                        --------            --------
     Total current liabilities                                                                            24,238              29,394
Long-term debt, net of current portion (Note 8)                                                            4,757               4,026
Other long-term liabilities                                                                                7,753              11,636
                                                                                                        --------            --------
     Total liabilities                                                                                    36,748              45,056
                                                                                                        --------            --------

Minority interests and obligations under put agreement (Note 12)                                           5,400               1,100
                                                                                                        --------            --------
Commitments and contingencies (Note 12)

Stockholders' equity (Note 2):
   Group equity                                                                                             --                79,053
   Common stock ($.01 par value per share; authorized 30,000
     shares and 11,593 and 1 issued and outstanding at June 28, 1998,
     and June 29, 1997, respectively)                                                                        116                --
   Additional paid-in capital                                                                             78,017                --
   Accumulated deficit                                                                                   (27,735)               --
                                                                                                        --------            --------

     Total stockholders' equity                                                                           50,398              79,053
                                                                                                        --------            --------
       Total liabilities and stockholders' equity                                                       $ 92,546            $125,209
                                                                                                        ========            ========
</TABLE>






See notes to consolidated financial statements.

                                      F-2
<PAGE>



                         UNIQUE CASUAL RESTAURANTS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            Fiscal Years Ended June 28, 1998, June 29, 1997 and 1996
                    (In thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                                        1998               1997              1996
                                                                                        ----               ----              ----
<S>                                                                                   <C>               <C>               <C>
Revenues:
   Sales                                                                              $ 210,569         $ 200,741         $ 176,050
   Franchising and royalty income                                                         4,752             5,143             7,705
                                                                                      ---------         ---------         ---------
     Total                                                                              215,321           205,884           183,755
                                                                                      ---------         ---------         ---------

Costs and expenses:
   Cost of sales and operating expenses                                                 189,834           178,638           148,155
   Selling, general and administrative expenses                                          19,859            32,603            24,181
   Depreciation and amortization                                                          8,724            15,547            12,136
   Impairment, exit costs and other charges                                              24,625            21,671             3,026
   Gain on sale of restaurant to related party (Note 3)                                    (677)             --                --
   Merger costs                                                                            --                --               2,900
   Interest expense                                                                         494               744               641
   Interest income                                                                         (790)             (487)             (353)
                                                                                      ---------         ---------         ---------
     Total                                                                              242,069           248,716           190,686
                                                                                      ---------         ---------         ---------

Loss before income tax benefit, minority interests and cumulative
   effect of change in accounting for
   preopening costs                                                                     (26,748)          (42,832)           (6,931)
Income tax benefit                                                                         --              (3,721)             (536)
Minority interests                                                                         --                 (68)             (725)
                                                                                      ---------         ---------         ---------
Loss before cumulative effect of change in accounting for
   preopening costs                                                                     (26,748)          (39,043)           (5,670)
Cumulative effect of change in accounting for preopening costs (Note 4)                    (987)             --                --
                                                                                      ---------         ---------         ---------
     Net loss                                                                         $ (27,735)        $ (39,043)        $  (5,670)
                                                                                      =========         =========         =========
Basic and diluted loss per share before cumulative effect of
   change in accounting for preopening costs                                          $   (2.33)
Cumulative effect per share of change in accounting for
   preopening costs                                                                       (0.08)
                                                                                      ---------
Basic and diluted loss per share                                                      $   (2.41)
                                                                                      =========
Pro forma basic and diluted loss per share                                                              $   (3.42)
                                                                                                        =========
Weighted average shares outstanding                                                      11,489
Pro forma weighted average shares outstanding                                                              11,425
</TABLE>




See notes to consolidated financial statements.

                                      F-3
<PAGE>



                         UNIQUE CASUAL RESTAURANTS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
            Fiscal Years Ended June 28, 1998, June 29, 1997 and 1996
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                             1998             1997            1996
                                                                                             ----             ----            ----
<S>                                                                                        <C>             <C>             <C>
Cash flows from operating activities:
Net loss                                                                                   $(27,735)       $(39,043)       $ (5,670)
Cumulative effect of change in accounting for preopening costs                                  987            --              --
Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities:
     Depreciation and amortization                                                           10,227          15,547          12,136
     Non-cash compensation                                                                      265            --              --
     Gain on sale of property and equipment                                                     (56)           --              --
     Gain on sale of restaurant to related party                                               (677)           --              --
     Impairment, exit costs and other charges                                                24,625          21,671           3,026
     Deferred income taxes                                                                     --               454             763
     Minority interests                                                                        --               (68)           (725)
Changes in assets and liabilities, net of acquisitions and impairments:
     Restricted cash                                                                          2,398          (5,000)           --
     Accounts receivable, net                                                                   314           1,133          (2,733)
     Inventories                                                                               (193)         (1,312)           (855)
     Prepaid expenses and other assets                                                       (4,838)         (1,428)         (7,849)
     Accounts payable and accrued expenses                                                   (6,263)          8,481            (845)
     Other long-term and deferred liabilities                                                 2,473             398           1,385
                                                                                           --------        --------        --------
       Net cash provided by (used in) operating activities                                    1,527             833          (1,367)
                                                                                           --------        --------        --------
Cash flows from investing activities:
Purchases of property and equipment                                                          (7,318)        (23,865)        (51,572)
Proceeds from sale of restaurant to related party                                             1,515            --              --
Investment in affiliate                                                                        --              --            (5,000)
                                                                                           --------        --------        --------
     Net cash used in investing activities                                                   (5,803)        (23,865)        (56,572)
                                                                                           --------        --------        --------
Cash flows from financing activities:
Proceeds from equipment financing                                                             3,642            --              --
Proceeds from sale-leaseback facility                                                         1,338          11,489          18,651
Proceeds from issuance of common stock                                                          343            --              --
Contributed capital                                                                            --             9,080          39,932
Repayments of long-term debt (Note 8)                                                        (1,865)         (2,646)         (1,090)
                                                                                           --------        --------        --------
     Net cash provided by financing activities                                                3,458          17,923          57,493
                                                                                           --------        --------        --------

Net decrease in cash and cash equivalents                                                      (818)         (5,109)           (446)

Cash and cash equivalents, beginning of year                                                    172           5,281           5,727
                                                                                           --------        --------        --------
Cash and cash equivalents (overdraft), end of year                                         $   (646)       $    172        $  5,281
                                                                                           ========        ========        ========
</TABLE>


See notes to consolidated financial statements.

                                      F-4
<PAGE>



                         UNIQUE CASUAL RESTAURANTS, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
           Fiscal Years Ended June 29, 1996 and 1997 and June 28, 1998
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                             Additional
                                                                 Common        Paid-in      Accumulated       Group
                                                     Shares       Stock        Capital        Deficit         Equity         Total
                                                     ------       -----        -------        -------         ------         -----
<S>                                               <C>           <C>           <C>           <C>            <C>            <C>
Balance, July 1, 1995                                  --       $    --       $    --       $    --        $  73,979      $  73,979
Contributed capital:
   Cash                                                --            --            --            --           39,932         39,932
   Non-cash                                            --            --            --            --              653            653
Net loss                                               --            --            --            --           (5,670)        (5,670)
                                                  ---------     ---------     ---------     ---------      ---------      ---------
Balance, June 29, 1996                                 --            --            --            --          108,894        108,894
Contributed capital:
   Cash                                                --            --            --            --            9,080          9,080
   Non-cash                                            --            --            --            --              122            122
Net loss                                               --            --            --            --          (39,043)       (39,043)
Common shares issued                                      1          --            --            --             --             --
                                                  ---------     ---------     ---------     ---------      ---------      ---------
Balance, June 29, 1997                                    1          --            --            --           79,053         79,053
Net liabilities contributed by
   former Parent                                       --            --            --            --           (1,528)        (1,528)
Common stock issued in connection
   with distribution by former
   Parent                                            11,425           114        77,411          --          (77,525)          --
Common shares issued                                    167             2           606          --             --              608
Net loss                                               --            --            --         (27,735)          --          (27,735)
                                                  ---------     ---------     ---------     ---------      ---------      ---------
Balance, June 28, 1998                               11,593     $     116     $  78,017     $ (27,735)     $    --        $  50,398
                                                  =========     =========     =========     =========      =========      =========
</TABLE>















See notes to consolidated financial statements.

                                      F-5
<PAGE>


                                       

                         UNIQUE CASUAL RESTAURANTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            Fiscal Years Ended June 28, 1998, June 29, 1997 and 1996

1.     Background, Basis of Presentation and Description of Business

Background

Unique Casual Restaurants, Inc. (the "Company") is a Delaware corporation formed
on May 27,  1997 which was  spun-off  to  holders  of the  common  stock of DAKA
International,   Inc.  ("DAKA  International")   pursuant  to  the  transactions
described  below  in Note 2 (the  "Spin-off"  or  "Spin-off  Transaction").  The
Company's  principal  business  activities are to own and operate the restaurant
operations  previously  operated by various  subsidiaries  and divisions of DAKA
International prior to the formation and the Spin-off of the Company.

Basis of Presentation

The accompanying  consolidated  financial statements for fiscal 1998 include the
accounts of  Fuddruckers,  Inc.  ("Fuddruckers"),  Champps  Entertainment,  Inc.
("CEI" or "Champps"), The Great Bagel & Coffee Company ("Great Bagel & Coffee"),
Casual Dining  Ventures,  Inc.  ("CDVI"),  Atlantic  Restaurant  Ventures,  Inc.
("ARVI") and Restaurant  Consulting Services,  Inc. ("RCS")  (collectively,  the
"Spun-off  Operations").  The historical DAKA International  basis in the assets
and  liabilities  of the  Spun-off  Operations  transferred  to the  Company  in
connection with the  transactions  described in Note 2 have been recorded as the
Company's   initial  cost  basis.  The  accompanying  1996  and  1997  financial
statements  are  combined  financial   statements  which  present  the  combined
financial  position,  results  of  operations  and cash  flows  of the  Spun-off
Operations in a manner similar to a pooling-of-interests. Minority stockholders'
equity in earnings (losses) of less than 100% owned subsidiaries is presented as
minority interests in the accompanying  consolidated  financial  statements (see
Note  10).  Significant   intercompany   balances  and  transactions  have  been
eliminated in consolidation.

Business Activities of the Company

The Company's  Fuddruckers and Champps  operations serve customers in casual and
upscale restaurant settings, respectively, throughout the United States, Canada,
and the Middle East.  Restaurant  operations are conducted through Company-owned
and franchised  stores.  The Great Bagel & Coffee  operations  provided  coffee,
bagels and sandwich  items in a cafe setting in western  locations of the United
States.  As discussed more fully in Note 3, the Company ceased all operations of
the Great Bagel & Coffee Company on June 28, 1998. Also, as discussed more fully
in Note 3, on July 31, 1998, the Company agreed to sell,  subject to shareholder
approval,  its Fuddruckers  subsidiaries to King Cannon, Inc. for $43.0 million,
subject to adjustment, in a transaction expected to close in November 1998. As a
result, the operations of the Company in the future are expected to be primarily
the ownership, operations and franchising of Champps.

At June 28, 1998, the Company had a working capital deficiency of $13.9 million.
The working  capital needs of companies  engaged in the restaurant  industry are
generally low as sales are made for cash and inventory and labor costs and other
operating  expenses are generally paid on terms.  The Company has been unable to
obtain a line-of-credit with a bank during fiscal 1998, although equipment lease
financing was obtained and remains available for future  construction  projects,
if  necessary.  Given  the  Company's  plans  for the  sale  of its  Fuddruckers
restaurant  chain,  and  existing  sources of financing  through  sale-leaseback
facilities,  the Company does not  anticipate any  significant  need for working
capital for its primary  business over the next twelve months.  However,  should
the Fuddruckers transaction fail to close, the effect on the Company's near-term
liquidity could be adversely  affected.  Nonetheless,  the Company  believes its
financial resources are sufficient to sustain operations through fiscal 1999. In
the event that such  resources  are less than  anticipated,  the Company has the
ability  to  curtail  its   Champps   expansion   program  and  further   reduce
non-essential operating costs to conserve working capital.  Further, the Company
believes that certain of its existing restaurant units can be used as collateral
for obtaining loans and could provide working capital within a relatively  short
timeframe.

                                      F-6
<PAGE>

Subsequent to June 28, 1998, the Company  announced it had retained Bear Stearns
& Co., Inc. to assist the Board of Directors in evaluating and seeking strategic
alternatives  for the Company in light of the pending  Fuddruckers  transaction,
including a possible sale of the Company.  There can be no  assurance,  however,
that the Company will pursue a sale or any other specific alternative or that it
will be able to reach any  agreement  or complete  any  transaction  that it may
undertake.

2.     Formation of the Company

On May 27, 1997, DAKA International and its wholly-owned subsidiary, Daka, Inc.,
a  Massachusetts  corporation  ("Daka"),  entered into an Agreement  and Plan of
Merger  (the  "Merger  Agreement")  with  Compass  Interim,   Inc.,  a  Delaware
corporation,  a wholly-owned  subsidiary of Compass  Holdings,  Inc., a Delaware
corporation,  a  wholly-owned  subsidiary  of  Compass  Group PLC  (collectively
"Compass"),  pursuant to which Compass agreed,  upon the satisfaction of certain
conditions,  to commence a tender offer (the "Offer") for all of the outstanding
shares  of DAKA  International  common  stock  (the  "Merger").  The  Offer  was
consummated  on July 17, 1997 (the  "Spin-off  Transaction  Date").  Immediately
prior to the  consummation of the Offer,  pursuant to a plan of contribution and
distribution as described in the Reorganization  Agreement (the  "Reorganization
Agreement"),  dated as of May 27, 1997, by and among DAKA  International,  Daka,
the Company and Compass, DAKA International and certain of its subsidiaries made
various  contributions  of assets and equity interests to each other in the form
of dividends and capital  contributions in order to divest DAKA International of
its restaurant businesses which were contributed to the Company.

During 1998, certain remaining  non-restaurant  operating assets and liabilities
of DAKA  International  were also  contributed  to the Company (the  "Additional
Capital Contribution")  consisting of notes receivable,  property and equipment,
and accounts payable, accrued expenses and certain contingent liabilities. These
assets  and  liabilities   resulted  in  a  net  decrease  to  group  equity  of
approximately  $1.5  million  and have been  recorded  within  their  respective
captions during fiscal 1998.

Following  the  consummation  of the Offer,  Compass  merged  with and into DAKA
International.  Pursuant to the Offer,  DAKA  International  distributed to each
holder of record of shares  of DAKA  International  common  stock,  one share of
common stock of the Company for each share of DAKA  International  owned by such
stockholder   (the   "Distribution").   No   consideration   was  paid  by  DAKA
International's  stockholders for the shares of the Company's common stock. As a
result  of the  Distribution,  the  Company  ceased to be a  subsidiary  of DAKA
International  and began operating as an independent,  publicly-held  company on
July 17, 1997.

Effective July 1, 1997, the Company  entered into a sale and services  agreement
with RCS whereby the Company sold to RCS for an aggregate purchase price of $2.3
million certain data processing equipment.  The purchase price will be satisfied
through  the  repayment  of a  promissory  note due June 30,  2002  which  bears
interest at 6% per annum.  The promissory note was contributed to the Company as
part of the  Additional  Capital  Contribution.  The Company also  received DAKA
International's  50%  interest  in RCS  at the  Spin-off  Transaction  Date.  In
connection  with this sale, the Company has entered into a management  agreement
with RCS whereby the Company has agreed to provide certain  managerial  services
to RCS. In addition,  the Company has entered into a two year service  agreement
with RCS for data  processing and consulting  services for an annual fee of $1.8
million.  The  Company  consolidates  RCS'  operations  until  such  time as the
obligations of RCS to the Company are satisfied.

                                      F-7
<PAGE>



3.     Acquisition and Disposition Transactions

Pending Sale of Fuddruckers

On July 31, 1998, the Company  agreed to sell all of the issued and  outstanding
stock  of  Fuddruckers,   Inc.  and  subsidiaries  to  King  Cannon,  Inc.  (the
"Fuddruckers  Sale").  The  purchase  price for  Fuddruckers  is $43.0  million,
subject  to certain  adjustments  based on,  among  other  things,  the level of
Fuddruckers  fiscal 1998  earnings  before  interest,  taxes,  depreciation  and
amortization (EBITDA),  calculated pursuant to the Stock Purchase Agreement, and
closing  date  working  capital.  The  transaction  is subject to the  Company's
stockholders' approval and certain other closing conditions. The Company expects
the transaction will close in November, 1998, although there can be no assurance
that the transaction will close.

Pursuant  to the Stock  Purchase  Agreement,  the  Company  has agreed to settle
certain cash  obligations  not assumed by the buyer,  including  equipment lease
termination costs. Such expenses are expected to aggregate $6.1 million and will
be recorded as incurred during the first and second quarters of fiscal 1999.

Closure of Great Bagel and Coffee

On June 28, 1998,  the Company ceased all operations of the Great Bagel & Coffee
business.  Previously,  on December 30, 1997,  Great Bagel & Coffee had acquired
the assets and  liabilities of one of its former  franchisees,  then operating a
commissary and eight Great Bagel & Coffee restaurants in Phoenix,  Arizona.  The
Company had hoped that this transaction  would help Great Bagel & Coffee improve
sales and margins,  and also provide the best opportunity for a possible sale of
the  business.  However,  the business did not improve and no buyer or strategic
partner  could be  located.  Accordingly,  a decision  was  reached to close the
business.  The Company has recorded  impairment and exit costs  associated  with
this  decision  of  $1.4  million  in the  accompanying  consolidated  financial
statements.  Of this amount,  $200,000 is  estimated  to  represent  future cash
obligations.

Other Transactions

On March 31, 1996,  DAKA  International  entered into  separate  Stock  Purchase
Agreements (the "Stock  Agreements")  with two  stockholders of Americana Dining
Corporation  ("ADC")  (the  "Selling  Stockholders")  to acquire  the 43% voting
interest  in ADC not  held  by DAKA  International.  Based  upon an  independent
valuation,   the  fair  market  value  of  the  43%  voting  interest   acquired
approximated the consideration given by DAKA International.

On March 31, 1996,  DAKA  International  sold a restaurant to one of the Selling
Stockholders   of  ADC  in  exchange   for  a  $1.3  million   promissory   note
collateralized by the assets of the restaurant.  Interest accrues at the rate of
8.5% per annum and is payable in monthly installments. The note matures on March
31,  2003,  at which time the  outstanding  balance of $1.2 million will be due.
Based on an independent valuation,  the book value of the restaurant assets sold
approximated their fair market value at March 31, 1996.

                                      F-8
<PAGE>



On  February 2, 1998,  the  Company  sold a Champps  restaurant  in  Minnetonka,
Minnesota  to Dean  Vlahos,  a former  Director  of the  Company  and the former
President  and Chief  Executive  officer of Champps  Americana,  Inc.,  for $2.9
million  representing the fair value of the restaurant based upon an independent
appraisal.  The purchase price was settled  through a cash payment by Mr. Vlahos
of $1.5 million and the  cancellation of Mr. Vlahos'  employment  contract.  The
Company recognized a net gain of approximately $700,000 on this transaction.

4.     Summary of Significant Accounting Policies

Fiscal Year

Beginning in fiscal 1997,  the Company's  fiscal year ends on the Sunday closest
to June 30th.  Prior to fiscal  1997,  the  Company's  fiscal  year ended on the
Saturday  closest to June 30th. For purposes of these notes to the  consolidated
financial  statements,  the fiscal years ended June 28, 1998,  June 29, 1997 and
1996 are referred to as 1998, 1997 and 1996, respectively. Fiscal 1998, 1997 and
1996 each contain 52 weeks.

Allocation of Certain Expenses

The 1997 and 1996 operations of the Spun-off  Operations,  as presented  herein,
include  allocations and estimates of certain  expenses,  principally  corporate
accounting and tax, cash management,  corporate information  technology,  legal,
risk management,  purchasing and human resources,  historically  provided to the
Company by DAKA  International.  The amount of such allocated  expenses in these
consolidated  financial  statements  were  allocated by management  based upon a
variety of factors  including,  for  example,  personnel,  labor costs and sales
volumes.  Such  allocations  have been  reported  within  selling,  general  and
administrative expenses and aggregate $9.8 million and $7.8 million for 1997 and
1996,  respectively.  Management  believes  these  allocations  were  made  on a
reasonable basis. However, the accompanying 1997 and 1996 consolidated financial
statements may not  necessarily be indicative of the conditions  that would have
existed,  the  financial  position,  or results of  operations,  if the Spun-off
Operations had been operated as a separate entity.

The accompanying 1997 and 1996 consolidated  financial statements do not include
an allocation of interest expense associated with DAKA International's revolving
line-of-credit  agreements as such  obligations were assumed by Compass pursuant
to the terms of the  Spin-off  Transaction.  Interest on  long-term  obligations
transferred  to the Company has been  included  in the  Company's  1997 and 1996
consolidated statement of operations.

Significant Estimates

In the process of preparing its consolidated  financial statements in accordance
with  generally  accepted  accounting  principles,  the  Company  estimates  the
appropriate  carrying  value of  certain  assets and  liabilities  which are not
readily  apparent  from other  sources.  The primary  estimates  underlying  the
Company's consolidated financial statements include allowances for potential bad
debts on accounts and notes receivable,  the useful lives and  recoverability of
its assets such as property, equipment and intangibles, fair values of financial
instruments,  the  realizable  value of its tax assets and  accruals for workers
compensation,  general liability and health insurance programs. Management bases
its estimates on certain  assumptions,  which they believe are reasonable in the
present   circumstances  and  while  actual  results  could  differ  from  those
estimates,  management does not believe that any change in those  assumptions in
the near  term  would  have a  material  effect  on the  Company's  consolidated
financial position or the results of operations.

                                      F-9
<PAGE>



Concentration of Credit Risk

The Company  extends  credit to its  franchisees  on an  unsecured  basis in the
normal  course of business.  No  individual  franchisee  is  significant  to the
Company's  franchisee base. The Company has policies  governing the extension of
credit and collection of amounts due from franchisees.

The Company's  allowance for uncollectible  accounts  receivable and related bad
debt expense are not material for each period presented.

Cash Equivalents and Restricted Cash

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. The Company placed  certificates of deposit to serve as
cash collateral for stand-by letters of credit in the amount of $2.6 million and
$5.0 million at June 28, 1998 and June 29, 1997,  respectively.  Such collateral
commitments  begin  to  expire  during  1999  and  accordingly  they  have  been
classified  as  current  assets  in  the  accompanying   consolidated  financial
statements.

Inventories

Inventories are stated at the lower of cost,  principally  determined  using the
first-in,  first-out  method, or market value.  Inventories  include the initial
cost  of  smallwares  with  replacements  charged  to  expense  when  purchased.
Approximately  80% of the  Company's  food  products and supplies are  purchased
under a distribution contract with Sysco Corporation.

The components of inventories are as follows:
                                                       (In thousands)
                                                    1998              1997
                                                    ----              ----

Food and liquor products                         $  1,252          $  1,234
Smallwares                                          2,185             1,871
Supplies                                              731               870
                                                 --------          --------
                                                 $  4,168          $  3,975
                                                 ========          ========

Prepaid Expenses and Other Current Assets

Through June 29, 1997, the Company had capitalized direct incremental preopening
costs  associated with the opening of new or the expansion and major  remodeling
of existing  restaurants with such costs being amortized over twelve months.  In
April 1998, the American  Institute of Certified  Public  Accountants  ("AICPA")
issued  Statement  of  Position  98-5,  "Reporting  on  the  Costs  of  Start-up
Activities"  ("SOP  98-5")  which  requires   companies  to  expense  all  costs
associated with preopening activities.  The effect of adopting the provisions of
SOP 98-5 during 1998 was to expense approximately  $987,000 of capitalized costs
existing at June 29, 1997 as of June 30,  1997.  The Company has  reported  this
expense as the  cumulative  effect of an accounting  change in the  accompanying
consolidated financial statements.

                                      F-10
<PAGE>



Property and Equipment

Property and equipment is stated at cost.  The cost assigned to assets  acquired
in connection with acquisition  transactions is generally based upon independent
appraisals of the assets acquired.  Property and equipment is depreciated  using
the  straight-line  method  over  the  estimated  useful  lives  of the  assets.
Leasehold   improvements  and  assets  capitalized  pursuant  to  capital  lease
obligations  are amortized over the shorter of the initial lease term,  contract
term or the  estimated  useful life.  Useful lives range from 15 to 30 years for
buildings and leasehold improvements and three to ten years for equipment.

Accrued Transaction Costs

Accrued Transaction costs included legal,  accounting and other costs associated
with completing the Spin-off Transaction at June 28, 1998 and June 29, 1997.

Accrued Insurance Costs

The Company has purchased commercial  insurance to cover workers'  compensation,
general  liability,  and various other risks for claims  incurred after June 29,
1997.  Through  June  29,  1997,  the  Company  was  self-insured  for  workers'
compensation, general liability, and various other risks up to specified limits.
The  Company's  share of  prior  workers'  compensation  and  general  liability
programs of DAKA International  through June 29, 1997 were allocated using labor
costs and the aggregate costs of such programs were determined through actuarial
studies  which  determined  the  estimated  amount  required to be provided  for
incurred incidents. In connection with the Spin-off Transaction,  the Company is
obligated to indemnify Compass for all claims arising subsequent to the Spin-off
Transaction,  including  claims related to employees of DAKA  International  not
continuing  with the  Company  after the  Spin-off  Transaction,  that relate to
events  occurring prior to the Spin-off  Transaction  Date. The Company believes
that any claims  related to its  obligation to further  indemnify  Compass after
June 28, 1998 are not material.

Other Long-Term Liabilities

Other long-term liabilities are comprised of deferred royalty buy-down payments,
the  liability  under  long-term  incentive  compensation  plan,  deferred  rent
liabilities  and  management's  estimate  of  the  non-current  portion  of  the
liability related to the Company's  workers'  compensation and general liability
self-insurance program.

Deferred Rent Assets and Liabilities

Deferred rent assets, included in other assets, represent the difference between
the  cost  and  the  net  proceeds  received  from  property  sold  pursuant  to
sale-leaseback  agreements and are amortized on a  straight-line  basis over the
initial  term of the lease.  For leases  which  contain  rent  escalations,  the
Company  records the total rent payable during the lease term on a straight-line
basis over the term of the lease. In addition, lease incentive payments received
from landlords are recorded as deferred rent  liabilities and are amortized on a
straight-line basis over the lease term as a reduction of rent expense.

Group Equity

Prior  to the  Distribution,  group  equity  represented  the  net  intercompany
activities between the Company and DAKA International.  As of June 29, 1997, the
Company had issued 1,000 shares of its common  stock,  par value $.01 per share,
to DAKA  International  for $.01 in connection  with its formation.  Such shares
were  reported  within  group  equity  for  purposes  of the  1997  consolidated
financial statements.

                                      F-11
<PAGE>



Revenue Recognition

The Company  records  sales from its  restaurant  operations  and  franchise and
royalty fees as earned.

Franchising and Royalty Income

Franchise fees for new  franchises are recognized as revenue when  substantially
all  commitments and  obligations  have been fulfilled,  which is generally upon
commencement  of  operations  by the  franchisee.  The Company  also enters into
development  agreements granting  franchisees the exclusive right to develop and
operate restaurants in certain territories in exchange for a development fee.

Amounts received in connection with such  development  agreements are recognized
as  franchise  fee  revenues  when earned  since the Company is not  required to
provide  any  future  services  and such  fees are  non-refundable.  Franchisees
entering into  development  agreements  are also  required to execute  franchise
agreements  and pay the standard  franchise fee which is sufficient to cover the
Company's contractual obligations to the franchisee for each unit opened. To the
extent that the Company provides services beyond its contractual obligation, the
Company charges the franchisee a fee for such additional  services.  The Company
recognized  development  and  franchise  fee revenues of $438,000,  $690,000 and
$3,406,000 during 1998, 1997 and 1996, respectively.

Royalty  revenues from  franchised  restaurants  are recognized as revenues when
earned in accordance with the respective franchise  agreement.  Advance payments
received in  connection  with  royalty  buy-down  agreements  are  deferred  and
recognized  at the  reduced  royalty  rate during the  royalty  buy-down  period
specified in the agreements.  The remaining  balance of the advance  payments is
recognized on a  straight-line  basis over the remaining  term of the agreement.
The Company recognized royalty revenues of $4,314,000, $4,453,000 and $4,299,000
during 1998, 1997, and 1996, respectively.

Income Taxes

The Company  recognizes  deferred tax assets and  liabilities for the future tax
consequences   attributable  to  differences  between  the  carrying  value  for
financial  reporting  purposes  and the tax basis of assets and  liabilities  in
accordance with Statement of Financial  Accounting  Standards  ("SFAS") No. 109,
"Accounting for Income Taxes."  Deferred tax assets and liabilities are recorded
using the enacted tax rates  expected to apply to taxable income in the years in
which such  differences  are expected to be recovered or settled.  The effect on
deferred tax assets and  liabilities,  resulting from a change in tax rates,  is
recognized  as a component  of income tax expense  (benefit)  in the period that
such  change  occurs.  Targeted  jobs tax  credits  and  foreign tax credits are
treated as a  reduction  of income  tax  expense  in the year such  credits  are
utilized.

Prior to the Distribution,  the Spun-off  Operations were generally  included in
the  consolidated  U.S.  Federal  income  tax return and  certain  combined  and
separate state and local income tax returns of DAKA International.  For purposes
of the 1997 and 1996  financial  statements,  a credit in lieu of taxes has been
presented  as if the  Company  was a stand alone  taxpayer.  Current  income tax
liabilities  (assets)  were  considered to have been paid  (received)  from DAKA
International and were recorded through the group equity account.

The Company has entered into an indemnification  agreement,  whereby the Company
has agreed to indemnify  Compass  against all state and federal income and other
tax  liabilities  of DAKA  International  for any  period  before  the  Spin-off
Transaction  Date as well as any tax  consequences  resulting  from the Spin-off
Transaction.  The Company  believes  that any amounts due to Compass  under this
indemnification agreement after June 28, 1998, if any, will not be material.

                                      F-12
<PAGE>



Accounting for Stock-Based Compensation

Effective  June 30,  1996,  the Company  adopted SFAS No. 123,  "Accounting  for
Stock-Based  Compensation,"  which requires expanded  disclosures of stock-based
compensation  arrangements  with employees and encourages (but does not require)
compensation  cost  to be  measured  based  on the  fair  value  of  the  equity
instrument  awarded.  Companies  are  permitted,  however,  to continue to apply
Accounting   Principles   Board  ("APB")   Opinion  No.  25,  which   recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The  Company  will  continue  to apply APB  Opinion  No.  25 to its  stock-based
compensation  awards to  employees  and has elected to disclose the required pro
forma effect on results from operations and net income (loss) per share.

Options to purchase shares of DAKA International  common stock held by employees
remaining with the Company after the  Distribution was converted into options to
purchase shares of the Company's common stock in accordance with Emerging Issues
Task Force Abstract 90-9 and, accordingly,  such conversion had no effect on the
Company's consolidated financial position or results of operations.

During 1998, the Company  recorded  compensation  expense of $236,000 related to
the  repurchase  from certain  option  holders of an aggregate of 172,044 common
stock options at of $1.37 per option.

Cash Flow Information

Through the  Distribution,  the  Company  participated  in DAKA  International's
centralized cash management  system. As a result, the amount reported as cash in
the  accompanying  1997  and 1996  consolidated  financial  statements  consists
principally  of  cash  funds  held at  restaurant  unit  levels  and  funds  not
transferred into the centralized cash management system.

Cash payments for interest aggregated  $494,000,  $454,000 and $641,000 in 1998,
1997 and 1996, respectively.

Capital lease  obligations of $1,605,000  and $3,447,000  were incurred when the
Company entered into leases for new restaurant and office  equipment in 1997 and
1996, respectively.

Significant other non-cash investing and financing transactions are as follows:

1998

         The Company  entered into direct  financing  operating  leases totaling
         $16.5 million.

         Certain   non-restaurant   operating   assets  and   liabilities   were
         contributed to the Company in connection with the Spin-off  Transaction
         resulting in a net decrease to stockholders' equity of $1,528,000.

         The Company also increased its  obligations  under a minority  interest
         put obligation by $4.3 million.

1997

         The Company sold a restaurant under  construction  with a book value of
         $1,205,000, in exchange for a $1,200,000 promissory note.

1996

         The  Company  sold a  restaurant  with a book value of  $1,306,000,  in
         exchange for a $1,280,000 promissory note.

                                      F-13
<PAGE>



Equity and Pro Forma Loss Per Share

The  authorized  capital stock of the Company  consists of 30,000,000  shares of
common stock,  of which  11,593,000 and 1,000 shares were issued and outstanding
as of June 28, 1998 and June 29, 1997,  respectively,  and  5,000,000  shares of
preferred  stock, of which no shares are issued and  outstanding.  Approximately
11,425,000 shares were issued upon the consummation of the Spin-off Transaction.

During 1998 the Company  adopted  SFAS No.  128,  "Earnings  per Share." The pro
forma loss per share for 1997 was computed using the weighted  average number of
shares  outstanding  as of June 29,  1997 for DAKA  International  after  giving
effect to the  conversion,  in  connection  with the  Spin-off  Transaction,  of
11,912,000 shares of convertible  preferred stock into 264,701 additional shares
of common stock.

For purposes of the fiscal 1998 earnings per share  calculations,  stock options
have been excluded from the diluted  computation as they are anti-dilutive.  Had
such options been included in the computation. The weighted average shares would
have increased by approximately 166,000.

Impairment of Long-Lived Assets, Exit Costs and Other Charges

The  Company  evaluates  the  carrying  value  of  long-lived  assets  including
property,   equipment  and  related  goodwill  whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  value  may not be  recoverable  in
accordance  with SFAS No. 121,  "Accounting  for the  Impairment  of  Long-Lived
Assets and for  Long-Lived  Assets to Be  Disposed  Of." Under SFAS No.  121, an
assessment is made to determine if the sum of the expected  future  undiscounted
cash flows from the use of the assets and eventual  disposition is less than the
carrying value. If the sum of the expected  undiscounted cash flows is less than
the carrying  value, an impairment loss is recognized by measuring the excess of
carrying  value  over  fair  value  (generally  estimated  by  projected  future
discounted cash flows from the applicable operation or independent appraisal).

In 1998,  the  Company  recorded a  provision  of $24.6  million of which  $17.9
million represents the impairment of certain  Fuddruckers  assets,  $4.3 million
relates to the Company's  put/call agreement with respect to a minority interest
in 22 Fuddruckers  restaurants,  $1.4 million  represents exit costs  associated
with closing the Great Bagel & Coffee business,  and $1.0 million relates to the
exit costs for two closed stores and the disposition of two stores.

In 1997,  the  Company  recorded a  provision  of $21.7  million of which  $13.7
million  represented  impairment of net assets at restaurants  which had been or
were to be closed,  $2.6  million  related to exit costs  associated  with lease
settlements  and  identified  employee  termination  benefits,  and $5.4 million
consisting primarily of legal costs associated with the Spin-off and the sale of
the Foodservice business.

In 1996,  the  Company  recorded  an  approximate  $3.0  million  provision  for
impairments  to the  carrying  value of certain  restaurant  assets,  reacquired
franchise rights, and certain other assets.

Reclassifications

Certain amounts in the 1997 and 1996 consolidated financial statements have been
reclassified to conform to the 1998 presentation.

                                      F-14
<PAGE>



New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Accounting  Financial  Standards ("SFAS") No. 130,  "Reporting  Comprehensive
Income" and SFAS No. 131,  "Disclosures  about  Segments  of an  Enterprise  and
Related  Information."  In June 1998, the FASB issued SFAS No. 133,  "Accounting
for Derivative  Instruments and Hedging Activities." The Company will adopt SFAS
No.'s 130 and 131 during  fiscal year 1999,  and SFAS No. 133 during fiscal year
2000 and does not  expect  that the  adoption  of these  statements  will have a
material impact on the consolidated financial statements.

5.       Merger with Champps and Great Bagel & Coffee

On February 21, 1996, CEI Acquisition  Corp., a wholly-owned  subsidiary of DAKA
International,   merged  with  and  into  Champps  whereupon  Champps  became  a
wholly-owned  subsidiary of DAKA International pursuant to an Agreement and Plan
of Merger dated October 10, 1995 (the  "Champps  Merger  Agreement").  Under the
terms of the Champps Merger Agreement, the Champps common stockholders exchanged
their  holdings  in  Champps'   common  stock  for  2,181,722   shares  of  DAKA
International  common stock valued at  approximately  $49,634,000  on the merger
date.  On April 3, 1996,  DAKA  International  merged  with Great Bagel & Coffee
whereby DAKA  International  exchanged 339,236 shares of its common stock valued
at approximately  $8,566,000 for all outstanding  shares of Great Bagel & Coffee
common stock (collectively the "1996 Mergers" and the "1996 Merged Companies").

The 1996 Mergers were accounted for as  poolings-of-interests  and, accordingly,
the accompanying 1996 financial  statements  include the accounts of Champps and
Great Bagel & Coffee for all periods presented.

In connection  with the 1996 Mergers,  the Company  recorded a charge for merger
costs of $2,900,000.  Included in these costs are legal,  investment banking and
professional  fees associated with the  transactions,  and costs associated with
combining  the  operations  of previously  separate  companies  and  instituting
certain operational efficiencies.

Transactions  between the Company and the Merged  Companies prior to the Mergers
were not  significant.  The Company did not record an  adjustment to conform the
accounting  policies of the Merged companies to the Company's,  as such policies
were generally comparable.

6.       Investments

In January  1996,  the Company  acquired a 16.7% equity  interest in the form of
convertible  redeemable  preferred stock (the "La Salsa Preferred  Stock") in La
Salsa  Holding Co. ("La Salsa"),  a franchisor  and operator of La Salsa Mexican
restaurants  for  approximately  $5.0 million.  Each share of La Salsa Preferred
Stock may be converted  into La Salsa's  Class D Common Stock at $1.50 per share
and is  redeemable  at face value in  installments  beginning  on March 3, 2000.
Warrants to acquire shares of  convertible  redeemable  preferred  stock a 13.3%
equity interest for  approximately  $7.1 million expired during fiscal 1997. The
Company  accounts  for its  investment  in La Salsa on the  cost  method  as the
Company does not have the ability to exercise significant influence or control.

                                      F-15
<PAGE>



7.     Property, Plant and Equipment

Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                           (In thousands)
                                                       1998              1997
                                                       ----              ----
<S>                                                  <C>              <C>       
Land                                                 $   5,861        $   8,039
Buildings and leasehold improvements                    68,647           82,260
Equipment                                               34,978           35,084
Construction in progress                                   549             --
                                                     ---------        ---------
                                                       110,035          125,383
Accumulated depreciation                               (36,312)         (30,710)
                                                     ---------        ---------
                                                     $  73,723        $  94,673
                                                     =========        =========
</TABLE>

Interest costs incurred by DAKA International during the construction of new, or
the expansion and major remodeling of existing restaurants were capitalized as a
component of the cost of the  property and  allocated to the Company in the form
of a credit to the group equity  account.  During 1997 and 1996,  $122 and $653,
respectively, of DAKA International interest costs were capitalized. No interest
costs were capitalized in 1998.

8.       Long-Term Debt

The components of long-term debt are as follows:
<TABLE>
<CAPTION>

                                                            (In thousands)
                                                        1998              1997
                                                        ----              ----
<S>                                                   <C>               <C>
Notes payable                                         $   439           $   442
Capital lease obligations                               6,527             4,686
                                                      -------           -------
                                                        6,966             5,128
Less current portion                                   (2,209)           (1,102)
                                                      -------           -------
  Total                                               $ 4,757           $ 4,026
                                                      =======           =======
</TABLE>

Maturities of long-term debt,  including capital lease obligations,  at June 28,
1998 are as follows:

                                      (In thousands)
     1999                                $ 2,209
     2000                                  1,954
     2001                                  1,665
     2002                                    673
     2003                                    465
                                         -------
                                         $ 6,966
                                         =======

In connection with the Spin-off Transaction, Compass assumed $110 million of the
outstanding  DAKA  International  debt, the security  interests in the Company's
assets were released in connection  with the Spin-off  Transaction,  the Company
has pledged eight Fuddruckers restaurants,  furniture, fixtures and equipment of
certain Champps and Fuddruckers  restaurants and future  royalties as collateral
to creditors and to Compass pending the Company's release of certain  guarantees
(see Note 11) and the  Company's  payment of deposits and trade  payables  which
will be satisfied at the close of the Fuddruckers sale.

                                      F-16
<PAGE>



9.       Other Assets

The components of other assets are as follows:
<TABLE>
<CAPTION>

                                                            (In thousands)
                                                         1998             1997
                                                         ----             ----
<S>                                                    <C>             <C>     
Preopening costs, net                                  $   --          $    987
Reacquired franchise rights (1)                            --             2,862
Notes receivable                                          2,427           4,558
Deferred rent (1)                                          --             1,983
Other                                                     1,053           1,528
                                                       --------        --------
                                                          3,480          11,918
Less accumulated amortization                              --            (1,292)
                                                       --------        --------
                                                       $  3,480        $ 10,626
                                                       ========        ========
</TABLE>

Notes receivable include two notes from franchisees bearing interest at 8.5% and
10%, require monthly payments and interest, and mature in 2003 and 2004.

(1)      Certain  other assets at June 28, 1998,  are recorded at their net book
         value after giving effect for the impairments  charges  recorded during
         1998 (see Note 4).

10.       Accrued Expenses

The components of accrued expenses are as follows:

<TABLE>
<CAPTION>

                                                              (In thousands)
                                                           1998           1997
                                                           ----           ----
<S>                                                      <C>             <C>     
Salaries, wages and related taxes                        $ 4,258         $ 4,163
Taxes                                                      2,722           3,511
Other                                                      2,438           3,874
                                                         -------         -------
                                                         $ 9,418         $11,548
                                                         =======         =======
</TABLE>


11.      Income Taxes

The income tax benefit is comprised of the following:
<TABLE>
<CAPTION>
                                                       (In thousands)
                                               1998         1997          1996
                                               ----         ----          ----
<S>                                            <C>        <C>           <C>
Currently (receivable) payable:
Federal                                        $--        $(4,175)      $(1,299)
Deferred income tax expense                     --            454           763
                                               -----      -------       -------

Income tax benefit                             $--        $(3,721)      $  (536)
                                               =====      =======       =======
</TABLE>

                                      F-17

<PAGE>



Deferred tax assets and (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
                                                                                                 (In thousands)
                                                                                1998                   1997                   1996
                                                                                ----                   ----                   ----
<S>                                                                          <C>                    <C>                    <C>
Current:
  Accrued expenses                                                           $    282               $  1,635               $    321
  Prepaid expenses                                                               (366)                  (330)                (1,467)
  Net operating loss carryforwards                                               --                      327                    327
  Other                                                                           526                    412                    591
  Less valuation allowance                                                       (442)                (2,044)                  --
                                                                             --------               --------               --------
                                                                             $      0               $      0               $   (228)
                                                                             --------               --------               --------
Noncurrent:
  Net operating loss carryforwards                                           $  9,457               $  4,704               $  4,876
  Depreciation and amortization                                                12,215                  6,069                    470
  Deferred income                                                                 268                    300                    166
  Accrued expenses                                                               --                    1,967                    729
  Less valuation allowance                                                    (21,940)               (13,040)                (5,559)
                                                                             --------               --------               --------
                                                                             $      0               $      0               $    682
                                                                             ========               ========               ========
</TABLE>

The following is a reconciliation  of income taxes at the federal statutory rate
to the Company's income tax expense (benefit):
<TABLE>
<CAPTION>

                                                                                                       (In thousands)
                                                                                           1998             1997              1996
                                                                                           ----             ----              ----
<S>                                                                                      <C>              <C>              <C>
Income tax  provision  (benefit)  computed  at  statutory  federal
   income tax rates                                                                      $ (9,707)        $(14,970)        $ (2,172)
Non-deductible costs                                                                          162              865            1,175
Increase in the valuation allowance                                                         7,298            9,525              535
Other, net                                                                                  2,247              859              (74)
                                                                                         --------         --------         --------
   Income tax benefit                                                                    $      0         $ (3,721)        $   (536)
                                                                                         ========         ========         ========
</TABLE>

As of June 28, 1998, the Company had federal net operating loss carryforwards of
approximately   $24.5   million,   expiring  at  various   dates  through  2013.
Approximately  $9.6 million of the losses relate to Fuddruckers and $4.0 million
relate to Fuddruckers' 63% owned subsidiary,  ARVI that are limited on an annual
basis.  For the fiscal years ended 1998,  1997 and 1996, the Company  provided a
valuation  allowance for the tax benefit of the deferred tax assets not expected
to be  utilized  based on  historical  operating  results  and  other  available
evidence.  During the  fiscal  years  ended  1998,  1997 and 1996 the  valuation
allowance  was  increased  by $7.3  million,  $9.5  million  and  $0.5  million,
respectively, principally as a result of the Company's losses.

                                      F-18
<PAGE>



12.      Commitments and Contingencies

Spin-Off Indemnifications

The Company agreed to assume certain liabilities in connection with the Spin-off
including all losses or damages  related to the purported  class action  lawsuit
discussed  further below.  In addition,  the Company entered into a Post-Closing
Covenants  Agreement which provides for post-closing  payments by the Company to
Compass  under certain  circumstances.  Further,  the Company  agreed to a $15.0
million settlement with Compass pursuant to the Post-Closing Covenants Agreement
and to reimburse  Compass an additional $3.8 million for liabilities  assumed by
the  Company  but  paid by  Compass.  The  effect  of this  settlement  has been
reflected  in the net  distribution  recorded in the  accompanying  consolidated
financial  statements.  The Company also agreed to indemnify Compass for certain
losses  on  liabilities  existing  prior to the  Spin-off  Transaction  Date but
unidentified at such date. This indemnification begins to expire on December 31,
1998. The Company believes the risk of a significant  claim for  indemnification
being presented by Compass is remote.

Leases

Pursuant  to the terms of the  Spin-off  Transaction,  the  Company  assumed the
existing  lease  obligations  and  purchase  commitments  of DAKA  International
consisting principally of the corporate  headquarters in Danvers,  Massachusetts
which expires during 2001.

The Company has entered into lease agreements for certain restaurant  facilities
and office  space.  The fixed  terms of the leases  range up to 20 years and, in
general,  contain multiple renewal options for various periods ranging from 5 to
25 years.  Certain leases contain provisions which require  additional  payments
based on sales  performance and the payment of common area  maintenance  charges
and real estate taxes.  Finally,  the Company also leases certain restaurant and
computer  equipment under operating leases which expire at various dates through
June 2001.

In December 1995, Champps obtained a commitment for a $40.0 million  development
and sale-leaseback  financing  facility from AEI Fund Management,  Inc. ("AEI").
Pursuant to the terms of the  agreement,  the Company would sell and  lease-back
from AEI,  Champps  restaurants to be constructed and would pay a commitment fee
of 1% of the sale price of each property  sold to AEI. The purchase  price would
be equal to the total project cost of the property, as defined in the agreement,
not to exceed its appraised value (the "Purchase Price").  The unused commitment
expires on December 31, 1998.  The leases provide for a fixed minimum rent based
on a  percentage  of  the  respective  property's  Purchase  Price,  subject  to
subsequent  increases based on the Consumer Price Index. The leases also provide
for an initial term of 20 years with two 5-year renewal  options  exercisable at
the option of Champps.  As of June 28, 1998,  four Champps  restaurants had been
fully funded under this commitment and two had been partially funded.

                                      F-19
<PAGE>



Future minimum lease payments pursuant to leases with noncancelable  lease terms
in excess of one year at June 28, 1998 are as follows:
<TABLE>
<CAPTION>
Fiscal                                                      (In thousands)
Years                                                   Operating       Capital
Ending                                                    Leases        Leases
------                                                    ------        ------
<S>                                                      <C>           <C>
1999                                                     $ 17,857      $  2,135
2000                                                       17,374         1,982
2001                                                       17,108         1,344
2002                                                       16,097           904
2003                                                       14,895           667
Thereafter                                                111,828          --
                                                         --------      --------
Total future minimum lease payments                      $195,159         7,032
                                                         ========      --------
Less amount representing interest                                          (505)
                                                                       --------
Present value of future minimum lease payments                         $  6,527
                                                                       ========
</TABLE>

Total rent expense in 1998,  1997 and 1996  approximated  $20.0  million,  $21.0
million and $16.8 million,  respectively.  Contingent  rentals  included in rent
expense are not material for the periods presented.

Included in property and equipment in 1998, 1997 and 1996 are approximately $9.3
million, $5.8 million and $5.8 million, respectively, of equipment held pursuant
to  capital  lease  arrangements.   The  related  accumulated  amortization  was
approximately $2.6 million, $1.9 million and $1.2 million, respectively.

Put/Call Agreements

On October 22, 1993,  the Company  entered into an agreement  with a partnership
affiliated  with the  president of a  majority-owned  subsidiary  of the Company
pursuant to which the partnership agreed to purchase substantially all shares of
common  stock  of  the  subsidiary  not  currently  owned  by the  Company.  The
subsidiary  operates 22 Fuddruckers  restaurants.  The partnership also invested
$1.1  million  in  shares of the  subsidiary's  preferred  stock  which has been
recorded as minority  interest at June 29, 1997.  Additionally,  the Company and
the  partnership  entered into a put/call  agreement  whereby the Company has an
option to purchase and the  partnership  has the right to require the Company to
purchase  all the  common and  preferred  stock of the  subsidiary  owned by the
partnership  for a purchase  price of $5.4 million  plus a premium  based on the
subsidiary's future financial performance. The put/call option is exercisable by
either the  Company or the  partnership  between  March 15,  1999 and January 1,
2000, and, if exercised, is payable on January 31, 2000.

On the initial date of the  put/call  agreement  and through June 29, 1997,  the
fair market value of the subsidiary's  common stock plus the redemption value of
the preferred  stock was greater than the present value of the put/call price of
$5.4 million based upon an independent valuation of the common stock obtained by
the Company from an investment banking firm. At June 28, 1998, management of the
Company  believed  that the market value of the  Fuddruckers  assets held by the
subsidiary  and not owned by the Company had  decreased to a nominal  level and,
accordingly,  the  Company  recorded a charge of $4.3  million  to  reflect  the
minority interest at its estimated purchase price under the put/call agreement.

Purchase Commitments

In  July  1995,  the  Company   entered  into  a  five-year   Exclusive   Coffee
Manufacturing  Agreement (the "Coffee Agreement") with a third-party supplier of
ground and whole bean coffees,  including  flavored and gourmet coffee products.
Purchase  prices  to be paid by the  Company  were  based  on  commodity  market
exchange prices.

                                      F-20
<PAGE>



Litigation

On October 18,  1996, a purported  class action  lawsuit was filed in the United
States District Court for the District of Massachusetts on behalf of persons who
acquired  DAKA  International's  common  stock  between  October  30,  1995  and
September 9, 1996 (Venturino et al. V. DAKA  International,  Inc. and William H.
Baumhauer,  Civil Action No. 96-12109-GAO).  The complaint alleges violations of
federal  and  state   securities   laws  by,  among  other   things,   allegedly
misrepresenting  and/or omitting material information concerning the results and
prospects of Fuddruckers during that period and seeks  compensatory  damages and
reasonable  costs and expenses,  including legal fees. On December 19, 1997, the
parties entered into a Stipulation and Agreement of Settlement pursuant to which
defendants deny any wrongdoing, and the parties agreed to settle the matter as a
class action,  subject to the court's approval,  with payment of $3.5 million to
the  class.  The  Company  has  agreed to  indemnify  Compass  for any losses or
expenses  associated  with the  complaint.  On February  10,  1998,  the Company
announced  that it had  agreed  to  settle  the  case for  $3.5  million.  While
defendants  deny all of the  allegations  in the  complaint  and any  wrongdoing
whatsoever,  they believed that settlement of the case was in the best interests
of the Company and its  stockholders to avoid the costs and risks of litigation.
The settlement had no impact on results of operations and the settlement payment
was  funded  from  restricted  cash  deposits  previously  set  aside  for  this
contingency.  As a result  of the  settlement,  approximately  $1.5  million  in
restricted cash deposits were returned to the Company.  On January 27, 1998, the
court  preliminarily  approved the settlement and set the timetable for granting
final  approval.  The court  concluded a final  settlement  hearing on April 27,
1998. The court took the matter under  advisement and has not yet made its final
determination  concerning the settlement.  While the Company cannot predict when
the  court  will  make  that  determination  or what the  court's  determination
ultimately  will be, the  Company  believes  that the  ultimate  outcome of this
matter will not have a material  adverse  effect on the  Company's  consolidated
financial condition, results of operations or cash flows.

The Company is also  engaged in various  other  actions  arising in the ordinary
course  of  business  or  pursuant  to  agreement  with  Compass  as  previously
discussed.  The Company  believes,  based upon  consultation with legal counsel,
that the  ultimate  collective  outcome of these other  matters  will not have a
material  adverse  effect on the  Company's  consolidated  financial  condition,
results of operations or cash flows.

13.      Stock Options and Employee Benefit Plans

Stock Options

On July 17, 1998, the Company  adopted a stock option and restricted  stock plan
for the  benefit of the  employee  and  non-employee  directors  of the  Company
whereby the Company  authorized  and reserved for issuance  1,250,000  shares of
common stock.  In connection  with the Spin-off  Transaction,  each  outstanding
option held by a Company employee to acquire DAKA International common stock was
converted into an option to acquire one share of common stock of the Company and
one share of common stock of DAKA  International (the "Adjusted  Options").  The
exercise  prices of the Adjusted  Options were  determined such that each option
holder  will  remain in an  equivalent  economic  position  before and after the
Spin-off Transaction.

Through  the  date  of  the  Spin-off   Transaction,   the  Company's  employees
participated in various incentive and non-qualified stock option plans sponsored
by DAKA  International  (the  "Plans").  The Plans  provided for the granting of
options for terms of up to ten years to eligible  employees  at exercise  prices
equal to the fair market  value of the DAKA  International  common  stock on the
date of the grant.  At June 29, 1997 and 1996,  445,980  and 539,146  options to
purchase  shares  of DAKA  International  common  stock  under  the  Plans  were
exercisable by the Company's  employees at exercise prices ranging from $2.50 to
$35.94 per share.

                                      F-21
<PAGE>



The following table presents activity under the Company's stock option plan:
<TABLE>
<CAPTION>
                                                                                                      Weighted
                                                                             Number of                 Average          Grant Date
                                                                              Options              Exercixe Price       Fair Value
                                                                              -------              --------------       ----------
<S>                                                                           <C>                    <C>               <C>
Outstanding at July 17, 1997                                                      --                    --
   DAKA International adjusted options                                         597,554               $   6.10
   Granted                                                                     569,850                   6.31          $ 1.28 - 1.63
   Exercised                                                                   (70,280)                  2.93
   Forfeited                                                                  (245,894)                 10.92
                                                                              --------               --------
Outstanding at June 28, 1998                                                   851,230               $   5.11
                                                                              ========               ========
</TABLE>

The  number  of  options  exercisable  at the  dates  presented  below and their
weighted average exercise price were as follows:
<TABLE>
<CAPTION>
                                                                      Weighted
                                                                       Average
                                                      Options        Exercisable
                                                    Exercisable        Price
                                                    -----------        -----
<S>                                                   <C>             <C>
July 17, 1997                                         487,689         $   6.40

June 28, 1998                                         246,265             3.16
</TABLE>


The following table sets forth information regarding options outstanding at June
28, 1998:
<TABLE>
<CAPTION>
                                                                Weighted 
                                                                 Average           Weighted
                                    Number                      Remaining        Average Price
Number of    Range of             Currently       Weighted     Contractual       for Currently
 Options     Prices              Exercisable    Average Price      Life           Exercisable
 -------     ------              -----------    -------------      ----           -----------
<S>        <C>                    <C>             <C>              <C>            <C>
268,405    $1.21  -  4.86          208,405         $ 2.30           4              $ 2.28
 25,225     5.19  -  5.85           11,225           5.46           4                5.66
 15,100     6.03  -  6.28           11,100           6.21           6                6.19
513,600              6.31             --             6.31           9                 --
 28,900      6.50 - 13.80           15,535           9.03           6               11.00
</TABLE>

                                      F-22

<PAGE>



The Company  applies APB  Opinion  No. 25 to account  for various  stock  plans.
Accordingly,  pursuant to the terms of the plans, no compensation  cost has been
recognized for the stock plans.  However,  if compensation cost for stock option
grants  issued  to  Company  employees  during  1998,  1997  and  1996  had been
determined using the fair value method under the provisions of SFAS No. 123, the
Company's net loss and pro forma net loss per share would have been increased to
the pro forma amounts shown below:

<TABLE>
<CAPTION>
                                        (In thousands, except per share amounts)
                                            1998           1997         1996
                                            ----           ----         ----
<S>                                       <C>           <C>           <C>
Net loss:
   As reported                            $ 27,735      $ 39,043      $  5,670
   Pro forma                                28,869        39,943         6,470
Net loss per share:
   As reported                            $   2.41      $   3.42
   Pro forma - as adjusted                    2.51          3.50
</TABLE>


The pro forma net loss  reflects the  compensation  cost only for those  options
granted during 1998, 1997 and 1996.  Compensation cost is reflected over a stock
option's vesting period and compensation  cost for options granted prior to July
2, 1995 is not considered.  Therefore, the full potential impact of compensation
cost of the Company's and DAKA International's stock plans under SFAS No. 123 is
not reflected in the pro forma net loss amounts presented above for the Company.

The fair value of each stock  option  granted in 1998,  1997 and 1996 under DAKA
International  stock option  plans was  estimated on the date of grant using the
Black-Scholes  option-pricing  model. The following key assumptions were used to
value grants issued for each year:
<TABLE>
<CAPTION>

             Weighted-       Average
              Average        Expected                      Dividend
           Risk Free Rate     Life          Volatility       Yield
           --------------     ----          ----------       -----
<S>             <C>          <C>                <C>           <C>
1996            6.28%        4 years            50.00%        0%
1997            6.28%        4 years            50.00%        0%
1998            5.36%        4 years            14.73%        0%
</TABLE>

The weighted-average fair values per share of stock options granted during 1998,
1997 and 1996 were  $2.14,  $4.13 and $10.74,  respectively.  It should be noted
that the option pricing model used was designed to value readily  tradable stock
options with  relatively  short lives.  The options granted to employees are not
tradable  and have  contractual  lives of up to ten years.  However,  management
believes  that the  assumptions  used and the model  applied to value the awards
yields a  reasonable  estimate  of the fair value of the  grants  made under the
circumstances.

Employee Stock Purchase Plan

The Company has reserved  400,000 shares of its common stock to be offered under
its 1997 Stock Purchase Plan (the "Plan"). Under the Plan, eligible employees of
the  Company  may  participate  in  quarterly  offerings  of shares  made by the
Company.  The  participating  employees  purchase  shares at a discount from the
lower of fair value at the beginning or end of each  quarterly  offering  period
through payroll deductions.

                                      F-23
<PAGE>



Shareholders' Rights Plan

On January 30, 1998, the Company  adopted a Shareholder  Rights Plan designed to
enhance the Company's ability to protect all of its shareholders'  interests and
the ensure that all  shareholders  receive  fair  treatment  in the event of any
potential  sale of the  Company.  In  connection  with this  plan,  the Board of
Directors declared a dividend distribution of one preferred stock purchase right
for each  outstanding  share of common stock to shareholders of record as of the
close of business on February 11, 1998.  These rights become  exercisable  after
January 30, 1998 or if a person who owns 10% or more of the common  stock of the
Company is determined to be an "adverse person" by the Board of Directors, or if
a person commences a tender offer that would result in that person owning 15% or
more of the  common  stock  of the  Company.  In the  event  the  rights  become
exercisable,  after  January  30,  1998 each  holder of a right  (other than the
person causing the exercise)  would be entitled to acquire such number of shares
of preferred  stock which are equivalent to the Company's  common stock having a
value of twice the  then-current  exercise price of the right. If the Company is
acquired in a merger or other business  combination  transaction  after any such
event,  each  holder of a right  would  then be  entitled  to  purchase,  at the
then-current  exercise  price,  shares of the acquiring  company's  common stock
having a value of twice the exercise price of the right.

Employee Benefit Plan

The Company  sponsors a 401(k)  retirement  plan and,  prior to the  Transaction
Date, the Company's employees participated in a 401(k) retirement plan sponsored
by DAKA  International.  Both plans enabled employees to contribute up to 15% of
their annual compensation. The Company's discretionary contributions to the Plan
have been  determined  by the Board for fiscal 1998,  and by DAKA  International
before the Spin-off Transaction. The Company contributed $25,000 and $204,000 to
the  Plan in 1997  and  1996,  respectively.  No  contribution  was paid in 1998
although the Company plans to contribute $50,000 subsequent to year end.

Long-Term Incentive Plan

Effective  July  3,  1994,  the  Company   implemented  a  long-term   incentive
compensation  plan  ("LTIP") for its former Chief  Executive  Officer  whereby a
portion of the increase in the market value of DAKA International's common stock
over  predefined  amounts,  was payable in either cash or stock at the option of
the Company.  Amounts  payable under the LTIP were scheduled to vest on June 30,
1997.

On May 22, 1997, the Board of Directors of DAKA International  amended the LTIP.
Under the terms of the amendment,  the former Chief Executive Officer's right to
receive a performance award was amended to provide for the granting of an option
which  would  vest  on  June  30,  1997  to  acquire   228,260  shares  of  DAKA
International  Common  Stock at an exercise  price of $12.07 (the  "Deemed  LTIP
Option"). Upon consummation of the Spin-off Transaction,  the Deemed LTIP Option
was  converted  in a manner  similar to the  Adjusted  Options  and the  Company
purchased the former Chief Executive  Officer's Deemed LTIP Option.  At June 29,
1997,  $265,000 had been accrued  representing  the expected  payment to be made
after the  consummation  of the Spin-off  Transaction.  During 1998, the Company
obligation  to the former  Chief  Executive  Officer  was  settled  through  the
issuance of 37,973 shares of common stock of the Company.

                                      F-24
<PAGE>



14.      Fair Value of Financial Instruments

The estimated  fair value of financial  instruments  has been  determined by the
Company  using  available   market   information   and   appropriate   valuation
methodologies.  The following  methods and assumptions were used to estimate the
fair value of the Company's  financial  instruments for which it was practicable
to estimate that value:

Current  Assets  and  Liabilities  -  The  carrying  amount  of  cash,  accounts
receivable,  accounts  payable  and  accrued  expenses  approximates  fair value
because of the short maturity of these instruments.

Notes  Receivable - The carrying  value of notes  receivable  approximates  fair
value and was estimated  based on discounted  cash flows expected to be received
using  interest  rates at which similar loans are made to borrowers with similar
credit ratings, or if the loan is collateral dependent, management's estimate of
the fair value of the collateral.

Capital  lease  obligations - The carrying  value of capital  lease  obligations
approximates fair value based upon current market interest rates.

Investments  in La  Salsa  Preferred  Stock  - The  carrying  cost  of La  Salsa
Preferred  Stock  approximates  fair value given the relative  illiquidity of La
Salsa Preferred Stock in the private equity market.





























                  [Remainder of page left intentionally blank]


                                      F-25
<PAGE>



15.     Business Information

Income from restaurant and franchising  operations have been determined applying
the accounting policies in Note 4. Revenue and costs as shown below are directly
related to each business and do not include an allocation of corporate expenses,
non-operating  income,  interest  expense and income  taxes.  There are no sales
among the Company's three businesses. The table below presents certain financial
information  for the  Company's  Champps,  Fuddruckers  and  Specialty  Concepts
businesses for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
                                                                                                        (In thousands)
                                                                                             1998            1997            1996
                                                                                             ----            ----            ----
<S>                                                                                       <C>             <C>             <C>
Total Revenues:
   Sales from Champps-owned restaurants                                                   $  73,387       $  57,832       $  41,593
   Franchising and royalty income - Champps                                                     644             539             555
   Sales from Fuddruckers-owned restaurants                                                 133,858         137,624         131,592
   Franchising and royalty income - Fuddruckers                                               3,763           4,021           6,574
   Sales from Specialty Concepts unit operations                                              3,324           5,285           2,865
   Franchising and royalty income - Specialty Concepts                                          345             583             576
                                                                                          ---------       ---------       ---------
     Total revenues                                                                       $ 215,321       $ 205,884       $ 183,755
                                                                                          =========       =========       =========

Champps:
   Sales from Champps-owned restaurants                                                   $  73,387       $  57,832       $  41,593
Operating expenses:
     Labor costs                                                                             24,212          19,048          13,797
     Product costs                                                                           21,276          16,735          11,981
     Other operating expenses                                                                20,363          14,880           9,631
     Depreciation and amortization                                                            2,914           4,734           3,596
     Impairment and exit costs                                                                 --              --                62
     Merger costs                                                                              --              --             2,600
                                                                                          ---------       ---------       ---------
   Restaurant unit contribution                                                               4,622           2,435             (74)
     Franchising and royalty income                                                             644             539             555
     Gain on sale of franchise                                                                  677            --              --
                                                                                          ---------       ---------       ---------
   Restaurant unit, franchising and royalty contribution                                  $   5,943       $   2,974       $     481
                                                                                          =========       =========       =========

Fuddruckers:
   Sales from Fuddruckers-owned restaurants                                               $ 133,858       $ 137,624       $ 131,592
Operating expenses:
     Labor costs                                                                             40,396          45,204          41,944
     Product costs                                                                           36,316          38,524          38,203
     Other operating expenses                                                                43,814          38,731          30,719
     Depreciation and amortization                                                            5,644           9,010           7,953
     Impairment and exit costs                                                               21,804           9,107           2,450
                                                                                          ---------       ---------       ---------
   Restaurant unit contribution                                                             (14,116)         (2,952)         10,323
     Franchising and royalty income                                                           3,763           4,021           6,574
                                                                                          ---------       ---------       ---------
   Restaurant unit, franchising and royalty contribution                                  $ (10,353)      $   1,069       $  16,897
                                                                                          =========       =========       =========
</TABLE>
                                      F-26
<PAGE>
<TABLE>
<CAPTION>
                                                                                                        (In thousands)
                                                                                             1998            1997            1996
                                                                                             ----            ----            ----
<S>                                                                                       <C>             <C>             <C>
Specialty Concepts:
   Restaurant unit, franchising and royalty contribution (1)                              $  (1,401)      $  (7,756)      $     595
                                                                                          =========       =========       =========

Total restaurant unit, franchising and royalty contributions                              $  (5,811)      $  (3,713)      $  17,973

Selling, general and administrative expenses (2)                                             19,848          33,423          24,616

Other charges                                                                                 1,385           5,439            --
Interest expense                                                                                494             744             641
Interest income                                                                                (790)           (487)           (353)
                                                                                          ---------       ---------       ---------
Loss before income taxes, minority interests, and cumulative effect of change
   in accounting for preopening costs                                                     $ (26,748)      $ (39,043)      $  (5,670)
                                                                                          =========       =========       =========
</TABLE>


(1)  Depreciation  expense included in the contribution from Specialty  Concepts
     totaled  $166,000,   $985,000,   and  $152,000  in  1998,  1997  and  1996,
     respectively.

(2)  Selling,  general and administrative  expenses include depreciation expense
     on corporate assets of $1,503,000,  $820,000 and $435,000 in 1998, 1997 and
     1996, respectively.

The  following  table  presents  total assets for each of the  businesses of the
Company excluding any intercompany balances:
<TABLE>
<CAPTION>
                                                             (In thousands)
                                                         1998              1997
                                                         ----              ----
<S>                                                   <C>               <C>     
Champps                                               $ 31,830          $ 30,512
Fuddruckers                                             52,379            86,080
Corporate and other (3)                                  8,637             8,617
                                                      --------          --------
                                                      $ 92,846          $125,209
                                                      ========          ========
</TABLE>


(3)  Corporate assets include computer equipment and deposits.









                                      F-27

<PAGE>




16.     Quarterly Results (Unaudited)

The following  unaudited  quarterly financial data should be read in conjunction
with  the  audited  consolidated   financial   statements,   related  notes  and
Management's  Discussion  and Analysis of Results of  Operations  and  Financial
Condition:
<TABLE>
<CAPTION>
                                                                              (In thousands, except per share amounts)
                                                                  First        Second         Third         Fourth
                                                                 Quarter       Quarter        Quarter       Quarter         Total
                                                                 -------       -------        -------       -------         -----
<S>                                                            <C>            <C>            <C>           <C>            <C>
1998:
Revenues                                                       $  52,442      $  52,266      $  54,834     $  55,779      $ 215,321
Gross profit                                                      14,473         14,093         14,627        15,631         58,824
Income (loss) before income taxes, minority
   interests and cumulative effect of change in
   accounting for preopening costs (1)                              (895)          (456)           798       (26,195)       (26,748)
Cumulative effect of change in accounting for
   preopening costs                                                 (987)          --             --            --             (987)

Net loss                                                       $  (1,882)     $    (456)     $     798     $ (26,195)     $ (27,735)
                                                               =========      =========      =========     =========      =========
Per share data:
   Basic and diluted income (loss) before
     cumulative effect of change in accounting
     for preopening costs                                      $   (0.08)     $   (0.04)     $    0.07     $   (2.28)     $   (2.33)
   Basic and diluted net income (loss)                             (0.16)         (0.04)          0.07         (2.28)         (2.41)
</TABLE>

(1)  See Note 4, "Impairment of Long-Lived Assets, Exit Costs and Other Charges"
     for a description of certain fourth quarter adjustments.

Certain amounts previously  reported in the Company's Form 10-Q for the quarters
ended  September  28,  1997,  December  28,  1997 and March  28,  1998 have been
restated to reflect the Company's adoption of SOP 98-5 subsequent to its release
in April 1998.

                                      F-28