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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C 20549
                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

       (Mark One)
       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934
       For the fiscal year ended December 27, 2000

                                       OR

       [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934
       For the transition period from ___________ to ____________

       Commission file number 333-07601

                               FRD ACQUISITION CO.
             (Exact name of registrant as specified in its charter)

              DELAWARE                                       57-1040952
    (State or other jurisdiction                          (I.R.S. employer
 of incorporation or organization)                     identification number)

  3355 MICHELSON DRIVE, SUITE 350                               92612
             IRVINE, CA                                      (Zip code)
       (Address of principal
         executive offices)

       Registrant's telephone number, including area code: (864) 597-8000

                       -----------------------------------

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


                                                     NAME OF EACH EXCHANGE ON
      TITLE OF EACH CLASS                                WHICH REGISTERED
      -------------------                                ----------------
              None                                             None

                          ----------------------------

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

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 15, 2001, 1,000 shares of registrant's common stock, $0.10 par value
per share, were outstanding, all of which were owned by the registrant's parent,
Advantica Restaurant Group, Inc.

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<TABLE>
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                                TABLE OF CONTENTS


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<S>                                                                                                           <C>
PART I
Item 1.         Business                                                                                        1
Item 2.         Properties                                                                                      7
Item 3.         Legal Proceedings                                                                               8
Item 4.         Submission of Matters to a Vote of Security Holders                                             8
PART II
Item 5.         Market for Registrant's Common Equity and Related Stockholder Matters                           8
Item 6.         Selected Financial Data                                                                         9
Item 7.         Management's Discussion and Analysis of Financial Condition and Results of Operations          10
Item 7A.        Quantitative and Qualitative Disclosures about Market Risk                                     18
Item 8.         Financial Statements and Supplementary Data                                                    19
Item 9.         Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           19
PART III
Item 10.        Directors and Executive Officers of the Registrant                                             19
Item 11.        Executive Compensation                                                                         21
Item 12.        Security Ownership of Certain Beneficial Owners and Management                                 23
Item 13.        Certain Relationships and Related Transactions                                                 23
PART IV
Item 14.        Exhibits, Financial Statement Schedules and Reports on Form 8-K                                24


INDEX TO FINANCIAL STATEMENTS                                                                                 F-1


SIGNATURES
</TABLE>




FORWARD-LOOKING STATEMENTS

The forward-looking statements included in the "Business," "Legal Proceedings,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Quantitative and Qualitative Disclosures About Market Risk"
sections, which reflect management's best judgment based on factors currently
known, involve risks and uncertainties. Words such as "expects," "anticipates,"
"believes," "intends," "plans," and "hopes," variations of such words and
similar expressions are intended to identify such forward-looking statements.
Actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors including, but not
limited to, the factors discussed in such sections and those set forth in the
cautionary statements contained in Exhibit 99 to this Form 10-K (see Exhibit 99
-- Safe Harbor Under the Private Securities Litigation Reform Act of 1995).
Forward-looking information provided by the Company in such sections pursuant to
the safe harbor established under the Private Securities Litigation Reform Act
of 1995 should be evaluated in the context of these factors.

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                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

FRD Acquisition Co. ("FRD" or, together with its subsidiaries and including its
predecessor, as applicable, the "Company") was incorporated in February 1996 as
a wholly owned subsidiary of the predecessor of Advantica Restaurant Group, Inc.
("Advantica"). On May 23, 1996, FRD consummated the acquisition of all of the
outstanding stock of FRI-M Corporation ("FRI-M"), the former subsidiary of
Family Restaurants, Inc. ("FRI"), which owns the Coco's and Carrows chains.

The Company is one of the nation's leading operators of family-style
restaurants. At year end, the Company operated 258 restaurants owned or leased
by the Company and franchised 62 restaurants, principally under the Coco's and
Carrows names. Approximately 89% of the company-owned restaurants are located in
California, which management believes makes the Company one of the largest
family-style restaurant operators in California, both in terms of sales volume
and number of restaurants. Coco's and Carrows restaurants have been in existence
for 50 and 30 years, respectively, and have developed excellent name recognition
and a loyal customer base. In addition to its domestic operations, at year end
the Company was the licensor of 302 Coco's restaurants located primarily in
Japan and South Korea.

On January 7, 1998 (the "Effective Date"), Advantica's predecessor, Flagstar
Companies, Inc. ("FCI"), and its wholly owned subsidiary, Flagstar Corporation
("Flagstar"), emerged from proceedings under Chapter 11 of Title 11 of the
United States Code (the "Bankruptcy Code") pursuant to FCI's and Flagstar's
Amended Joint Plan of Reorganization dated as of November 7, 1997 (the "Plan").
On the Effective Date, Flagstar merged with and into FCI, the surviving
corporation, and FCI changed its name to Advantica Restaurant Group, Inc. FCI's
operating subsidiaries, including the Company, did not file bankruptcy petitions
and were not parties to the Chapter 11 proceedings. As of the Effective Date,
Advantica adopted fresh start reporting pursuant to the guidance provided by the
American Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"). Advantica "pushed down" the impact of fresh start reporting to its
operating subsidiaries, including the Company. Further discussion of the
adoption of fresh start reporting is included in "Selected Financial Data" and
Note 2 to the Consolidated Financial Statements included in this Form 10-K.

On February 17, 2000, in connection with its announcement of a new strategic
direction, Advantica also announced that it would begin immediately exploring
the possible sale of FRD's operating subsidiaries. Advantica continued to market
for divestiture the Coco's and Carrows concepts throughout the balance of 2000
and into the first quarter of 2001.

2001 RESTRUCTURING

On February 14, 2001 (the "Petition Date"), FRD filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"), Case No. 01-0436
PJW. None of the Company's operating subsidiaries are a party to or are included
in these Chapter 11 proceedings. FRD (the "Debtor") is currently operating its
business as a debtor-in-possession pursuant to Sections 1107(a) and 1108 of the
Bankruptcy Code and subject to the jurisdiction of the Bankruptcy Court. The
financial statements of the Company have been prepared on a going concern basis,
which contemplates the continuity of operations, the realization of assets and
the satisfaction of liabilities and commitments in the ordinary course of
business.

FRD's Chapter 11 filing is intended to preserve and maximize the going concern
value of FRD's operating subsidiaries by allowing them to continue to operate in
the ordinary course of business, without the need to commence Chapter 11 cases
of their own. The events leading to FRD's Chapter 11 filing include the
continued deterioration of the

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performance of FRD's operating subsidiaries due to increased competition,
outdated facilities and unfavorable industry trends. As a result, FRD failed to
make the scheduled January 16, 2001 interest payment due on its prepetition
12.5% Senior Notes due July 15, 2004 (the "Senior Notes"). The 30-day grace
period provided by the indenture governing the Senior Notes' interest payments
expired on February 15, 2001, the day after FRD filed its voluntary Chapter 11
petition. Since mid-April 2000, FRD has worked together with an unofficial
committee of holders of the Senior Notes and its parent, Advantica, to pursue a
sale of the stock of FRD's subsidiaries. Shortly before the filing date, FRD
received preliminary acquisition proposals from four separate entities. FRD
intends to continue this sale process postpetition with the goal of maximizing
value to creditors. Pending a sale, FRD will continue to consult with the
unofficial committee (or any official committee that is formed) and Advantica
with respect to FRD's Chapter 11 case and the sale process. FRD and its
subsidiaries intend to consummate a sale transaction without the need for the
operating subsidiaries to also commence Chapter 11 cases. It is possible,
however, that some or all of FRD's subsidiaries may have to commence Chapter 11
cases in the future.

FRD's subsidiaries have entered into an agreement pursuant to which they will
fund the expenses incurred by the Debtor in connection with the Chapter 11 case
including, but not limited to, fees and expenses of counsel and advisors for the
Debtor and any official committee appointed in the Chapter 11 case.

Pursuant to Section 362 of the Bankruptcy Code, the commencement of FRD's
Chapter 11 case operates as an automatic stay of the following: (1) commencement
or continuation of a judicial, administrative or other proceeding against the
Debtor that was or could have been commenced prior to commencement of the
Chapter 11 case; (2) enforcement of any judgments against the Debtor that arose
before the commencement of the Chapter 11 case; (3) the taking of any action to
obtain possession of or to exercise control over the Debtor's property; (4) the
creation, perfection or enforcement of any lien against the Debtor's property;
(5) the taking of any action to collect, assess or recover a claim against the
Debtor that arose prior to the commencement of the Chapter 11 case; or (6) the
setoff of any debt owing to the Debtor that arose prior to commencement of the
Chapter 11 case against a claim held by such creditor of or party-in-interest
against the Debtor that arose before the commencement of the Chapter 11 case.
Any entity may apply to the Bankruptcy Court for relief from the automatic stay
to allow enforcement of any of the aforesaid remedies that are automatically
stayed by operation of law at the commencement of the Chapter 11 case.

Although the Debtor is authorized to operate its business as a
debtor-in-possession, it may not engage in transactions outside the ordinary
course of business without first complying with the notice and hearing
provisions of the Bankruptcy Code and obtaining Bankruptcy Court approval. Other
parties in interest in the Chapter 11 case are also entitled to be heard on
motions made in the Chapter 11 case, including motions for approval of
transactions outside the ordinary course of business.

The Company's financial statements for the year ended December 27, 2000 have
been presented in conformity with SOP 90-7. In accordance with SOP 90-7, all
prepetition liabilities of FRD that are subject to compromise through this
bankruptcy proceeding are segregated in the Company's Consolidated Balance
Sheets as "Liabilities subject to compromise." These liabilities are recorded at
the amounts expected to be allowed as claims by the Bankruptcy Court rather than
estimates of the amounts for which those allowed claims may be settled as a
result of any plan of reorganization approved by the Bankruptcy Court. See Note
1 to the accompanying Consolidated Financial Statements for more information.

RESTAURANTS

The Company's restaurants offer an extensive menu of moderately priced
breakfast, lunch and dinner items and are typically open either 18 or 24 hours a
day. Both Coco's and Carrows restaurants provide casual sit-down dining
experiences and emphasize consistently high quality food with an excellent
price-to-value relationship and friendly, efficient service.

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While the Coco's and Carrows concepts appeal to many of the same broad-based
customers, they are positioned, as described below, to target distinct groups
within the mid-scale family-style category. For a breakdown of the revenues
contributed by each concept (and other related segment disclosures) for the last
three years, see its corresponding section of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 17 to the
accompanying Consolidated Financial Statements.

COCO'S

Coco's is a bakery restaurant chain operating primarily in California as well as
Japan, South Korea and the United Arab Emirates. Coco's offers a variety of
fresh-baked goods such as pies, muffins and cookies in addition to value-priced
and innovative menu items. The chain has positioned itself at the upper end of
the family-style category, and answers the needs of quality-conscious family
diners by offering consistently high quality food, great service, fair prices
and a pleasant, comfortable atmosphere. At December 27, 2000, the Coco's chain
consisted of 144 company-owned, 35 domestic franchised and 302 international
licensed restaurants. The initial fee for a single Coco's franchise in the
United States is $35,000, and the current royalty payment rate is 4% of net
sales. Initial fees and royalties for licensed restaurants are negotiated under
separate licensing agreements which generally carry lower royalty rates than
franchised restaurants.

The restaurants are generally open 18 hours a day. Coco's restaurants have
uniform menus within the United States and serve breakfast, lunch and dinner.
Lunch and dinner dayparts are Coco's strongest, comprising approximately 38% and
43% of 2000 sales, respectively. In 2000, the average guest check was $7.59,
with average company-owned unit sales of approximately $1.5 million. Coco's
employed approximately 6,500 people at December 27, 2000.

During 1999, the Company began a reimage test and completed the remodeling of 14
Coco's restaurants in Southern California. The Company reimaged an additional 14
restaurants in 2000 using a lower-cost reimage prototype and continued to
evaluate the post-reimage performance.

CARROWS

Carrows is a regional family-style restaurant chain operating primarily in
California. Carrows consisted of 114 company-owned units and 27 domestic
franchises. Carrows specializes in traditional American food, with an emphasis
on quality, homestyle fare at an excellent value. The concept appeals strongly
to families with children as well as to mature adults, a group expected to grow
rapidly in this century. Carrows restaurants have uniform menus and serve
breakfast, lunch and dinner. The menu is always current, but not trendy, and is
revised regularly to reflect the most appealing foods that guests demand. The
restaurants are generally open 18 hours a day. Carrows employed approximately
4,400 people at December 27, 2000.

Lunch and dinner dayparts (including "late night") are Carrows' strongest,
comprising approximately 35% and 45% of 2000 sales, respectively. In 2000, the
average guest check was $7.19, with average company-owned unit sales of
approximately $1.3 million.

SITE SELECTION

The Company's franchise development group is responsible for identifying and
securing new franchise locations. The franchise development group works closely
with real estate brokers in the Company's existing markets who are familiar with
the Company's needs and selection criteria. In general, the Company's
restaurants are located in high-traffic commercial areas with a substantial
surrounding residential base within a three-mile radius. The commercial traffic
typically provides the Company's weekday breakfast and lunch clientele while the
residential traffic accounts for a majority of the Company's dinner and weekend
business. The location and concentration of its restaurants allow it to realize
certain economies of scale in advertising, distribution and field supervision.
Sites are evaluated on the basis of a

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variety of factors, including demographic data, land use and environmental
restrictions, competition in the area, ease of access, visibility, availability
of parking and proximity to a major traffic generator such as a shopping mall,
office complex, stadium or university.

OPERATIONS AND MANAGEMENT

RESTAURANT MANAGEMENT AND EMPLOYEE STRUCTURE. The Company's restaurant
management field structure is currently comprised of one vice president of
operations, who oversees approximately 34 district managers. Each district
manager, in turn, oversees seven to ten restaurants. A general manager,
associate manager and assistant manager are employed at each Coco's and Carrows
restaurant to manage day-to-day operations, including customer relations, food
service, cost control, restaurant maintenance, hiring and training of restaurant
employees, and the implementation of all Company policies. Coco's and Carrows
restaurants typically operate with a staff of 40 employees for lower volume
restaurants to 70 employees for higher volume restaurants. The average
restaurant employs approximately 45 to 55 employees, and a majority of the
restaurant level employees work part-time.

The Company recognizes the importance of its personnel in providing customers
with a quality dining experience. As a result, the Company offers its employees
extensive training and opportunities for promotion, as well as incentive-based
compensation. The success of these endeavors allows the Company to enjoy
employee turnover rates that management believes are below industry averages and
to benefit from a staff of highly experienced employees. The Company's
restaurant general managers average approximately ten years of experience with
the Company.

TRAINING. Both Coco's and Carrows provide formal training programs for new
managers and hourly employees of the Company's restaurants. Exceptional general
managers are identified as "Executive Training Managers" and are responsible for
management trainees in their geographic regions. Management training includes
nine weeks with Executive Training Managers for Coco's (because of the bakery
concept) and eight weeks for Carrows. Hourly employees are trained by the
respective restaurant managers and each shift employs hourly employees who have
been certified to assist in the training of other employees.

QUALITY CONTROL. Coco's and Carrows have developed programs and systems that
ensure the safety, quality and consistency of key ingredients, menu items and
operations. The major components of these programs include a
supplier/distributor quality assurance program that audits ingredients and
suppliers to ensure compliance with specifications and a restaurant food safety
program which is responsible for maintaining communications with regulatory
agencies and proactively managing risk situations.

MENUS

COCO'S MENU STRATEGY. The Company's menu strategy for Coco's is to serve a wide
variety of high quality traditional American fare combined with more
contemporary selections designed to deliver distinctive visual and taste appeal.
To improve sales and profits, Coco's will emphasize its high quality products
such as fresh fish, freshly baked muffins and pies and other bakery products,
and product promotions will provide price point options that offer guests an
excellent value while maintaining margins and profitability.

CARROWS' MENU STRATEGY. The Company's menu strategy for Carrows is to offer a
consistent quality and variety of traditional American favorites which emphasize
the brand's signature products, value pricing and portions. To continue
satisfying the needs of the family-style segment customers, Carrows will
supplement its current popular menu with ongoing product development. Carrows
plans to focus on refining the menu items for all day parts and conducting
effective product promotions designed to build guest satisfaction and frequency
of visits while maintaining profitable margins.

RESEARCH AND DEVELOPMENT. Each of the Company's restaurant chains regularly
evaluates its menu. New products are

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developed in a Company test kitchen by a classically trained corporate chef and
then tested in selected restaurants to determine customer response and to ensure
that consistency, quality standards and profitability are maintained. While
research and development activities are important to the Company's business,
amounts expended for these activities are not significant.

ADVERTISING

The Company uses its menu strategy, interior/exterior building design, employee
uniforms, style of service and specialized promotions to help differentiate
itself from its competition. When the Company uses media advertising for Coco's
or Carrows, it is primarily product oriented, featuring special entrees
presented and priced to convey high value. Both concepts reinforce the idea that
they are the restaurant of choice for all dining occasions and customers (i.e.,
breakfast, lunch, dinner, families, seniors).

RAW MATERIAL SOURCES AND AVAILABILITY

The Company uses Advantica's purchasing department to obtain high quality
ingredients at the most favorable prices and to make centralized purchasing
arrangements for the main ingredients, supplies and equipment needs of all
Coco's and Carrows restaurants. Advantica's size provides the Company with
significant purchasing power which often enables it to obtain products at
favorable prices from several nationally recognized distributors.

On January 19, 1998, the Company became subject to a distribution agreement with
Proficient Food Company ("PFC") (a former subsidiary of Advantica which was sold
in 1995 to Meadowbrook Meat Company, Inc. ("MBM"), and with which Advantica's
other restaurant concept has a distribution agreement). Pursuant to the
agreement, PFC/MBM will continue to distribute and supply certain products to
the Company through September 7, 2005. Although there are no volume
requirements, the agreement requires that named products be purchased through
PFC/MBM unless they are unable to make delivery within a reasonable period.

The Company believes that satisfactory sources of supply are generally available
for all items regularly used by its restaurants and has not experienced any
material shortages of food, equipment, or other products which are necessary to
its restaurant operations.

SEASONALITY

The Company's business is moderately seasonal. Restaurant sales are generally
greater in the second and third calendar quarters (April through September) than
in the first and fourth calendar quarters (October through March). Additionally,
severe weather, storms and similar conditions may impact sales volumes
seasonally in some operating regions. Occupancy and other operating costs, which
remain relatively constant, have a disproportionately greater effect on
operating results during quarters with lower restaurant sales.

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TRADEMARKS AND SERVICE MARKS

The Company, either directly or through its wholly owned subsidiaries, has
registered certain trademarks and service marks with the United States Patent
and Trademark office and in international jurisdictions. The Company regards its
trademarks and service marks as important to the identification of its
restaurants and believes they are of material importance to the conduct of its
business. Domestic trademark and service mark registrations are renewable at
various intervals from 10 to 20 years, while international trademark and service
mark registrations have various durations from 5 to 20 years. The Company
generally intends to renew trademarks and service marks which come up for
renewal. The Company owns or has rights to all trademarks it believes are
material to its restaurant operations.

COMPETITION

The restaurant industry is highly competitive and affected by many factors.
Restaurants compete on the basis of name recognition and advertising, the price,
quality and perceived value of their food offerings, the quality and speed of
their service, convenience and the attractiveness of their facilities. Recent
economic trends have also increased competition for qualified managerial
operations personnel as well as hourly employees.

Management believes the Company's principal competitive strengths include its
restaurants' brand name recognition; restaurant locations; the value, variety
and quality of food products served; the quality and training of its employees;
and the Company's market penetration, which has resulted in economies of scale
in a variety of areas, including advertising, distribution and field
supervision. See Exhibit 99 to this Form 10-K for certain additional factors
relative to the Company's competition in the restaurant industry.

ECONOMIC, MARKET AND OTHER CONDITIONS

The restaurant industry is affected by many factors, including changes in
national, regional and local economic conditions affecting consumer spending,
changes in socio-demographic characteristics of areas in which restaurants are
located, changes in consumer tastes and preferences, increases in the number of
restaurants in general and in particular areas, unfavorable trends affecting
restaurant operations such as rising wage rates and utilities expenses and
unfavorable trends in regional weather conditions.

GOVERNMENT REGULATIONS

The Company and its franchisees are subject to various local, state and federal
laws and regulations governing various aspects of the restaurant business,
including, but not limited to, health, sanitation, environmental matters,
safety, disabled persons' access to its restaurant facilities, the sale of
alcoholic beverages and hiring and employment practices. The operation of the
Company's franchise system is also subject to regulations enacted by a number of
states and to rules promulgated by the Federal Trade Commission. The Company
believes that it is in material compliance with applicable laws and regulations,
but it cannot predict the effect on operations of the enactment of additional
regulations in the future. The cost of compliance with government regulations
has not had a material impact on the operations of the Company.

The Company is subject to federal and state laws governing matters such as
minimum wages, overtime and other working conditions. At December 27, 2000, the
majority of the Company's employees were paid at minimum wage. Accordingly,
increases in the minimum wage or decreases in the allowable tip credit (which
reduces the minimum wage paid to tipped employees in certain states) increase
the Company's labor costs. This is especially true for the Company's operations
in California, where there is no tip credit. The California minimum wage
increased from $5.00 per hour to $5.75 per hour on March 1, 1998; it increased
again to $6.25 per hour on January 1, 2001 and will increase to $6.75 per hour
on January 1, 2002. Also, the United States Congress is considering a federal
minimum wage increase to $6.15 per hour over a multiple-year time frame.
Employers must pay the higher of the federal or state minimum wage. The Company
has attempted to offset increases in the minimum wage

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through pricing and various cost control efforts; however, there can be no
assurance that the Company or its franchisees can continue to pass on such cost
increases to its customers in the future.

ENVIRONMENTAL MATTERS

Federal, state and local environmental laws and regulations have not
historically had a material impact on the operations of the Company; however,
the Company cannot predict the effect on its operations of possible future
environmental legislation or regulations.

EMPLOYEES

At December 27, 2000, the Company had approximately 10,900 employees, none of
whom were covered by union contracts. Many of the Company's restaurant employees
work part-time and many are paid at or slightly above minimum wage levels. The
Company has experienced no significant work stoppages and believes that its
relationship with its employees is satisfactory.

ITEM 2. PROPERTIES

The Company's restaurants are free standing units ranging from 4,900 to 5,900
square feet allowing them to accommodate 120 to 180 guests. The number and
location of the Company's restaurants as of December 27, 2000 are presented
below:

                                   COCO'S                       CARROWS
                             ------------------           -------------------
                                       FRANCHISE/                    FRANCHISE/
STATE/COUNTRY                OWNED     LICENSED           OWNED      LICENSED
-------------                -----     --------           -----      --------

Arizona                        20           2              ---            4
California                    122          26              107            8
Colorado                      ---           1              ---          ---
Indiana                         1(a)      ---              ---          ---
Missouri                        1         ---              ---          ---
Nevada                        ---         ---                5(b)         1
New Mexico                    ---         ---              ---            4
Oregon                        ---         ---              ---            7
Texas                         ---         ---                2            2
Washington                    ---           6              ---            1
Japan                         ---         272              ---          ---
South Korea                   ---          28              ---          ---
Other International           ---           2              ---          ---
                            -----       -----            -----        -----
Total                         144         337              114           27
                              ===         ===              ===           ==
-------------------

(a)  This unit is a jojos restaurant, which is similar in format to Coco's.
(b)  Includes one Jeremiah's restaurant, a midscale family-steak restaurant.

Of the 258 restaurants operated by the Company as of December 27, 2000, the
Company owned the land and building for 5, owned the building and leased the
land for 39, and leased both land and building for the remaining 214
restaurants. Most of the leases provide for the payment of a base rent or
approximately 5% to 6% of gross sales, whichever is greater. In addition to the
restaurants, the Company leases 18,500 square feet of office space in Irvine,
California for its corporate headquarters.

Substantially all of the Company's properties and assets are pledged to secure
indebtedness under the FRD Credit

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Facility (as defined below). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 10 to the Consolidated and Combined Financial Statements
included herein.

ITEM 3. LEGAL PROCEEDINGS

On February 14, 2001, FRD filed a voluntary petition under Chapter 11 of the
Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware, Case
No. 01-0436 PJW, to facilitate the divestiture of its Coco's and Carrows brands
and to preserve their going concern value. FRD is the debtor-in-possession in
the proceeding which excludes FRD's subsidiaries. Consequently, all of its
subsidiaries, including the operating concepts Coco's and Carrows, are not part
of FRD's Chapter 11 case and are expected to operate in the normal course of
business throughout FRD's restructuring and sale process. The final selection of
a buyer and completion of the divestiture will take place in the Bankruptcy
Court. FRD and its subsidiaries intend to consummate a sale transaction without
the need for the operating subsidiaries to also commence Chapter 11 cases. It is
possible, however, that some or all of FRD's subsidiaries may have to commence
Chapter 11 cases in the future.

In an action originally filed on November 8, 1999, two current and three former
managers of Carrows restaurant units initiated, in the Superior Court of Los
Angeles County, California, a class action lawsuit seeking, among other things,
overtime compensation. The suit alleged that Carrows requires its managers to
work more than 50% of their time performing nonmanagement related tasks, thus
entitling them to overtime compensation. Carrows contends that it properly
classifies its managers as salaried employees, thereby exempting them from the
payment of overtime compensation. During the third quarter of 2000, the parties
reached an agreement to resolve the claims of individuals who were employed as
managers of Carrows in California between November 8, 1995 and July 21, 2000.
While continuing to deny liability, the Company elected to resolve the case to
avoid the expense of continued litigation and the risk of loss. The total
settlement of $1.0 million was approved by the Court on December 7, 2000 and
paid subsequent to year end.

Other proceedings are pending against the Company, in many cases involving
ordinary and routine claims incidental to the business of the Company, and in
others presenting allegations that are nonroutine and include compensatory or
punitive damage claims. The ultimate legal and financial liability of the
Company with respect to these proceedings cannot be estimated with certainty.
Except for the bankruptcy case discussed above, the Company believes, based on
its examination of these matters and its experience to date, that the ultimate
disposition of pending proceedings will not significantly affect the financial
position or results of operations of the Company.

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

Not applicable.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company is a wholly owned subsidiary of Advantica. As a result, there is no
established public trading market for the Company's common stock and all per
share data is omitted. As of March 15, 2001, 1,000 shares of the Company's
common stock were outstanding, all of which are owned by Advantica.

Dividends were not paid by the Company during 1998, 1999 or 2000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 10 to the accompanying
Consolidated Financial Statements of the Company regarding certain restrictions
on the payment of dividends.

                                        8

<PAGE>   11

ITEM 6. SELECTED FINANCIAL DATA

Set forth below are certain selected financial data of FRD Predecessor for the
five-month period ended May 23, 1996, FRD Successor for the seven-month period
ended December 26, 1996, the fiscal year ended December 31, 1997 and the one
week ended January 7, 1998 and FRD Emerged Successor for the fifty-one weeks
ended December 30, 1998 and the fiscal years ended December 29, 1999 and
December 27, 2000. Such data have generally been derived from the Consolidated
and Combined Financial Statements of FRD which have been audited. The following
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" presented elsewhere herein. Because FRD is a wholly
owned subsidiary of Advantica, per share data is not meaningful and has been
omitted.

<TABLE>
<CAPTION>
                                            FRD
                                       Predecessor(a)           FRD Successor (b)                   FRD Emerged Successor (c)
                                       -------------- ------------------------------------  ---------------------------------------
                                            Five         Seven                     One       Fifty-One
                                           Months        Months       Year         Week        Weeks         Fiscal Year Ended
                                           Ended         Ended        Ended        Ended       Ended      -------------------------
                                           May 23,    December 26,  December 31, January 7,  December 30, December 29, December 27,
                                            1996        1996(d)      1997(e)       1998         1998        1999          2000
                                          --------     --------     --------     --------    --------     --------      --------

<S>                                        <C>          <C>         <C>          <C>          <C>          <C>          <C>
(In millions, except ratios)
Operating Statement Data:
   Operating revenues                      $195.9       $295.0      $492.5        $8.4        $439.4       $389.8       $371.1
   Operating income (loss)                    2.5         11.9        27.1          --         (19.1)       (91.6)(f)    (83.5)(f)
   Net income (loss)                          1.1         (6.2)       (2.2)       33.1         (41.8)      (135.7)      (110.6)
   Ratio of earnings to fixed
     charges (g)                              1.7x          --          --        61.5x           --           --           --
   Deficiency in the coverage of
     fixed charges by earnings before
     fixed charges (g)                         --          5.7         6.0          --          45.5        116.5        110.2
Balance Sheet Data (at end of period):
  Current Assets                                         $34.9      $ 28.5                     $19.2        $19.9        $15.0
  Working capital deficit                                (55.7)      (68.7)                    (73.9)       (61.0)       (69.2)
  Net property and equipment                             135.0       117.3                     119.1        111.7         99.4
  Total assets                                           388.0       371.5                     358.8        231.9        123.9
  Long-term debt, excluding current
     portion                                             218.5       195.7                     182.7        207.2          7.3(h)

Other Data:
  EBITDA as defined (i)                                  $33.4      $ 61.6       $ 0.7         $60.6        $43.4       $ 35.7
  Net cash flows provided by
     operating activities                   $ 5.3         21.2        17.1         1.0          23.0          8.8          1.0
  Net cash flows provided by (used
     in) investing activities                17.9       (130.8)       (2.9)         --           5.9        (22.0)       (13.7)
  Net cash flows (used in) provided
     by financing activities                (27.7)       122.9       (19.4)       (6.5)        (26.6)        15.7          6.3
</TABLE>

------------------------------------

(a)  The FRD Predecessor selected financial data for the periods indicated
     represent the financial position and operations of FRI-M, as a wholly owned
     subsidiary of FRI (or its predecessor), and certain subsidiaries of FRI-M
     including those restaurants that made up the Family Restaurant Division and
     the FRD Commissary, both of which were divisions of FRI. The Family
     Restaurant Division primarily consisted of the Coco's and Carrows
     restaurant concepts. The FRI-M selected financial data exclude the
     financial position and operations of FRI-MRD Corporation, a wholly owned
     subsidiary of the FRI-M Corporation which was not acquired by FRD.

(b)  The FRD Successor selected financial data for the periods indicated
     represent the financial position and operations of FRD from the date of
     acquisition of FRI-M (May 23, 1996) to the Effective Date, when fresh start
     reporting was adopted (see (c) below).

                                        9

<PAGE>   12

(c)  As discussed in more detail in Note 2 to the accompanying Consolidated
     Financial Statements, FCI and Flagstar emerged from bankruptcy on January
     7, 1998. The change in ownership of Advantica effected by the resulting
     financial restructuring required that Advantica apply fresh start reporting
     effective January 7, 1998 in accordance with SOP 90-7. Advantica "pushed
     down" the impact of fresh start reporting to the Company. Accordingly, all
     financial statements subsequent to January 7, 1998 are referred to as FRD
     Emerged Successor financial statements, as they reflect periods subsequent
     to the implementation of fresh start reporting and are not comparable to
     the financial statements for periods prior to January 7, 1998.

(d)  The December 26, 1996 data reflects the impact of the acquisition of FRI-M
     by FRD, including, but not limited to, the issuance of $156.9 million of
     Senior Notes, a $56.0 million term loan (under a prior credit facility) and
     the impact of the application of purchase accounting.

(e)  Fiscal year 1997 represents a 53-week period.

(f)  Operating income for the years ended December 29, 1999 and December 27,
     2000 reflect impairment charges of $60.5 million and $68.0 million,
     respectively. For a discussion of these impairment charges, see
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations -- Results of Operations" and Note 7 in the accompanying
     Consolidated Financial Statements.

(g)  For purposes of computing the ratio of earnings to fixed charges or
     deficiency in the coverage of fixed charges by earnings before fixed
     charges, fixed charges consist of interest on debt, amortization of
     deferred financing costs and the interest element in rental payments under
     operating and capital leases (estimated to be one third). Earnings consist
     of income from operations before income taxes, plus fixed charges.

(h)  In accordance with SOP 90-7, long-term debt at December 27, 2000 reflects
     the reclassification of $165.2 million of long-term debt to "Liabilities
     subject to compromise" as a result of the Chapter 11 filing. See Note 9 to
     the accompanying Consolidated Financial Statements.

(i)  "EBITDA as defined" is defined by FRD as operating income before
     depreciation, amortization, management fees payable to Advantica and
     restructuring and impairment charges. For the fiscal years 1999 and 2000,
     impairment charges of $60.5 million and $68.0 million, respectively, have
     been excluded from EBITDA as defined. For a discussion of these impairment
     charges, see "Management's Discussion and Analysis of Financial Condition
     and Results of Operations -- Results of Operations" and Note 7 in the
     accompanying Consolidated Financial Statements. EBITDA as defined is a key
     internal measure used to evaluate the amount of cash flow available for
     debt repayment and funding of additional investments. It is not a measure
     defined by generally accepted accounting principles and should not be
     considered as an alternative to net income or cash flow data prepared in
     accordance with generally accepted accounting principles. FRD's measure of
     EBITDA as defined may not be comparable to similarly titled measures
     reported by other companies; accordingly, EBITDA as defined for FRD
     Predecessor is not presented.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

The following discussion should be read in conjunction with "Selected Financial
Data" and the Consolidated Financial Statements and other more detailed
financial information appearing elsewhere herein. For purposes of providing a
meaningful comparison of the Company's 1998 operating performance, the following
discussion and presentation of the results of operations for the fifty-one weeks
ended December 30, 1998 (FRD Emerged Successor) and the one week ended January
7, 1998 (FRD Successor) will be combined and referred to as the fiscal year
ended December 30, 1998, unless otherwise noted. Where appropriate, the impact
of the adoption of fresh start reporting on the results of operations during
this period will be separately disclosed.

                                       10

<PAGE>   13

RESULTS OF OPERATIONS

2000 RESTAURANT UNIT ACTIVITY


                           ENDING                                    ENDING
                            UNITS                                    UNITS
                        DECEMBER 29,     UNITS        UNITS       DECEMBER 27,
                            1999        OPENED     SOLD/CLOSED      2000 (a)
                           ------       ------     -----------     ----------

Coco's
    Company-owned            148         ---           (4)             144
    Franchised units          34           3           (2)              35
    Licensed units           303           7           (8)             302
                             ---         ---         ----              ---
                             485          10          (14)             481
                             ---          --          ---              ---
Carrows
    Company-owned            117         ---           (3)             114
    Franchised units          28           1           (2)              27
                            ----         ---         ----             ----
                             145           1           (5)             141
                             ===         ---         ----              ---
                             630          11          (19)             622
                             ===          ==          ===              ===
-------------------

(a) No refranchising activity occurred during the year.

                                       11

<PAGE>   14

RESTAURANT OPERATIONS

COCO'S

<TABLE>
<CAPTION>
                                                                                         FISCAL YEAR ENDED
                                                                          -------------------------------------------------
                                                                          DECEMBER 30,      DECEMBER 29,       DECEMBER 27,
                                                                              1998              1999                2000
                                                                             ------            ------              ------

<S>                                                                         <C>                 <C>                 <C>
($ in millions, except average unit and same-store data)
Total systemwide sales                                                      $602.2              $601.6              $625.4
                                                                            ======              ======              ======

Net company sales                                                           $255.7              $219.5              $208.8
Franchise and foreign licensing revenue                                        4.6                 5.8                 5.9
                                                                         ---------            --------           ---------
Total revenue                                                                260.3               225.3               214.7
                                                                           -------             -------             -------


Operating expenses:
   Amortization of reorganization value in excess of amounts
      allocable to identifiable assets                                        22.1                20.8                10.0
   Impairment charge                                                           ---                35.3                39.1
   Other                                                                     245.0               220.7               213.0
                                                                           -------             -------             -------

   Total operating expenses                                                  267.1               276.8               262.1
                                                                           -------             -------             -------
Operating loss                                                             $  (6.8)             $(51.5)           $  (47.4)
                                                                          =======              ======            ========

EBITDA as defined                                                          $  37.9             $  25.3             $  20.4
Average annual unit sales (in thousands):
   Company-owned                                                             1,569               1,472               1,455
   Franchised                                                                1,356               1,310               1,341
Same-store sales decrease (company-owned) (a):                                (0.7)%              (6.2)%              (1.7)%

Operated units:
   Company-owned                                                               150(b)              148(b)              144(b)
   Franchised                                                                   31                  34                  35
   Licensed                                                                    300                 303                 302
                                                                          --------            --------               -----
      Total                                                                    481                 485                 481
                                                                          ========            ========               =====
</TABLE>

(a)  Prior year amounts have not been restated for 2000 comparable units.
(b)  Includes the Company's jojos restaurants (2 as of year ends 1998 and 1999,
     1 as of year end 2000).

2000 VS.  1999

Coco's NET COMPANY SALES for the year ended December 27, 2000 decreased $10.7
million (4.9%) compared to the year ended December 29, 1999. The decrease
reflects lower sales from a decrease in company-owned units along with a 1.7%
decrease in same-store sales. Lower same-store sales resulted from a decrease in
customer traffic partially offset by a higher guest check average. FRANCHISE AND
LICENSING REVENUE remained relatively flat compared to prior year.

Coco's OPERATING EXPENSES decreased $14.7 million (5.3%) compared to 1999,
primarily reflecting the decrease in company-owned units and lower same store
sales. See the FRD Consolidated section below for a discussion of the 2000 and
1999 impairment charges.

EBITDA AS DEFINED decreased $4.9 million (19.4%) for 2000 compared to 1999. This
decrease is the result of factors noted in the preceding paragraphs.

Coco's OPERATING LOSS for 2000 decreased $4.1 million compared to 1999 as a
result of the factors noted above.

                                       12

<PAGE>   15

1999 VS. 1998

Coco's NET COMPANY SALES for the year ended December 29, 1999 decreased $36.2
million (14.2%) compared to the year ended December 30, 1998. The decrease
reflects lower sales from a decrease in the number of company-owned units from
1998. Lower same-store sales resulted from a decline in customer traffic
partially offset by a higher guest check average. FRANCHISE AND LICENSING
REVENUE for 1999 increased $1.2 million (26.1%), primarily attributable to a net
increase in franchised units over 1998.

Coco's OPERATING EXPENSES for 1999 increased $9.7 million (3.6%) compared to
1998. Excluding the impact of a $35.3 million impairment charge, operating
expenses decreased $25.6 million, primarily reflecting the decrease in company-
owned units and lower same-store sales.

EBITDA AS DEFINED decreased $12.6 million (33.2%) for 1999 compared to 1998.
This decrease is the result of factors noted in the preceding paragraphs,
excluding the impairment charge.

Coco's OPERATING LOSS for the year ended December 29, 1999 increased $44.7
million compared to the year ended December 30, 1998 as a result of the factors
noted above.

                                       13

<PAGE>   16

CARROWS


<TABLE>
<CAPTION>
                                                                                            FISCAL YEAR ENDED
                                                                             -------------------------------------------------
                                                                             DECEMBER 30,      DECEMBER 29,       DECEMBER 27,
                                                                                 1998               1999               2000
                                                                                ------             ------             ------

<S>                                                                            <C>                 <C>              <C>
($ in millions, except average unit and same-store data)
Total systemwide sales                                                         $203.8              $190.5           $182.7
                                                                               ======              ======           ======

Net company sales                                                              $185.5              $162.0           $153.9
Franchise revenue                                                                 2.0                 2.5              2.5
                                                                            ---------           ---------        ---------
   Total revenue                                                                187.5               164.5            156.4
                                                                              -------             -------          -------

Operating expenses:
   Amortization of reorganization value in excess of amounts
       allocable to identifiable assets                                          17.9                17.8              8.8
   Impairment charge                                                              ---                25.2             28.9
   Other                                                                        181.8               161.6            154.7
                                                                              -------             -------          -------
   Total operating expenses                                                     199.7               204.6            192.4
                                                                              -------            --------          -------
Operating loss                                                                $ (12.2)            $ (40.1)         $ (36.0)
                                                                              ======              ======          =======


EBITDA as defined                                                              $ 23.4              $ 18.1           $ 15.3

Average annual unit sales (in thousands):
   Company-owned                                                                1,377               1,365            1,318
   Franchised                                                                   1,131               1,052            1,014
Same-store sales decrease (company-owned)(a):                                    (2.0)%              (3.7)%           (2.2)%

Operated units:
    Company-owned                                                                 123                 117              114
    Franchised                                                                     26                  28               27
                                                                            ---------           ---------            -----
       Total                                                                      149                 145              141
                                                                             ========            ========              ===
</TABLE>

----------------------

(a) Prior year amounts have not been restated for 1999 comparable units.


2000 VS.  1999

Carrows' NET COMPANY SALES for the year ended December 27, 2000 decreased $8.1
million (5.0%) compared to the year ended December 29, 1999. The decrease
reflects lower sales from a decrease in the number of company-owned units along
with a 2.2% decrease in same-store sales. Lower same store sales resulted from a
decrease in customer traffic partially offset by a higher guest check average.
FRANCHISE REVENUE for 2000 remained flat compared to 1999.

Carrows' OPERATING EXPENSES decreased $12.2 million (6.0%) compared to 1999,
primarily reflecting the decrease in company-owned units and lower same store
sales. See the FRD Consolidated section below for a discussion of the 2000 and
1999 impairment charges.

EBITDA AS DEFINED decreased by $2.8 million (15.5%) for 2000 compared to 1999.
This decrease is a result of factors noted in the preceding paragraphs.

Carrows' OPERATING LOSS for 2000 decreased $4.1 million compared to 1999 as a
result of the factors noted above.

                                       14

<PAGE>   17

1999 VS. 1998

Carrows' NET COMPANY SALES for the year ended December 29, 1999 decreased $23.5
million (12.7%) compared to the year ended December 30, 1998. The decrease
reflects lower sales from a decrease in the number of company-owned units from
1998. Lower same-store sales resulted from a decline in customer traffic
partially offset by a higher guest check average. FRANCHISE REVENUE for 1999
increased $0.5 million (25.0%), primarily attributable to a net increase in
franchised units over 1998.

Carrows' OPERATING EXPENSES for 1999 increased $4.9 million (2.5%) compared to
1998. Excluding the impact of a $25.2 million impairment charge, operating
expenses decreased $20.3 million, primarily reflecting the decrease in
company-owned units and lower same-store sales.

EBITDA AS DEFINED decreased $5.3 million (22.6%) for 1999 compared to 1998. This
decrease is the result of factors noted in the preceding paragraphs, excluding
the impairment charge.

Carrows' OPERATING LOSS for 1999 increased $27.9 million compared to 1998 as a
result of the factors noted above.

FRD CONSOLIDATED

2000 VS. 1999

The Company's consolidated EBITDA AS DEFINED for 2000 decreased $7.7 million
(17.7%) compared to 1999. This decrease is the result of the factors discussed
in the preceding paragraphs.

CONSOLIDATED INTEREST EXPENSE, NET, increased $1.8 million (7.4%) for 2000
compared to 1999. This increase is the result of higher working capital
borrowings in 2000 as compared to 1999.

The PROVISION FOR INCOME TAXES for the fiscal year ended December 27, 2000
reflects an annual effective income tax rate applied to loss before taxes of
approximately 0.3% compared to a provision reflecting an approximate rate of
16.4% for the fiscal year ended December 29, 1999. The change in the effective
rate relates to the establishment of a valuation allowance in 1999 for certain
assets which, based on projected future taxable income, it is more likely than
not that a tax benefit will not be realized. Accordingly, the tax provision for
1999 primarily relates to the recording of this valuation.

The decrease in CONSOLIDATED NET LOSS of $25.1 million compared to 1999 is the
result of factors noted in the preceding paragraphs.

IMPAIRMENT CHARGES

Due to the presence of certain conditions at December 29, 1999 and December 27,
2000 including the market discount on certain of the Company's debt instruments
and certain operating trends, the Company concluded it should perform an
impairment assessment of the carrying amount of the intangible asset
Reorganization value in excess of amounts allocated to identifiable assets, net
of accumulated amortization ("Reorganization Value") and certain of its other
intangible assets. In performing the analysis, management utilized a discounted
future cash flow model and recorded impairment charges of $60.5 million and
$68.0 million, respectively, representing the difference between the estimated
value of the Company resulting from the cash flow model and the value of the
Company's net assets recorded at December 29, 1999 and December 27, 2000 prior
to recognition of impairment. The December 27, 2000 impairment charge of $68.0
million was first applied to eliminate the remaining $37.1 million balance of
Reorganization Value. The remaining $30.9 million was then applied to intangible
assets, reducing the carrying value of franchise rights and agreements.

                                       15

<PAGE>   18

EXPOSURE TO CURRENCY FLUCTUATIONS

The Company is the licensor of Coco's restaurants primarily in Japan and South
Korea. Royalties due to the Company are paid in foreign currency based on sales
attributable to such Coco's. The receivable balance at December 27, 2000
represents primarily ten months of Coco's Japan royalties expected to be
received in March 2001. Because this royalty is paid annually, the Company has
potential exposure that exchange rates may fluctuate, causing an unfavorable
impact on the receivable balance. At December 27, 2000, the net royalty
receivable amounted to $2.3 million.

1999 VS. 1998

The Company's consolidated EBITDA AS DEFINED for 1999 decreased $17.9 million
(29.2%) compared to 1998. This decrease is a result of the factors discussed in
the preceding paragraphs.

CONSOLIDATED INTEREST EXPENSE, NET, decreased $2.7 million (9.9%) for 1999
compared to 1998. This decrease is primarily due to the timing of the Company's
borrowings on credit facilities.

REORGANIZATION ITEMS recorded in the one week ended January 7, 1998 include the
impact of the adjustment of assets and liabilities to fair value in accordance
with SOP 90-7 as discussed in Note 2 to the Consolidated Financial Statements
included herein.

The PROVISION FOR INCOME TAXES for the fiscal year ended December 29, 1999
reflects an annual effective income tax rate applied to loss before taxes of
approximately 16% compared to an income tax benefit reflecting an approximate
rate of (8%) for the fifty-one weeks ended December 30, 1998. The change in the
effective rate relates to the establishment of a valuation allowance on certain
assets which, based on projected future taxable income, it is more likely than
not that a tax benefit will not be realized. Accordingly, the tax provision for
1999 primarily relates to the recording of this valuation. The provision for the
one week period ended January 7, 1998 of $11.4 million primarily relates to the
tax effect of the revaluation of the Company's assets and liabilities in
accordance with fresh start accounting.

The decrease in CONSOLIDATED NET LOSS of $126.9 million compared to 1998 is a
result of the items previously discussed.

LIQUIDITY AND CAPITAL RESOURCES

Certain of FRD's operating subsidiaries have a $70 million senior secured credit
facility (the "FRD Credit Facility"), which consists of a $30 million term loan
and a $40 million revolving credit facility. At December 27, 2000, the lenders
under the FRD Credit Facility were Credit Lyonnais New York Branch and other
lenders named therein (the "Lenders"), and the facility was guaranteed by
Advantica. FRD obtained from the Lenders a waiver of compliance from certain
third quarter financial covenants until January 8, 2001. Subsequent to year end,
on January 8, 2001, Advantica paid $70 million to the Lenders in full and
complete satisfaction of Advantica's guarantee of the FRD Credit Facility with a
combination of cash on hand and an advance under the Advantica Credit Facility.
As a result of its satisfaction of obligations under its guarantee, Advantica
was subrogated to the rights and collateral of the Lenders. Immediately after
obtaining its subrogation rights, Advantica assigned such rights to its wholly
owned subsidiary, Denny's, Inc. In addition, immediately upon satisfaction of
the guarantee, Advantica designated FRD an "unrestricted subsidiary" pursuant to
the indenture for the Advantica Senior Notes, which limits Advantica's ability
to make further investments in FRD. On February 14, 2001, to facilitate the
divestiture of its Coco's and Carrows brands and to preserve their going concern
value, FRD filed for protection under Chapter 11 of the Bankruptcy Code. FRD's
operating subsidiaries have received certain waivers of default from Denny's,
Inc., as lender under the FRD Credit Facility, with respect to FRD's Chapter 11
filing and to certain covenants for the quarters ending September 27, 2000 and
December 27, 2000. The Company may be required to obtain additional waivers
relative to the FRD Credit Facility within the next 12 months. For additional
information concerning the Chapter 11 filing, see "Business--2001
Restructuring," "Legal Proceedings" and Note 1 to the accompanying Consolidated
Financial Statements.

                                       16

<PAGE>   19

Borrowings under the FRD Credit Facility are to be used for working capital
requirements and other general corporate purposes. Certain letters of credit may
be issued under the revolving credit facility. All borrowings under the FRD
Credit Facility accrue interest at a variable rate based on the prime rate or an
adjusted Eurodollar rate (approximately 9.7% at December 27, 2000) and are
secured by substantially all of the assets of FRD and its subsidiaries and by
the issued and outstanding stock of FRI-M and its subsidiaries. Principal
installments on the term loan will be payable as follows: $2.0 million per
quarter for three consecutive quarters beginning June 30, 2001; $3.0 million per
quarter for four consecutive quarters beginning March 31, 2002; and $6.0 million
for two consecutive quarters beginning March 31, 2003. At December 27, 2000, FRD
and its subsidiaries had $30.0 million outstanding term loan borrowings, working
capital borrowings of $9.2 million and letters of credit outstanding of $16.2
million.

On January 16, 2001, FRD elected not to make the interest payment due and
payable with respect to the Senior Notes. As a result of this nonpayment, and as
a result of FRD's Chapter 11 filing on February 14, 2001, FRD is in default
under the indenture governing the Senior Notes. Therefore, the Senior Notes are
included in "Liabilities subject to compromise" in the accompanying Consolidated
Balance Sheets. As described in more detail in "Business--2001 Restructuring"
and Note 1 to the accompanying Consolidated Financial Statements, the bankruptcy
filings operate as an automatic stay of all collection and enforcement actions
by the holders of the Senior Notes with respect to the Debtor's failure to make
the interest payments when due.

The FRD Credit Facility and the indenture governing the Senior Notes contain a
number of restrictive covenants which, among other things, limit (subject to
certain exceptions) FRD and its subsidiaries with respect to the incurrence of
debt, existence of liens, investments and joint ventures, the declaration or
payment of dividends, the making of guarantees and other contingent obligations,
mergers, the sale of assets, capital expenditures and material change in their
business. In addition, the FRD Credit Facility contains certain financial
covenants including provisions for the maintenance of a minimum level of
interest coverage (as defined), limitations on ratios of indebtedness (as
defined) to earnings before interest, taxes, depreciation and amortization
(EBITDA) and limitations on annual capital expenditures. As discussed above,
FRD's operating subsidiaries have received certain waivers of default from
Denny's, Inc., as lender under the FRD Credit Facility, with respect to FRD's
Chapter 11 filing and to certain covenants for the quarters ending September 27,
2000 and December 27, 2000. The cash flows from FRD are required to be used
first to service the Company's indebtedness under the FRD Credit Facility and
the Senior Notes and, therefore, other than for payments made under the FRD
Credit Facility, FRD's cash flows are generally unavailable to service the debt
of Advantica and its other subsidiaries.

As of December 27, 2000, scheduled maturities of long-term debt not subject to
compromise for the years 2001 and thereafter are as follows (in millions):

                YEAR:
                -----
                2001                                $41.9
                2002                                  2.6
                2003                                  1.9
                2004                                  1.3
                2005                                  0.5
                Thereafter                            1.0

FRD's principal capital requirements are those associated with opening new
restaurants and remodeling and

                                       17

<PAGE>   20

maintaining its existing restaurants and facilities. During 2000, total capital
expenditures were approximately $13.9 million. Of the total capital
expenditures, approximately $0.2 million were financed through capital leases.
Capital expenditures during 2001 are expected to total approximately $5.0
million to $10.0 million; however, the Company is not committed to spending this
amount and could spend less if circumstances warrant.

At December 27, 2000, the Company's working capital deficit was $69.2 million
compared to $61.0 million at December 29, 1999. FRD historically operates with a
working capital deficit because (1) restaurant operations are conducted
primarily on a cash (and cash equivalent) basis with a low level of accounts
receivable, (2) rapid turnover allows a limited investment in inventories and
(3) cash from sales is usually received before related accounts payable for
food, beverage and supplies become due.

SFAS 133 AND SFAS 138 IMPLEMENTATION

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement established
accounting and reporting standards for derivative financial instruments and for
hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The accounting for changes in fair value of the derivative (i.e.,
gains and losses) depends on the intended use of the derivative and the
resulting designation. In June 2000, the FASB issued Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities -- an amendment of FASB Statement No. 133" ("SFAS
138"), which amends certain provisions of SFAS 133 to clarify areas causing
difficulties in implementation, including expanding the normal purchase and sale
exemption for supply contracts. Advantica appointed a team to implement SFAS 133
for the entire entity. This team has implemented a SFAS 133 risk management
process and has been educating both financial and nonfinancial personnel,
reviewing contracts to identify derivatives and embedded derivatives and
addressing various other SFAS 133-related issues. Advantica adopted SFAS 133 and
the corresponding amendments under SFAS 138 at the beginning of fiscal year
2001, in accordance with Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133." SFAS 133, as amended by SFAS 138, is
not expected to have a material impact on the Company's consolidated results of
operations, financial position or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The Company has exposure to interest rate risk related to certain instruments
entered into for other than trading purposes. Specifically, the Company has in
place the FRD Credit Facility, which consists of a $30 million term loan and a
$40 million revolving credit facility. Borrowings under the FRD Credit Facility
bear interest based on the prime rate or an adjusted Eurodollar rate
(approximately 9.7% at December 27, 2000). The Company's other outstanding
long-term debt bears fixed rates of interest. While changes in the prime rate
and Eurodollar rate could affect the cost of funds borrowed in the future,
existing amounts outstanding are at fixed rates; therefore, the Company believes
the effect, if any, of reasonably possible near-term changes in interest rates
on the Company's consolidated financial position, results of operations and cash
flows would not be significant.

The Company does not use derivative instruments for trading purposes. No
interest rate derivatives were in place at December 27, 2000.

FOREIGN CURRENCY EXCHANGE RATE RISK

The Company has exposure to foreign exchange rate risk related to certain
foreign currency transactions. In order to mitigate this risk, the Company from
time to time has entered into foreign exchange forward contracts. The Company

                                       18

<PAGE>   21

does not speculate on the future direction of foreign currency exchange rates
nor does the Company use these derivative financial instruments for trading
purposes. No foreign exchange risks were in place at December 27, 2000.

COMMODITY PRICE RISK

The Company purchases certain products such as beef, poultry, pork and coffee
which are affected by commodity pricing and are, therefore, subject to price
volatility caused by weather, production problems, delivery difficulties and
other factors that are outside the Company's control and which are generally
unpredictable. Changes in commodity prices affect the Company and its
competitors generally and often simultaneously. In general, the food products
purchased by the Company are purchased based upon market prices established with
vendors. Although many of the items purchased are subject to changes in
commodity prices, certain purchasing arrangements are structured to contain
features that minimize price volatility by establishing price ceilings and/or
floors. The Company uses these types of purchase arrangements to control costs
as an alternative to using financial instruments to hedge commodity prices. In
many cases, the Company believes it will be able to address commodity cost
increases which are significant and appear to be long-term in nature by
adjusting its menu pricing or changing its product delivery strategy. However,
competitive circumstances could limit such actions and in those circumstances
increases in commodity prices could result in lower margins for the Company.
Because of the often short-term nature of commodity pricing aberrations and the
ability of the Company to change menu pricing or product delivery strategies in
response to commodity price increases, the Company believes that the impact of
commodity price risk is not significant.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Financial Statements and Financial Statement Schedule which appears
on page F-1 herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information with respect to each director of FRD.


                              Current Principal Occupation or
Name                  Age     Employment and Five-Year Employment History
----                  ---     -------------------------------------------

James B. Adamson       53     Director and Chairman of the Board of Directors of
                              FRD (1996-present); Chief Executive Officer and
                              President of Advantica (1995-February 2001); Chief
                              Executive Officer and President of Denny's, Inc.
                              ("Denny's") (2000-February 2001); Director of
                              Advantica and Kmart Corporation.

Vera K. Farris         60     Director of FRD; President of the Richard Stockton
                              College of New Jersey (1983-present); Director of
                              Advantica and National Utilities Investors, Inc.

James J. Gaffney       60     Director of FRD; Vice Chairman, Viking Pacific
                              Holdings Limited, a diversified holding company
                              headquartered in Auckland, New Zealand with
                              approximately 23 different businesses based
                              primarily in New Zealand (1998-present); Chairman,
                              Vermont Investments Limited, a diversified holding
                              company involved in manufacturing and distribution
                              (1997-1998); President and Chief Executive
                              Officer, General Aquatics, Inc., a company
                              involved in swimming pool equipment manufacturing
                              and construction (1995-1997); Director of
                              Advantica, SCP Pool Corporation, Hexcel
                              Corporation, Hvide Marine Incorporated, Safelite
                              Glass Corporation and Purina Mills, Inc.

                                       19

<PAGE>   22

                              Current Principal Occupation or
Name                  Age     Employment and Five-Year Employment History
----                  ---     -------------------------------------------

Darrell Jackson        44     Director of FRD; President and Chief Executive
                              Officer of Sunrise Enterprise of Columbia, Inc., a
                              public relations, marketing and consulting firm
                              (1992-present); State Senator, South Carolina
                              Senate (1992-present); Pastor of the Bible Way
                              Church, Columbia, South Carolina (1995-present).

Nelson J. Marchioli    51     Director of FRD; Chief Executive Officer and
                              President of Advantica and Denny's (February 2001-
                              present); President of El Pollo Loco, Inc.
                              (1997-February 2001); Executive Vice President and
                              Chief Operating Officer of Bruegger's Corporation
                              (1996-1997); Senior Vice President of Worldwide
                              Supply for Burger King Corporation (1995-1996);
                              Director of Advantica.

Robert E. Marks        49     Director of FRD; President of Marks Ventures,
                              Inc., New York, New York, a private equity
                              investment firm (1994-present); Managing Director
                              of Carl Marks & Co., Inc. (1982-1994); Director of
                              Advantica and Robert Fleming Capital Mutual Fund
                              Group, Inc.

Lloyd I. Miller, III   46     Director of FRD; Registered Investment Advisor
                              (1990-present); Director of Advantica.

Charles F. Moran       71     Director of FRD; Retired; Senior Vice President of
                              Administration of Sears, Roebuck and Co. (1989-
                              1993); Senior Vice President and Chief Information
                              Officer of Sears, Roebuck and Co. (1988-1989);
                              Director of Advantica and Leapnet, Inc.

Elizabeth A. Sanders   55     Director of FRD; Principal of The Sanders
                              Partnership, Sutter Creek, California, a
                              consulting firm (1990-present); Vice President and
                              General Manager of Nordstrom, Inc. (1981-1990);
                              Director of Advantica, Washington Mutual, Inc.,
                              Wal-Mart Stores, Inc., Wellpoint Health Networks,
                              Inc. and Wolverine Worldwide, Inc.

Donald R. Shepherd     64     Director of FRD; Retired; Chairman of Loomis,
                              Sayles & Company, L.P., Boston, Massachusetts, an
                              investment management firm (1992-1995); Chief
                              Executive Officer and Chief Investment Officer of
                              Loomis, Sayles & Company, L.P. (1990-1995);
                              Director of Advantica, Hvide Marine Incorporated
                              and Geneva Steel Holdings Corporation.


Raul R. Tapia          52     Director of FRD; Principal of Murray, Scheer,
                              Montgomery, Tapia and O'Donnell, Washington, D.C.,
                              a consulting firm representing domestic and
                              international public and corporate sector
                              organizations before congress, the executive
                              branch and federal agencies (1993-present).

                                       20

<PAGE>   23

EXECUTIVE OFFICERS OF FRD

The following table sets forth information with respect to each executive
officer of FRD.


                              Current Principal Occupation or
Name                  Age     Employment and Five-Year Employment History
----                  ---     -------------------------------------------

David O. Devoy         50     President and Chief Financial Officer of FRD
                              (2000-present); Senior Vice President, Finance and
                              Chief Financial Officer of FRD (1998-2000); Vice
                              President and Chief Financial Officer of Flagstar
                              Enterprises, Inc. and Quincy's Restaurants, Inc.
                              (1996-1998); Vice President-Operations Finance of
                              Burger King (1994-1996).

Ronald B. Hutchison    51     Executive Vice President of FRD (1998-present);
                              Executive Vice President and Chief Financial
                              Officer of Advantica (1998-present); Executive
                              Vice President and Chief Financial Officer of
                              Denny's (2000-January 2001); Vice President and
                              Treasurer of Advantica (1995-1998); Vice President
                              and Treasurer of FRD (1996-1998).

Rhonda J. Parish       44     Executive Vice President of FRD (1998-present);
                              General Counsel and Secretary of FRD (1998-
                              present); Executive Vice President of Advantica
                              (1998-present); General Counsel and Secretary of
                              Advantica (1995-present); Senior Vice President of
                              FRD (1996-1998); Senior Vice President of
                              Advantica (1995-1998).

Susan L. Alexis        41     Vice President, Operations of FRI-M
                              (1998-present); Regional Director of Operations of
                              Carrows Restaurants, Inc. (1996-1998).

Anthony A. Barr        46     Vice President of Development of FRI-M
                              (2000-present); Director of Operations of FRI-M
                              (1999-2000); District Manager of Coco's
                              Restaurants, Inc. (1985-1999)

Beth L. Libhart        47     Vice President, Human Resources of FRI-M
                              (1996-present); Director of Human Resources of
                              Family Restaurants, Inc., Irvine California
                              (1990-1996).

Pamela Tindall-Becker  52     Vice President, Marketing of FRI-M (2000-present);
                              Senior Director of Marketing of Carrows
                              Restaurants, Inc. (1998-2000); Vice President,
                              Director of Client Services of Valdes Zacky
                              Advertising, Los Angeles, California (1997-1998);
                              Vice President, Management Supervisor, Davis Elen
                              Advertising, San Francisco, California.

Messrs. Adamson, Hutchison, Marchioli and Ms. Parish served as executive
officers of FCI and FC during the Chapter 11 bankruptcy proceeding involving
both entities as described in "Business -- Introduction." Additionally, each
listed executive officer served FRD as an executive officer at the time of FRD's
Chapter 11 filing described further in "Business -- 2001 Restructuring."

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The Registrant does not have a class of equity securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act").
Consequently, there were no filing requirements under Section 16(a) of the
Exchange Act applicable to the Registrant's executive officers, directors or
more than 10% beneficial owners.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

The following summary compensation table sets forth, for the Company's last
three completed fiscal years, the compensation provided to the Company's
President and four most highly compensated executive officers, other than the
President, who were serving as executive officers at the end of 2000.

                                       21

<PAGE>   24

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                LONG-TERM
                                                                                              COMPENSATION
                                                                                                 AWARDS
                                                                                               -------------
                                                                           ANNUAL               SECURITIES         ALL OTHER
                                                                      COMPENSATION (1)          UNDERLYING        COMPENSATION
NAME AND PRINCIPAL POSITION                            YEAR      SALARY($)(2)  BONUS($)(3)     OPTIONS(#)(6)         ($)(4)
---------------------------                            ----      ------------  -----------     -------------         ------

<S>                                                    <C>           <C>          <C>              <C>                <C>
David O. Devoy                                         2000         $284,022      $30,000             --             $118,682
   President and Chief Financial                       1999          240,827       19,136           25,000            137,687
   Officer of FRD                                      1998          161,980       65,875           40,000            117,789

Craig S. Bushey                                        2000          211,247       60,125             --              227,320
   Former President of FRD(5)                          1999          334,183      230,753          150,000            109,519
                                                       1998          320,992      211,255          150,000            319,973

Ronald B. Hutchison                                    2000          330,514      122,850             --              227,950
   Executive Vice President                            1999          301,535      178,753          150,000            186,160
   of FRD                                              1998          267,174      162,505          150,000            158,750

Rhonda J. Parish                                       2000          297,713      111,150             --              226,666
   Executive Vice President,                           1999          277,575      175,500          150,000            185,639
   General Counsel and Secretary of FRD                1998          247,951      146,250          150,000            153,880

Paul R. Wexler                                         2000          243,101       95,552             --              224,982
   Former Executive Vice President,                    1999          233,285      152,577          150,000            184,220
   Procurement and Distribution of FRD                 1998          227,417      146,250          150,000            157,700

Stephen W. Wood                                        2000          265,967       99,450             --              225,425
   Executive Vice President, Human Resources           1999          245,924      152,577          150,000            184,351
   and Corporate Affairs of FRI-M Corporation          1998          231,272      146,250          150,000            155,360
</TABLE>

-----------------------

(1)  The amounts shown for each named executive officer exclude perquisites and
     other personal benefits that did not exceed, in the aggregate, the lesser
     of either $50,000 or 10% of the total of annual salary and bonus reported
     for the named executive officer for any year included in this table.

(2)  The amounts in this column include certain costs and credits to the named
     executive officers relating to certain life, health and disability
     insurance coverage provided through the Company.

(3)  The amounts shown in this column reflect bonus payments received in the
     respective year by the named executive officers under the Company's
     incentive programs which may relate to the prior fiscal year.

(4)  The amounts for Ms. Parish and Messrs. Devoy, Bushey, Hutchison, Wexler and
     Wood include company contributions made to such officers' accounts under
     the Advantica Secured Savings Plan, which for 2000 amounted to $11,666,
     $8,682, $4,952, $12,950, $9,982 and $10,425 respectively, for 1999 amounted
     to $10,639, $7,687, $8,557, $11,160, $9,220 and $9,351 respectively, and
     for 1998 amounted to $3,880, $2,883, $4,588, $8,750, $7,700 and $5,360,
     respectively. With the exception of Messrs. Devoy and Bushey, each named
     executive officer's amounts reflect leadership retention payments of
     $215,000 in 2000, $175,000 in 1999 and $150,000 in 1998. The amounts for
     Mr. Devoy reflect leadership retention payments in 2000, 1999 and 1998 of
     $70,000, $100,000 and $50,000, respectively. The amounts for Mr. Bushey
     reflect leadership retention payments in 2000, 1999 and 1998 of $175,000,
     $50,000 and $275,000, respectively. The remaining amounts shown for
     Messrs. Devoy and Bushey for 2000, 1999 and 1998 reflect additional
     compensation and/or reimbursement paid to each of them at or near the time
     of, or otherwise in connection with his initial employment or subsequent
     relocation with the Company.

(5)  Mr. Bushey served as President of FRD for the months of January and
     February 2000 before becoming the chief operating officer of Denny's, Inc.
     a member of the same affiliated group as FRD. Mr. Bushey passed away in
     June 2000. His compensation totals for 2000 reflect combined amounts earned
     at Denny's and FRD.

(6)  The amounts for Ms. Parish and Messrs. Hutchison, Wexler and Wood for 1998
     each include an option to purchase 100,000 shares which was subsequently
     rescinded by the named executive officer and effectively cancelled and
     terminated as of August 15, 2000.

STOCK OPTIONS

There were no stock options granted to the named executive officers during the
fiscal year ended December 27, 2000. The following table sets forth information
with respect to the 2000 year-end values of unexercised options, all of which
were

                                       22

<PAGE>   25

granted pursuant to the Advantica Stock Option Plan, held by each of the persons
named in the Summary Compensation Table above.


                     AGGREGATED OPTION EXERCISES IN 2000 AND
                          FISCAL YEAR-END OPTION VALUES



                                                              VALUE OF
                                        NUMBER OF            UNEXERCISED
                                        SECURITIES             IN-THE-
                                        UNDERLYING          MONEY OPTIONS
                                       UNEXERCISED            AT FISCAL
                                    OPTIONS AT FISCAL         YEAR-END
                                      YEAR-END (#)               ($)
                                    -----------------       -------------
                                       EXERCISABLE/         EXERCISABLE/
NAME                                  UNEXERCISABLE         UNEXERCISABLE
----                                -----------------       -------------

David O. Devoy...................      31,250/33,750            --/--
Ronald B. Hutchison..............     62,500/137,500            --/--
Rhonda J. Parish.................     62,500/137,500            --/--
Paul R. Wexler...................     62,500/137,500            --/--
Stephen W. Wood..................     62,500/137,500            --/--

No options held by the above named executive officers were exercised in 2000.

COMPENSATION OF DIRECTORS

Messrs. Jackson and Tapia receive from FRD, as compensation for their service on
the FRD Board of Directors, an annual cash retainer of $20,000 (paid in four
quarterly installments). The remaining directors (other than Messrs. Adamson and
Marchioli) receive from Advantica an annual cash retainer of $30,000 (paid in
four quarterly installments) for their service on both the FRD and Advantica
boards. Additionally, each FRD director receives an annual restricted stock
award and an award of stock options every three years.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Registrant has no Compensation Committee. Ms. Parish and Mr. Wood, executive
officers of FRD and Advantica during the fiscal year ended December 27, 2000,
participated in deliberations of the Advantica Board of Directors concerning the
compensation of FRD executive officers.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

All of the equity securities of FRD are owned by its parent Advantica.
Consequently, there are no other beneficial owners of FRD equity securities.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the fiscal year 2000, FRD loaned $75,377.91, pursuant to a promissory
note, to David O. Devoy, President of FRD, and his wife for the payment of
certain professional fees incurred during the year by the Devoys. The
promissory note is secured by future bonus payments potentially due Mr. Devoy
under the Company's incentive bonus program. Additionally, for information with
respect to the transactions during the year between FRD and its parent,
Advantica, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Notes 10 and 16
to the Consolidated and Combined Financial Statements included herein.

INFORMATION REGARDING CERTAIN INDEBTEDNESS

The following information regarding certain indebtedness of the Company does not
purport to be complete and is qualified in its entirety by reference to the
documents governing such indebtedness, including the definitions of certain

                                       23

<PAGE>   26

terms therein, which have been filed as exhibits to the Company's filings with
the Commission. Whenever particular provisions of such documents are referred to
herein, such provisions are incorporated herein by reference and the statements
are qualified in their entirety by such reference. See Note 10 to the
accompanying Consolidated Financial Statements for additional information
regarding the Company's indebtedness and the terms thereof (including
indebtedness under the FRD Credit Facility).

THE SENIOR NOTES

In connection with the May 23, 1996 acquisition of FRI-M, FRD issued $156.9
million principal amount of Senior Notes. The Senior Notes are senior unsecured,
general obligations of FRD and rank senior in right of payment to all existing
and future subordinated indebtedness of FRD and rank pari passu in right of
payment with all existing and future unsubordinated indebtedness of FRD. The
Senior Notes are effectively subordinated to secured indebtedness of FRD,
including FRD's guaranty of borrowings under the FRD Credit Facility to the
extent of the value of FRD's assets securing such guaranty. Borrowings under the
FRD Credit Facility are secured by substantially all of the Company's assets.
The Senior Notes are structurally subordinated to all indebtedness of FRI-M,
including its indebtedness under the FRD Credit Facility. Interest on the Senior
Notes accrues at the rate of 12 1/2% per annum and is payable semi-annually in
arrears on January 15 and July 15.

The Senior Notes, by their terms, mature on July 15, 2004. They will be
redeemable, in whole or in part, at the option of FRD at any time on or after
May 23, 2001, initially at a redemption price equal to 105.0% of the principal
amount thereof to and including May 22, 2002, at 102.5% of the principal amount
thereof to and including May 22, 2003, and thereafter at 100% of the principal
amount thereof, together in each case with accrued interest.

On January 16, 2001, FRD elected not to make the interest payment due and
payable with respect to the Senior Notes. As a result of this nonpayment, and as
a result of FRD's Chapter 11 filing on February 14, 2001, FRD is in default
under the indenture governing the Senior Notes. As described in more detail in
"Business--2001 Restructuring" and Note 1 to the accompanying Consolidated
Financial Statements, the bankruptcy filings operate as an automatic stay of all
collection and enforcement actions by the holders of the Senior Notes with
respect to the Debtor's failure to make the interest payments when due.

                                     PART IV

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  (1)   Financial Statements:
           See the Index to Financial Statements and Financial Statement
           Schedule which appears on page F-1 hereof.
     (2)   Financial Statement Schedules:
           See the Index to Financial Statements and Financial Statement
           Schedule which appears on page F-1 hereof.
     (3)   Exhibits:
           Certain of the exhibits to this report, indicated by an asterisk, are
           hereby incorporated by reference to other documents on file with the
           Commission with which they are physically filed, to be a part hereof
           as of their respective dates.

                                       24

<PAGE>   27

Exhibit
   No.    Description
-------   -----------

*3.1      Certificate of Incorporation of FRD (incorporated by reference to
          Exhibit 3.1 to Registration Statements on Forms S-1 and S-4 dated as
          of September 6, 1996 (No. 333-07601) of FRD (the "FRD Form S-4")).
*3.2      Amendment to the Bylaws of FRD, dated May 24, 1996 (incorporated by
          reference to Exhibit 3.2.1. to FRD's annual report on Form 10-K for
          the period ended December 26, 1996).
*3.2.1    Amendment to the Bylaws of FRD, dated May 24, 1996 (incorporated by
          reference to Exhibit 3.2.1. to FRD's annual report on Form 10-K for
          the period ended December 26, 1996).
*4.1      Indenture dated as of May 23, 1996 between FRD and the Bank of New
          York, as Trustee (the "Indenture") (incorporated by reference to
          Exhibit 4.1 to the FRD Form S-4).
*10.1     Tax Sharing and Allocation Agreement dated as of May 23, 1996 among
          FCI, FRI-M and FRD (incorporated by reference to Exhibit 10.2 to the
          FRD Form S-4).
*10.2     Management Services Agreement dated as of May 24, 1996 between FRD and
          Flagstar (incorporated by reference to Exhibit 10.3 to the FRD Form
          S-4).
*10.3     Technical Assistance and License Agreement, dated as of April 14,
          1995, between Coco's Restaurant, Inc. and Coco's Japan Co., Ltd
          (incorporated by reference to Exhibit 10.5 to the FRD Form S-4).
*10.4     Advantica Restaurant Group Stock Option Plan, as adopted January 28,
          1998 and amended through September 28, 1998 (incorporated by reference
          to Exhibit 10.2 to Advantica's quarterly report on Form 10-Q for the
          period ended September 30, 1998 (the "Advantica 1998 Third Quarter
          10-Q")).
*10.5     Advantica Restaurant Group Officer Stock Option Plan, as adopted
          January 28, 1998 and amended through September 28, 1998 (incorporated
          by reference to Exhibit 10.3 to Advantica's 1998 Third Quarter 10-Q).
*10.6     Merger Amendment, dated March 15, 1999, to the Advantica Restaurant
          Group Stock Option Plan and the Advantica Restaurant Group Officer
          Stock Option Plan (incorporated by reference to Exhibit 10.5 to
          Advantica's Quarterly Report on Form 10-Q for the quarter ended March
          31, 1999 ("Advantica's 1999 First Quarter Form 10-Q")).
*10.7     Advantica Stock Option Plan as amended through March 15, 1999
          (incorporated by reference to Exhibit 10.5 to Advantica's 1999 First
          Quarter Form 10-Q).
*10.8     Credit Agreement, dated May 14, 1999, among Coco's Restaurants, Inc.,
          Carrows Restaurants, Inc., and jojo's Restaurants, Inc., as borrowers,
          FRD and FRI-M, as guarantors, the lenders named therein, Credit
          Lyonnias New York Branch as administrative agent, and The Chase
          Manhattan Bank, as documentation agent and syndication agent
          (incorporated by reference to Exhibit 10.1 to Advantica's Quarterly
          Report on Form 10-Q for the quarter ended June 30, 1999).
99        Safe Harbor Under the Private Securities Litigation Reform Act of
          1995.

------------------------

(b)  No reports on Form 8-K were filed during the quarter ended December 27,
     2000.

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

No annual report or proxy material has been provided to the security holders of
FRD.

                                       25

<PAGE>   28

                               FRD ACQUISITION CO.

         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                                                                            PAGE
                                                                            ----
Independent Auditors' Report                                                 F-2

Statements of Consolidated Operations for the One Week Ended January
7, 1998 (FRD Successor) and for the Fifty-One Weeks Ended December 30,
1998 and Fiscal Years Ended December 29, 1999 and December 27, 2000
(FRD Emerged Successor)                                                      F-4

Consolidated Balance Sheets as of December 29, 1999 and December 27, 2000    F-5

Statements of Consolidated Cash Flows for the One Week Ended January
7, 1998 (FRD Successor) and for the Fifty-One Weeks Ended December 30,
1998 and Fiscal Years Ended December 29, 1999 and December 27, 2000
(FRD Emerged Successor)                                                      F-6

Notes to Consolidated Financial Statements                                   F-8

Financial Statement Schedule: Condensed Financial Information of Registrant  S-1


                                       F-1

<PAGE>   29

INDEPENDENT AUDITORS' REPORT

Board of Directors
FRD Acquisition Co.:

We have audited the accompanying consolidated balance sheets of FRD Acquisition
Co. and subsidiaries (Debtor-in- Possession) (the "Company") as of December 27,
2000 and December 29, 1999 and the related statements of consolidated operations
and consolidated cash flows for the fiscal years ended December 27, 2000 and
December 29, 1999 and the fifty-one week period ended December 30, 1998 (FRD
Emerged Successor operations), and for the one-week period ended January 7, 1998
(FRD Successor operations). Our audits also included the financial statement
schedule listed in the Index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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.

As discussed in Note 2 to the consolidated financial statements, on November 12,
1997, the Bankruptcy Court entered an order confirming the plan of
reorganization of the Company's parent, Advantica Restaurant Group, Inc., which
became effective after the close of business on January 7, 1998. Accordingly,
the accompanying consolidated financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "Financial Reporting for
Entities in Reorganization Under the Bankruptcy Code," for the FRD Emerged
Successor Company as a new entity with assets, liabilities, and a capital
structure having carrying values not comparable with prior periods as described
in Note 2.

In our opinion, the FRD Emerged Successor's consolidated financial statements
present fairly, in all material respects, the consolidated financial position of
the Company as of December 27, 2000 and December 29, 1999 and the results of its
consolidated operations and consolidated cash flows for the fiscal years ended
December 27, 2000 and December 29, 1999 and the fifty-one week period ended
December 30, 1998 in conformity with accounting principles generally accepted in
the United States of America. Further, in our opinion, the FRD Successor's
consolidated financial statements present fairly, in all material respects, the
results of its consolidated operations and its consolidated cash flows for the
one-week period ended January 7, 1998 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As discussed in Note 1, the Company has filed for reorganization under Chapter
11 of the Federal Bankruptcy Code. The accompanying consolidated financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such consolidated financial statements do
not purport to show (a) as to assets, their realizable value on a liquidation
basis or their availability to satisfy liabilities; (b) as to prepetition
liabilities, the amounts that may be allowed for claims or contingencies, or the
status and priority thereof; (c) as to stockholder accounts, the effect of any
changes that may be made in the capitalization of the Company; or (d) as to
operations, the effect of any changes that may be made in its business.

                                       F-2

<PAGE>   30

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 1 and
10, the Company's continued deterioration in operating performance and failure
to make the scheduled January 16, 2001 interest payment on its Senior Notes
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also discussed in Note 1. The
consolidated financial statements do not include adjustments that might result
from the outcome of this uncertainty.


DELOITTE & TOUCHE LLP
GREENVILLE, SOUTH CAROLINA
FEBRUARY 14, 2001


                                       F-3

<PAGE>   31

                               FRD ACQUISITION CO.

                      STATEMENTS OF CONSOLIDATED OPERATIONS


<TABLE>
<CAPTION>
                                                       FRD
                                                    SUCCESSOR                    FRD EMERGED SUCCESSOR
                                                    ---------       -------------------------------------------------
                                                     ONE WEEK        FIFTY-ONE               FISCAL YEAR ENDED
                                                      ENDED         WEEKS ENDED        ------------------------------
                                                    JANUARY 7,      DECEMBER 30,       DECEMBER 29,      DECEMBER 27,
                                                       1998             1998              1999               2000
                                                    ---------         --------          ---------         ---------
<S>                                                 <C>               <C>               <C>               <C>
(In thousands)
Revenue:
   Company restaurant sales                         $   8,266         $432,930          $ 381,474         $ 362,721
   Franchise and foreign licensing revenue                141            6,462              8,316             8,339
                                                    ---------         --------          ---------         ---------
      Total operating revenue                           8,407          439,392            389,790           371,060
                                                    ---------         --------          ---------         ---------
Cost of company restaurant sales:
   Product cost                                         2,255          119,467             99,917            95,164
   Payroll and benefits                                 3,193          162,916            148,709           144,701
   Occupancy                                              521           25,541             22,211            20,330
   Other operating expenses                             1,331           62,030             54,187            52,214
                                                    ---------         --------          ---------         ---------
      Total cost of company restaurant sales            7,300          369,954            325,024           312,409
Franchise restaurant costs                                 47            2,731              3,895             3,499
General and administrative expenses                       291           15,037             15,427            16,958
Management fees to Advantica                               84            4,381              3,873             3,689
Allocated costs from Advantica                             48            2,202              2,600             2,548
Amortization of reorganization value in
   excess amounts allocable to identifiable
   assets                                                  --           40,051             38,586            18,743
Depreciation and other amortization                       591           35,271             32,034            28,732
Impairment charge                                          --               --             60,500            68,000
Gains on refranchising and other, net                      --          (11,157)              (528)              (67)
                                                    ---------         --------          ---------         ---------
      Total operating costs and expenses                8,361          458,470            481,411           454,511
                                                    ---------         --------          ---------         ---------
Operating income (loss)                                    46          (19,078)           (91,621)          (83,451)
                                                    ---------         --------          ---------         ---------
Other expenses:
   Interest expense, net                                  585           26,897             24,769            26,607
   Other nonoperating expenses (income), net               --             (515)               116               117
                                                    ---------         --------          ---------         ---------
      Total other expenses, net                           585           26,382             24,885            26,724
                                                    ---------         --------          ---------         ---------
Loss before reorganization items and taxes               (539)         (45,460)          (116,506)         (110,175)
Reorganization items                                  (44,993)              --                 --                --
                                                    ---------         --------          ---------         ---------
Income (loss) before taxes                             44,454          (45,460)          (116,506)         (110,175)
Provision for (benefit from) income taxes              11,367           (3,652)            19,151               384
                                                    ---------         --------          ---------         ---------
Net income (loss)                                   $  33,087         $(41,808)         $(135,657)        $(110,559)
                                                    =========         ========          =========         =========
</TABLE>

                 See notes to consolidated financial statements.

                                       F-4

<PAGE>   32

                               FRD ACQUISITION CO.

                           CONSOLIDATED BALANCE SHEETS


                                                   DECEMBER 29,     DECEMBER 27,
                                                      1999             2000
                                                    ---------       ---------

(In thousands)
ASSETS
Current Assets:
   Cash and cash equivalents                        $   8,392       $   1,989
   Receivables                                          4,852           4,755
   Inventories                                          2,700           2,767
   Other                                                3,941           5,471
                                                    ---------       ---------
                                                       19,885          14,982
                                                    ---------       ---------
Property and equipment                                164,644         175,436
Accumulated depreciation                              (52,975)        (76,083)
                                                    ---------       ---------
                                                      111,669          99,353
                                                    ---------       ---------
Other Assets:
   Reorganization value in excess of amounts
     allocable to identifiable assets, net             55,812              --
   Other intangibles, net                              39,406           5,763
   Other                                                5,102           3,822
                                                    ---------       ---------
                                                      100,320           9,585
                                                    ---------       ---------
                                                    $ 231,874       $ 123,920
                                                    =========       =========

LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
   Current maturities of long-term debt             $   2,770       $  41,909
   Accounts payable                                    19,293          16,678
   Accrued salaries and vacation                        7,858           7,870
   Accrued insurance                                    3,627           3,039
   Accrued interest                                     9,491             498
   Payable to Advantica                                23,809              --
   Other                                               14,025          14,219
                                                    ---------       ---------
                                                       80,873          84,213
                                                    ---------       ---------
Long-Term Liabilities:
   Debt, less current maturities                      207,164           7,323
   Liability for insurance claims                       7,817           5,992
   Other noncurrent liabilities                        13,766          11,078
                                                    ---------       ---------
                                                      228,747          24,393
                                                    ---------       ---------
Total liabilities not subject to compromise           309,620         108,606
Liabilities subject to compromise                          --         203,619
                                                    ---------       ---------
Total liabilities                                     309,620         312,225
                                                    ---------       ---------

Commitments and Contingencies

Stockholder's Deficit:
   Common stock: par value $0.10; 1,000 shares
     authorized, issued and outstanding                    --              --
   Paid-in capital                                     99,719          99,719
   Deficit                                           (177,465)       (288,024)
                                                    ---------       ---------
                                                      (77,746)       (188,305)
                                                    ---------       ---------
                                                    $ 231,874       $ 123,920
                                                    =========       =========

                 See notes to consolidated financial statements.

                                       F-5

<PAGE>   33

                               FRD ACQUISITION CO.

                      STATEMENTS OF CONSOLIDATED CASH FLOWS


<TABLE>
<CAPTION>
                                                                  FRD
                                                               SUCCESSOR                    FRD EMERGED SUCCESSOR
                                                               ---------       -------------------------------------------
                                                                ONE WEEK        FIFTY-ONE           FISCAL YEAR ENDED
                                                                 ENDED         WEEKS ENDED    ----------------------------
                                                               JANUARY 7,      DECEMBER 30,   DECEMBER 29,    DECEMBER 27,
                                                                  1998             1998          1999             2000
                                                               ---------         --------      ---------       ---------

<S>                                                            <C>             <C>             <C>             <C>
(In thousands)
Cash Flows from Operating Activities:
Net income (loss)                                              $  33,087       $ (41,808)      $(135,657)      $(110,559)
Adjustments to Reconcile Net (Loss) Income to Cash
   Flows from Operating Activities
   Amortization of reorganization value in excess of
      amounts allocable to identifiable assets                        --          40,051          38,586          18,743
   Depreciation and other amortization                               591          35,271          32,034          28,732
   Impairment charge                                                  --              --          60,500          68,000
   Amortization of deferred financing costs                           28           1,336           1,315             762
   Amortization of debt premium                                       --          (1,497)         (1,667)         (1,850)
   Gain on refranchising and other, net                               --          (5,979)           (528)            (64)
   Gain on lease buyouts                                              --          (5,178)             --              --
   Deferred tax provision (benefit)                               11,340          (3,899)         18,744              --
   Noncash reorganization items                                  (44,993)             --              --              --
Decrease (increase) in assets:
   Receivables                                                       252          (1,189)          1,491              97
   Inventories                                                        --             538             370             (67)
   Other current assets                                            3,918           1,551             (59)         (1,531)
   Other assets                                                       --             872          (2,608)            646
Increase (decrease) in liabilities:
   Accounts payable                                               (3,085)          3,278          (1,069)         (2,615)
   Accrued salaries and vacation                                  (1,451)         (1,170)         (2,340)             12
   Payable to Advantica                                              132           6,426           7,069           5,602
   Other accrued liabilities                                       1,388          (3,992)         (3,131)            (42)
   Liability for self-insurance claims                              (253)         (1,681)         (2,908)         (2,413)
   Other noncurrent liabilities                                        3              66          (1,321)         (2,454)
                                                               ---------       ---------       ---------       ---------
Net cash flows provided by operating activities                      957          22,996           8,821             999
                                                               ---------       ---------       ---------       ---------
Cash Flows from Investing Activities:
   Purchase of property                                               --         (10,367)        (22,570)        (13,679)
   Proceeds from lease buyouts                                        --           3,806              --              --
   Proceeds from disposition of property                              --          12,515             590              16
                                                               ---------       ---------       ---------       ---------
Net cash flows provided by (used in) investing activities             --           5,954         (21,980)        (13,663)
                                                               ---------       ---------       ---------       ---------
</TABLE>

                 See notes to consolidated financial statements.

                                       F-6

<PAGE>   34

                               FRD ACQUISITION CO.

               STATEMENTS OF CONSOLIDATED CASH FLOWS-- (CONTINUED)


<TABLE>
<CAPTION>
                                                                  FRD
                                                               SUCCESSOR                    FRD EMERGED SUCCESSOR
                                                               ---------       -------------------------------------------
                                                                ONE WEEK        FIFTY-ONE           FISCAL YEAR ENDED
                                                                 ENDED         WEEKS ENDED    ----------------------------
                                                               JANUARY 7,      DECEMBER 30,   DECEMBER 29,    DECEMBER 27,
                                                                  1998             1998          1999             2000
                                                               ---------         --------      ---------       ---------

<S>                                                            <C>             <C>             <C>             <C>
(In thousands)
Cash Flows from Financing Activities:
   Principal debt payments, net                                $  (6,515)      $ (26,602)      $ (14,290)      $  (2,939)
   Term loan proceeds                                                 --              --          30,000              --
   Working capital borrowings, net                                    --              --              --           9,200
                                                               ---------       ---------       ---------       ---------
Net cash flows (used in) provided by financing activities         (6,515)        (26,602)         15,710           6,261
                                                               ---------       ---------       ---------       ---------
   (Decrease) increase in cash and cash equivalents               (5,558)          2,348           2,551          (6,403)
Cash and cash equivalents at:
   Beginning of period                                             9,051           3,493           5,841           8,392
                                                               ---------       ---------       ---------       ---------
   End of period                                               $   3,493       $   5,841       $   8,392       $   1,989
                                                               =========       =========       =========       =========


Supplemental Cash Flow Information:
   Income taxes paid (refunded)                                $      --       $  (1,402)      $     236       $     339
                                                               =========       =========       =========       =========
   Interest paid                                               $      --       $  23,957       $  23,580       $  26,692
                                                               =========       =========       =========       =========

Non cash financing activities:
   Capital lease obligations                                   $      --       $     569       $     226       $     199
                                                               =========       =========       =========       =========
</TABLE>

                 See notes to consolidated financial statements.

                                       F-7

<PAGE>   35

                               FRD ACQUISITION CO.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 BASIS OF REPORTING AND 2001 RESTRUCTURING

FRD Acquisition Co. ("FRD" or, together with its subsidiaries, the "Company")
was incorporated in February 1996 as a wholly owned subsidiary of a predecessor
of Advantica Restaurant Group, Inc. ("Advantica"). On May 23, 1996, FRD
consummated the acquisition of all of the outstanding stock of FRI-M Corporation
("FRI-M"), the subsidiary of Family Restaurants, Inc. ("FRI"), which owns the
Coco's and Carrows chains. At December 27, 2000, the Company owned 258
full-service restaurants located primarily in six states, with approximately 89%
of its restaurants located in California. Additionally, at December 27, 2000,
the Company was the licensor of 302 restaurants located primarily in Japan and
South Korea and the franchisor of 62 restaurants in the United States.

On February 17, 2000, in connection with its announcement of a new strategic
direction, Advantica also announced that it would begin immediately exploring
the possible sale of FRD's operating subsidiaries. Advantica continued to market
for divestiture the Coco's and Carrows concepts throughout the balance of 2000
and into the first quarter of 2001.

On February 14, 2001 (the "Petition Date"), FRD filed a voluntary petition for
relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"), Case No. 01-0436 PJW. None of the Company's operating
subsidiaries are a party to or are included in these Chapter 11 proceedings. FRD
(the "Debtor") is currently operating its business as a debtor-in- possession
pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code and subject to the
jurisdiction of the Bankruptcy Court. The financial statements of the Company
have been prepared on a going concern basis, which contemplates the continuity
of operations, the realization of assets and the satisfaction of liabilities and
commitments in the ordinary course of business.

FRD's Chapter 11 filing is intended to preserve and maximize the going concern
value of FRD's operating subsidiaries by allowing them to continue to operate in
the ordinary course of business, without the need to commence Chapter 11 cases
of their own. The events leading to FRD's Chapter 11 filing include the
continued deterioration of the performance of FRD's operating subsidiaries due
to increased competition, outdated facilities and unfavorable industry trends.
As a result, FRD failed to make the scheduled January 16, 2001 interest payment
due on its prepetition 12.5% Senior Notes due July 15, 2004 (the "Senior
Notes"). The 30-day grace period provided by the indenture governing the Senior
Notes' interest payments expired on February 15, 2001, the day after FRD filed
its voluntary Chapter 11 petition. These matters raise substantial doubt about
the Company's ability to continue as a going concern. The Company's continued
existence is dependent upon several factors including the Company's ability to
sell its operating subsidiaries or restructure its liabilities through the
bankruptcy process. Since mid-April 2000, FRD has worked together with an
unofficial committee of holders of the Senior Notes and its parent, Advantica,
to pursue a sale of the stock of FRD's subsidiaries. Shortly before the filing
date, FRD received preliminary acquisition proposals from four separate
entities. FRD intends to continue this sale process postpetition with the goal
of maximizing value to creditors. Pending a sale, FRD will continue to consult
with the unofficial committee (or any official committee that is formed) and
Advantica with respect to FRD's Chapter 11 case and the sale process. FRD and
its subsidiaries intend to consummate a sale transaction without the need for
the operating subsidiaries to also commence Chapter 11 cases. It is possible,
however, that some or all of FRD's subsidiaries may have to commence Chapter 11
cases in the future.

FRD's subsidiaries have entered into an agreement pursuant to which they will
fund the expenses incurred by the Debtor in connection with the Chapter 11 case
including, but not limited to, fees and expenses of counsel and advisors for the
Debtor and any official committee appointed in the Chapter 11 case.

                                       F-8

<PAGE>   36

Pursuant to Section 362 of the Bankruptcy Code, the commencement of FRD's
Chapter 11 case operates as an automatic stay of the following: (1) commencement
or continuation of a judicial, administrative or other proceeding against the
Debtor that was or could have been commenced prior to commencement of the
Chapter 11 case; (2) enforcement of any judgments against the Debtor that arose
before the commencement of the Chapter 11 case; (3) the taking of any action to
obtain possession of or to exercise control over the Debtor's property; (4) the
creation, perfection or enforcement of any lien against the Debtor's property;
(5) the taking of any action to collect, assess or recover a claim against the
Debtor that arose prior to the commencement of the Chapter 11 case; or (6) the
setoff of any debt owing to the Debtor that arose prior to commencement of the
Chapter 11 case against a claim held by such creditor of or party-in-interest
against the Debtor that rose before the commencement of the Chapter 11 case. Any
entity may apply to the Bankruptcy Court for relief from the automatic stay to
allow enforcement of any of the aforesaid remedies that are automatically stayed
by operation of law at the commencement of the Chapter 11 case.

Although the Debtor is authorized to operate its business as a
debtor-in-possession, it may not engage in transactions outside the ordinary
course of business without first complying with the notice and hearing
provisions of the Bankruptcy Code and obtaining Bankruptcy Court approval. Other
parties in interest in the Chapter 11 case are also entitled to be heard on
motions made in the Chapter 11 case, including motions for approval of
transactions outside the ordinary course of business.

The Company's financial statements for the year ended December 27, 2000 have
been presented in conformity with the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Prior periods'
comparative balances have not been reclassified to conform with the current
year's balances stated under SOP 90-7. In accordance with SOP 90-7, all
prepetition liabilities of FRD that are subject to compromise through this
bankruptcy proceeding are segregated in the Company's Consolidated Balance
Sheets as "Liabilities subject to compromise" (see Note 9). These liabilities
are recorded at the amounts expected to be allowed as claims by the Bankruptcy
Court rather than estimates of the amounts for which those allowed claims may be
settled as a result of any plan of reorganization approved by the Bankruptcy
Court.

The accompanying Consolidated Financial Statements include the accounts of the
operating subsidiaries of the Company which are not a party to the previously
described Chapter 11 proceedings. The following condensed financial statements
of FRD have been prepared using the equity method of accounting for reporting
the results of all wholly owned subsidiaries of FRD that are not a party to such
Chapter 11 proceedings.

                                       F-9

<PAGE>   37

FRD Acquisition Co.
(Debtor-in-Possession)
Condensed Statement of Operations


                                              FISCAL YEAR
                                                 ENDED
                                              DECEMBER 27,
                                                  2000
                                              ------------
(In thousands)
General and administrative expenses            $   6,237
                                               ---------
Operating loss                                    (6,237)
                                               ---------
Other expense:
    Equity in net loss of subsidiary             (86,407)
    Interest expense                             (17,915)
                                               ---------
        Total other expense                     (104,322)
                                               ---------
Net loss                                       $(110,559)
                                               =========


FRD Acquisition Co.
(Debtor-in-Possession)
Condensed Balance Sheet



                                               DECEMBER 27,
                                                   2000
                                               ------------
(In thousands)
ASSETS
Deferred financing costs                        $     545
Investment in subsidiary                          147,350
                                                ---------
                                                $ 147,895
                                                =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Liabilities subject to compromise (eliminated
    in consolidation)                           $ 132,581
Liabilities subject to compromise (Note 9)        203,619
                                                ---------
Total Liabilities                                 336,200
Stockholder's Deficit                            (188,305)
                                                ---------
                                                $ 147,895
                                                =========

NOTE 2 REORGANIZATION AND FRESH START REPORTING

On January 7, 1998 (the "Effective Date"), Advantica's predecessor, Flagstar
Companies, Inc. ("FCI"), and its wholly owned subsidiary, Flagstar Corporation
("Flagstar"), emerged from proceedings under Chapter 11 of the Bankruptcy Code
pursuant to FCI and Flagstar's Amended Joint Plan of Reorganization dated as of
November 7, 1997 (the "Plan"). On the Effective Date, Flagstar merged with and
into FCI, the surviving corporation, and FCI changed its name to Advantica
Restaurant Group, Inc. FCI's operating subsidiaries, including the Company, did
not file bankruptcy petitions and were not parties to the above mentioned
Chapter 11 proceedings.

In the financial statements included herein, "FRD Successor" refers to the
period of ownership of FRI-M by FRD subsequent to its acquisition on May 23,
1996. "FRD Emerged Successor" refers to the period subsequent to the

                                      F-10

<PAGE>   38

emergence of Advantica from proceedings under the Bankruptcy Code and the
application of fresh start reporting as described below.

As of the Effective Date, Advantica adopted fresh start reporting pursuant to
the guidance provided by SOP 90-7. Fresh start reporting assumes that a new
reporting entity has been created and requires that assets and liabilities be
adjusted to their fair values as of the Effective Date in conformity with the
procedures specified by Accounting Principles Board Opinion No. 16, "Business
Combinations." In conjunction with the revaluation of assets and liabilities, a
reorganization value for Advantica was determined which generally approximated
its fair value before considering debt and approximated the amount a buyer would
pay for the assets of Advantica after reorganization. Under fresh start
reporting, the reorganization value of Advantica was allocated to its assets. In
accordance with fresh start reporting, the portion of the reorganization value
which was not attributable to specific tangible or identified intangible assets
of Advantica has been reported as "Reorganization value in excess of amounts
allocable to identifiable assets, net of accumulated amortization" (see Note 7
regarding impairment of the reorganization value). Advantica "pushed down" the
impact of fresh start reporting to its operating subsidiaries, including the
Company. Accordingly, all financial statements for any period subsequent to the
Effective Date are referred to as "FRD Emerged Successor" financial statements,
as they reflect the periods subsequent to the implementation of fresh start
reporting and are not comparable to the financial statements for periods prior
to the Effective Date.

The results of operations in the accompanying Statement of Consolidated
Operations for the week ended January 7, 1998 reflect the results of operations
prior to Advantica's emergence from bankruptcy and the effects of fresh start
reporting adjustments. In this regard, the Statement of Consolidated Operations
reflects reorganization items consisting primarily of gains and losses related
to the adjustments of assets and liabilities to fair value.

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting policies and methods of their application that significantly affect
the determination of financial position, cash flows and results of operations
are as follows:

Consolidated Financial Statements. Consolidated Financial Statements include the
accounts of the Company and its subsidiaries. Certain prior year amounts have
been reclassified to conform to the current year presentation.

Financial Statement Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the amounts of revenues and expenses during the
period reported. Actual results could differ from those estimates.

Cash and Cash Equivalents. The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.

Inventories. Inventories consist primarily of food and liquor and are stated at
the lower of cost (first-in, first-out) or market.

Preopening Costs. Subsequent to January 7, 1998, preopening costs are expensed
as incurred.

Property and Depreciation. Property was adjusted to estimated fair value as of
January 7, 1998 in conjunction with the adoption of fresh start reporting.
Property additions subsequent to January 7, 1998 are stated at cost. Property is
depreciated on a straight-line basis over estimated useful lives (buildings
principally over 20 years and furniture, fixtures and equipment over 3 to 8
years).

Goodwill and Other Intangible Assets. Unamortized goodwill was written off at
January 7, 1998 in conjunction with the adoption of fresh start reporting as
discussed in Note 2. Other intangible assets consist primarily of trademarks,

                                      F-11

<PAGE>   39

trade names, franchise and other operating agreements. Other intangible assets
were adjusted to fair value at January 7, 1998 and are being amortized on a
straight-line basis over the useful lives of the franchise and other agreements
and over 40 years for trade names. At December 29, 1999 and December 27, 2000,
accumulated amortization of franchise operating rights and agreements totaled
approximately $3.8 million and $2.7 million, respectively. See Note 7 for a
discussion of impairment charges related to the intangible assets.

Reorganization Value in Excess of Amounts Allocable to Identifiable Assets. The
portion of the reorganization value of the Company which was not attributable to
specific tangible or identified intangible assets of the Company was being
amortized using the straight-line method over a five-year period. At December
29, 1999, accumulated amortization totaled approximately $78.2 million. See Note
7 for a discussion of impairment charges related to the reorganization value.

Asset Impairment. The Company follows the provisions of Accounting Principles
Board Opinion No. 17, "Intangible Assets" ("APB 17"), and Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). In accordance
with APB 17 and SFAS 121, as applicable, the Company assesses impairment of
long-lived assets such as reorganization value in excess of amounts allocable to
identifiable assets, goodwill and property, plant and equipment whenever changes
or events indicate that the carrying value may not be recoverable. In accordance
with APB 17, the Company assesses impairment of the intangible assets
reorganization value in excess of amounts allocable to identifiable assets and
goodwill whenever the Company's market indicators (e.g., market discount on
certain debt instruments) and/or operating trends have had other than a
temporary adverse change. The Company applies a discounted cash flow approach to
measure impairment. The discount rate used is Advantica's estimated current cost
of capital. In accordance with SFAS 121, other long-lived assets are written
down to fair value if, based on an analysis, the sum of the expected future
undiscounted cash flows is less than the carrying amount of the assets.

Deferred Financing Costs. Costs related to the issuance of debt are deferred and
amortized as a component of interest expense using the straight-line method over
the terms of the respective debt issues.

Income Taxes. The Company is included in the consolidated federal and certain
state income tax returns of Advantica. The Company is a party to a tax-sharing
agreement with Advantica that provides for the Company to pay to Advantica the
amount of the current income tax liability the Company would have had if the
Company had filed separate federal and state income tax returns. The Company
reports its income tax expense, deferred tax assets and liabilities following
this separate-return method. See Note 11 for a further description of the
accounting for income taxes.

Self-Insurance Liabilities. The Company has historically been insured under
guaranteed cost/deductible insurance programs and/or has been self-insured for
its workers' compensation, general/product and automobile insurance liabilities.
The liabilities for prior and current estimated incurred losses for periods
while the Company has been self-insured are discounted to their present value
based on expected loss payment patterns determined by independent actuaries. The
total discounted insurance liabilities recorded at December 29, 1999 and
December 27, 2000 were $11.0 million and $8.8 million, respectively, reflecting
a 5% discount rate for 1999 and 2000. The related undiscounted amount at such
dates were $12.4 million and $9.8 million, respectively.

Franchise and License Fees. Initial franchise and license fees are recognized
when all of the material obligations have been performed and conditions have
been satisfied, typically when operations have commenced. Continuing fees, based
upon a percentage of net sales, are recorded as income on a monthly basis.

Gains on Sales of Company-Owned Restaurants. Gains on sales of company-owned
restaurants that include real estate owned by the Company are recognized in
accordance with Statement of Financial Accounting Standards No. 66, "Accounting
for Sales of Real Estate." In this regard, gains on such sales are recognized
when the cash proceeds from the sale exceed 20 percent of the sales price. For
restaurant sale transactions that do not include real estate owned by the
Company, gains are recognized at the time the collection of the sale price is
reasonably assured.

                                      F-12

<PAGE>   40


Cash proceeds received from sales of company-owned restaurants were $16.3
million and $0.6 million for the fifty-one weeks ended December 30, 1998 and the
fiscal year ended December 29, 1999, respectively. Cash proceeds for the one
week ended January 7, 1998 and the fiscal year ended December 27, 2000 were not
significant. Deferred gains related to such transactions are not significant.

Advertising. Production costs for radio and television advertising are expensed
in the year in which the commercials are initially aired. Advertising expense
totaled $0.3 million for the one week ended January 7, 1998, $16.0 million for
the fifty-one weeks ended December 30, 1998, $13.2 million for the fiscal year
ended December 29, 1999 and $10.1 million for the fiscal year ended December 27,
2000. Prepaid advertising included in the Consolidated Balance Sheets totaled
$0.3 million and $0.5 million at December 29, 1999 and December 27, 2000,
respectively.

Cash Overdrafts. The Company has included in accounts payable on the
accompanying balance sheets cash overdrafts totaling $9.8 million at December
29, 1999 and $8.3 million at December 27, 2000.

Foreign Currency Exposure. The Company is the licensor of Coco's restaurants
primarily in Japan and South Korea. Royalties due to the Company are paid in
foreign currency based on sales attributable to such Coco's. The receivable
balance at December 27, 2000 primarily represents ten months of Coco's Japan
royalties expected to be received in March 2001. Because this royalty is paid
annually, the Company has potential exposure that exchange rates may fluctuate
causing an unfavorable impact on the receivable balance. At December 29, 1999
and December 27, 2000, the net royalty receivable amounted to $2.2 million and
$2.3 million, respectively.

New Accounting Standards. In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement
established accounting and reporting standards for derivative financial
instruments and for hedging activities. It requires that entities recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in fair value of the
derivative (i.e., gains and losses) depends on the intended use of the
derivative and the resulting designation. In June 2000, the FASB issued
Statement of Financial Accounting Standards No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities -- an amendment of FASB
Statement No. 133" ("SFAS 138"), which amends certain provisions of SFAS 133 to
clarify areas causing difficulties in implementation, including expanding the
normal purchase and sale exemption for supply contracts. Advantica appointed a
team to implement SFAS 133 for the entire entity. This team has implemented a
SFAS 133 risk management process and has been educating both financial and
nonfinancial personnel, reviewing contracts to identify derivatives and embedded
derivatives and addressing various other SFAS 133-related issues. Advantica
adopted SFAS 133 and the corresponding amendments under SFAS 138 at the
beginning of fiscal year 2001, in accordance with Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." SFAS
133, as amended by SFAS 138, is not expected to have a material impact on the
Company's consolidated results of operations, financial position or cash flows.

                                      F-13

<PAGE>   41

NOTE 4 RECEIVABLES

A summary of receivables follows (in thousands):


                                                      DECEMBER 29,  DECEMBER 27,
                                                          1999          2000
                                                         ------        ------

License and franchise fees and related receivables      $ 2,781       $ 2,869
Trade, principally credit cards                             749         1,039
Notes receivable                                            451           147
Other                                                     1,011           895
Allowance for doubtful accounts                            (140)         (195)
                                                        -------       -------
                                                        $ 4,852       $ 4,755
                                                        =======       =======


NOTE 5 OTHER CURRENT ASSETS

A summary of other current assets follows (in thousands):


                            DECEMBER 29,  DECEMBER 27,
                                1999          2000
                               ------        ------

Prepaid rent                  $1,874        $1,900
Prepaid other                  2,067         3,571
                              ------        ------
                              $3,941        $5,471
                              ======        ======


NOTE 6 PROPERTY AND EQUIPMENT

A summary of property and equipment follows (in thousands):


                                                 DECEMBER 29,      DECEMBER 27,
                                                     1999              2000
                                                    ------            ------

Land                                               $  2,383          $  2,383
Buildings and improvements                          113,234           120,409
Furniture, fixtures and equipment                    45,613            49,736
Projects under construction                           3,414             2,908
                                                   --------          --------
                                                    164,644           175,436
Less accumulated depreciation and amortization      (52,975)          (76,083)
                                                   --------          --------
                                                   $111,669          $ 99,353
                                                   ========          ========



Property under capitalized leases in the amount of $26.3 million at both
December 29, 1999 and December 27, 2000 is included in buildings and
improvements. Accumulated amortization of property under capital leases amounted
to $11.6 million and $15.5 million at December 29, 1999 and December 27, 2000,
respectively. Capital leases primarily relate to buildings on certain
restaurant properties. The land portions of these leases are accounted for as
operating leases.

Substantially all of the capitalized and operating leases initially had original
terms of 20-25 years, and a majority of these leases expire by the year 2005.
Many leases have renewal options. The leases generally provide for payment of
minimum annual rent, real estate taxes, insurance and maintenance and, in most
cases, contingent rent, calculated as a

                                      F-14

<PAGE>   42

percentage of sales, in excess of minimum rent. Total rental expense included in
the determination of net income, including contingent rents for operating and
capitalized leases, is as follows (in thousands):


                  ONE WEEK        FIFTY-ONE           FISCAL YEAR ENDED
                   ENDED         WEEKS ENDED    ----------------------------
                 JANUARY 7,      DECEMBER 30,   DECEMBER 29,    DECEMBER 27,
                    1998             1998          1999             2000
                 ---------         --------      ---------       ---------

Minimum rent        $450           $22,686        $19,996         $20,783
Contingent rent       71             3,600          2,915           2,643
Sublease rent         --            (1,046)          (700)         (3,096)
                    ----           -------        -------         -------
                    $521           $25,240        $22,211         $20,330
                    ====           =======        =======         =======


At December 27, 2000, the present value of capitalized lease obligations and the
future minimum lease payments on noncancelable operating leases were (in
thousands):


<TABLE>
<CAPTION>
                                                        CAPITAL LEASES            OPERATING LEASES
                                                   ------------------------    -----------------------
                                                    MINIMUM       MINIMUM      MINIMUM        MINIMUM
                                                     LEASE        SUBLEASE       LEASE        SUBLEASE
                                                   PAYMENTS       RECEIPTS     PAYMENTS       RECEIPTS
                                                   --------       --------     --------       --------
<C>                                                 <C>            <C>         <C>             <C>
Due In:
2001                                                $ 3,883        $1,371      $  16,633       $1,355
2002                                                  3,346         1,130         15,239        1,317
2003                                                  2,538           852         13,475        1,139
2004                                                  1,677           703         11,563          948
2005                                                  1,110           560          9,670          717
Subsequent years                                      2,983         1,496         55,724        2,215
                                                   --------       -------     ----------      -------
     Total                                           15,537        $6,112       $122,304       $7,691
                                                                   ======       ========       ======
Less imputed interest                                 5,505
                                                   --------
Present value of capital lease obligation           $10,032
                                                    =======
</TABLE>


Payments for certain FRD operating leases are being made by FRI in accordance
with the provisions of the stock purchase agreement signed at the date of
acquisition. As such, these payments have been excluded from the amount of
minimum lease payments and minimum sublease receipts reported above.

NOTE 7 IMPAIRMENT CHARGES

Due to the presence of certain conditions at December 29, 1999 and December 27,
2000 including the market discount on certain of the Company's debt instruments
and certain operating trends, the Company concluded it should perform an
impairment assessment of the carrying amount of the intangible asset
Reorganization value in excess of amounts allocated to identifiable assets, net
of accumulated amortization ("Reorganization Value") and certain of its other
intangible assets. In performing the analysis, management utilized a discounted
future cash flow model and recorded impairment charges of $60.5 million and
$68.0 million, respectively, representing the difference between the estimated
value of the Company resulting from the cash flow model and the value of the
Company's net assets recorded at December 29, 1999 and December 27, 2000 prior
to recognition of impairment. The December 27, 2000 impairment charge of $68.0
million was first applied to eliminate the remaining $37.1 million balance of
Reorganization Value. The remaining $30.9 million was then applied to intangible
assets, reducing the carrying value of franchise rights and agreements.

                                      F-15

<PAGE>   43

NOTE 8 OTHER ASSETS

A summary of other assets follows:


                                DECEMBER 29,         DECEMBER 27,
                                    1999                  2000
                                   -------               ------

(In thousands)
Debt issuance costs, net            $2,782               $2,020
Other                                2,320                1,802
                                    ------               ------
                                    $5,102               $3,822
                                    ======               ======

NOTE 9 LIABILITIES SUBJECT TO COMPROMISE

Liabilities subject to compromise include the following (see Note 2):


                                                         DECEMBER 27,
                                                             2000
                                                         ------------
(In thousands)
12.5% Senior Notes due July 15, 2004                        $156,897
Premium on 12.5% Senior Notes, effective rate 10.95%           8,322
Payable to Advantica                                          29,411
Accrued interest                                               8,989
                                                            --------
Total liabilities subject to compromise                     $203,619
                                                            ========

NOTE 10 DEBT

Long-term debt, including capitalized lease obligations, is comprised of the
following:


                                                   DECEMBER 29,     DECEMBER 27,
                                                       1999             2000
                                                      ------           ------

(In thousands)
12.5% Senior Notes due July 15, 2004,
   interest payable semi-annually                   $156,897              (a)
Term loan, principal payable quarterly                30,000          $  30,000
Revolver                                                  --              9,200
Capitalized lease obligations                         12,865             10,032
                                                    --------          ---------
                                                     199,762             49,232
Premium, net (see Note 2):
   12.5% Senior notes, effective rate 10.95%          10,172              (a)
                                                    --------          ---------
Total                                                209,934             49,232
Less current maturities                               (2,770)           (41,909)
                                                    --------          ---------
Total long-term debt                                $207,164          $   7,323
                                                    ========          =========
-----------------

(a)  Included in "Liabilities subject to compromise" at December 27, 2000 (see
     Note 9).

In connection with the May 23, 1996 acquisition of FRI-M, FRD issued $156.9
million aggregate principal amount of Senior Notes. The Senior Notes, by their
terms, mature on July 15, 2004. On January 16, 2001, FRD elected not to make the
interest payment due and payable with respect to the Senior Notes. As a result
of this nonpayment, and as a result of FRD's Chapter 11 filing on February 14,
2001, FRD is in default under the indenture governing the Senior Notes.
Therefore, the Senior Notes are included in "Liabilities subject to compromise"
in the Consolidated Balance Sheets. As described in more detail in Note 1, the
bankruptcy filings operate as an automatic stay of all collection and

                                      F-16

<PAGE>   44

enforcement actions by the holders of the Senior Notes with respect to the
Debtor's failure to make the interest payments when due.

Certain of FRD's operating subsidiaries have a $70 million senior secured credit
facility (the "FRD Credit Facility"), which consists of a $30 million term loan
and a $40 million revolving credit facility. At December 27, 2000, the lenders
under the FRD Credit Facility were Credit Lyonnais New York Branch and other
lenders named therein (the "Lenders"), and the facility was guaranteed by
Advantica. FRD obtained from the Lenders a waiver of compliance from certain
third quarter financial covenants until January 8, 2001. Subsequent to year end,
on January 8, 2001, Advantica paid $70 million to the Lenders in full and
complete satisfaction of Advantica's guarantee of the FRD Credit Facility with a
combination of cash on hand and an advance under the Advantica Credit Facility.
As a result of its satisfaction of obligations under its guarantee, Advantica
was subrogated to the rights and collateral of the Lenders. Immediately after
obtaining its subrogation rights, Advantica assigned such rights to its wholly
owned subsidiary, Denny's, Inc. In addition, immediately upon satisfaction of
the guarantee, Advantica designated FRD an "unrestricted subsidiary" pursuant to
the indenture for the Advantica Senior Notes, which limits Advantica's ability
to make further investments in FRD. On February 14, 2001, to facilitate the
divestiture of its Coco's and Carrows brands and to preserve their going concern
value, FRD filed for protection under Chapter 11 of the Bankruptcy Code. FRD's
operating subsidiaries have received certain waivers of default from Denny's,
Inc., as lender under the FRD Credit Facility, with respect to FRD's Chapter 11
filing and to certain covenants for the quarters ending September 27, 2000 and
December 27, 2000. The Company may be required to obtain additional waivers
relative to the FRD Credit Facility within the next 12 months. For additional
information concerning the Chapter 11 filing, see Note 1.

Borrowings under the FRD Credit Facility are to be used for working capital
requirements and other general corporate purposes. Certain letters of credit may
be issued under the revolving credit facility. All borrowings under the FRD
Credit Facility accrue interest at a variable rate based on the prime rate or an
adjusted Eurodollar rate (approximately 9.7% at December 27, 2000) and are
secured by substantially all of the assets of FRD and its subsidiaries and by
the issued and outstanding stock of FRI-M and its subsidiaries. Principal
installments on the term loan will be payable as follows: $2.0 million per
quarter for three consecutive quarters beginning June 30, 2001; $3.0 million per
quarter for four consecutive quarters beginning March 31, 2002; and $6.0 million
for two consecutive quarters beginning March 31, 2003. At December 27, 2000, FRD
and its subsidiaries had $30.0 million outstanding term loan borrowings, working
capital borrowings of $9.2 million and letters of credit outstanding of $16.2
million.

The FRD Credit Facility and the indenture under which the Senior Notes have been
issued contain a number of restrictive covenants which, among other things,
limit (subject to certain exceptions) FRD and its subsidiaries with respect to
the incurrence of debt, existence of liens, investments and joint ventures, the
declaration or payment of dividends, the making of guarantees and other
contingent obligations, mergers, the sale of assets, capital expenditures and
material change in their business. In addition, the FRD Credit Facility contains
certain financial covenants including provisions for the maintenance of a
minimum level of interest coverage (as defined), limitations on ratios of
indebtedness (as defined) to earnings before interest, taxes, depreciation and
amortization (EBITDA) and limitations on annual capital expenditures. As
discussed above, FRD's operating subsidiaries have received certain waivers of
default from Denny's, Inc., as lender under the FRD Credit Facility, with
respect to FRD's Chapter 11 filing and to certain covenants for the quarters
ending September 27, 2000 and December 27, 2000. The cash flows from FRD are
required to be used first to service the Company's indebtedness under the FRD
Credit Facility and the Senior Notes and, therefore, other than for payments
made under the FRD Credit Facility, FRD's cash flows are generally unavailable
to service the debt of Advantica and its other subsidiaries.

                                      F-17

<PAGE>   45

Aggregate annual maturities of long-term debt not subject to compromise at
December 27, 2000 during the next five years and thereafter are as follows (in
thousands):


        Year:
        -----
        2001                                         $41,909
        2002                                           2,615
        2003                                           1,932
        2004                                           1,270
        2005                                             552
        Thereafter                                       954
                                                 -----------
                                                     $49,232
                                                 ===========

The estimated fair value of the Company's long-term debt (including the Senior
Notes subject to compromise but excluding capital lease obligations) is
approximately $85 million at December 27, 2000. Such amount is based on market
quotations for the same or similar debt issues.

NOTE 11 INCOME TAXES

A summary of the provision for (benefit from) income taxes is as follows (in
thousands):


<TABLE>
<CAPTION>
                                           ONE WEEK        FIFTY-ONE           FISCAL YEAR ENDED
                                            ENDED         WEEKS ENDED    ----------------------------
                                          JANUARY 7,      DECEMBER 30,   DECEMBER 29,    DECEMBER 27,
                                             1998             1998          1999             2000
                                          ---------         --------      ---------       ---------
<S>                                       <C>              <C>              <C>             <C>
Current:
  Federal                                 $    --          $    19          $     77        $     --
  State, foreign and other                     27              228               330             384
                                          -------          -------          --------        --------
                                               27              247               407             384
                                          -------          -------          --------        --------

Deferred:
  Federal                                   9,072           (3,602)           16,291              --
  State, foreign and other                  2,268             (297)            2,453              --
                                          -------          -------          --------        --------
                                           11,340           (3,899)           18,744              --
                                          -------          -------          --------        --------
Total provision for (benefit from)
  income taxes                            $11,367          $(3,652)         $ 19,151        $    384
                                          =======          =======          ========        ========
</TABLE>


The Company joins with Advantica in the filing of consolidated federal and
certain consolidated state income tax returns. The Company is a party to a
tax-sharing agreement with Advantica that provides for the Company to pay to
Advantica the amount of the current income tax liability the Company would have
had if the Company had filed separate federal and state income tax returns. The
Company reports its income tax expense, deferred tax assets and liabilities
following this separate-return method. Some of the Company's deferred tax
assets, such as capital loss and net operating loss carryforwards, have been
partially utilized by Advantica in the consolidated income tax return. Under the
tax-sharing agreement, the Company can use the full amount of these deferred tax
assets to offset the Company's future income tax payments to Advantica to the
same extent the Company would have utilized the deferred tax assets on a
separate return.

                                      F-18

<PAGE>   46

The following represents the approximate tax effect of each significant type of
temporary difference and carryforward giving rise to deferred income tax assets
or liabilities as of December 29, 1999 and December 27, 2000:


                                                    DECEMBER 29,    DECEMBER 27,
                                                        1999            2000
                                                       ------          ------
(In thousands)
Deferred tax assets:
   Self-insurance reserves                           $  4,394         $  3,439
   Debt premium                                         4,069            3,329
   Lease reserve                                        3,403            3,511
   Fixed assets                                            --            3,026
   Intangible assets                                       --            4,524
   Other accruals and reserves                          4,831            4,448
   General business credit carryforwards                8,769           11,383
   Capital loss carryforwards                           7,044               --
   Net operating loss carryforwards                    18,631           24,288
   Alternative minimum tax credit carryforwards            56               56
Less: valuation allowance                             (38,569)         (55,148)
                                                     --------         --------
Total deferred tax assets                              12,628            2,856
                                                     --------         --------
   Capitalized leases                                  (1,698)          (2,856)
   Fixed assets                                        (3,028)              --
   Intangible assets                                   (7,902)              --
                                                     --------         --------
Total deferred tax liabilities                        (12,628)          (2,856)
                                                     --------         --------
Total net deferred tax assets                        $     --         $     --
                                                     ========         ========

The Company has provided a valuation allowance for certain deferred tax assets
which, based on projected future taxable income, it is more likely than not that
a tax benefit will not be realized. Accordingly, the tax provision for 2000
primarily relates to the recording of this valuation allowance. Any subsequent
reversal of the valuation allowance of approximately $11.4 million established
in connection with fresh start reporting on January 7, 1998 will be applied
first to reduce identifiable intangible assets followed by a credit directly to
equity. The difference between the statutory federal income tax rate and the
effective tax rate on loss from continuing operations is as follows:


<TABLE>
<CAPTION>
                                                                 ONE WEEK        FIFTY-ONE           FISCAL YEAR ENDED
                                                                  ENDED         WEEKS ENDED    ----------------------------
                                                                JANUARY 7,      DECEMBER 30,   DECEMBER 29,    DECEMBER 27,
                                                                   1998             1998          1999             2000
                                                                ---------         --------      ---------       ---------

<S>                                                                 <C>           <C>            <C>            <C>
Statutory tax (benefit) rate                                        35%           (35)%          (35)%          (35)%
Difference:
  State, foreign and other taxes, net of federal income
    tax benefit                                                     --             --             (1)            (2)
  Amortization and impairment of reorganization value
     in excess amounts allocable to identifiable assets             --             30             30             18
  Gain on the recognition of reorganization value, net of
     the write-off of goodwill                                      (9)            --             --             --
  FICA tip and work opportunity tax credits                         --             (5)            (2)            (3)
  Nondeductible wages related to the FICA tip and work
     opportunity tax credits                                        --              2              1              1
  Decrease (increase) in the valuation allowance                    --             --             23             21
                                                                   ---            ---            ---            ---
  Effective tax (benefit) rate                                      26%            (8%)           16%            --%
                                                                   ===            ===            ===            ===
</TABLE>

                                      F-19

<PAGE>   47

At December 27, 2000, the Company has available, for purposes of its tax sharing
agreement with Advantica, alternative minimum tax ("AMT") credits of
approximately $56,000. Such AMT credits may be carried forward indefinitely. The
Company also has regular and AMT net operating loss ("NOL") carryforwards of
approximately $60 million and $33 million, respectively. The regular NOL
carryforwards expire in the years 2008 through 2020 and the AMT NOL
carryforwards expire in the years 2017 through 2020. In addition, the Company
has FICA tip and work opportunity tax credit carryforwards of approximately $11
million. The FICA tip and work opportunity tax credit carryforwards expire in
2011 through 2020. A portion of the carryforwards may be reduced or lost based
upon the ultimate disposition of FRD's operating subsidiaries.

In connection with the purchase of FRI-M in 1996, the Company acquired certain
income tax attributes which prior to 1999 could be used to offset only the
separate taxable income of FRI-M and its subsidiaries. Approximately $35 million
of regular NOL carryforwards and $30 million of regular and AMT capital loss
carryforwards were acquired in the purchase of FRI-M. Due to FRI-M's ownership
changes in January 1994 and again in May 1996, FRI-M's ability to utilize these
loss carryforwards, which arose prior to the ownership changes, is limited.
Approximately $3 million of the acquired regular NOL carryforwards were utilized
to offset 1996 post-acquisition taxable income. The annual limitation for the
utilization of approximately $20 million of the acquired NOL carryforwards which
were generated after January 1994 is approximately $4 million. The remaining $11
million of the Company's NOL carryforwards which were generated prior to January
1994 can be utilized only to offset pre-January 1994 built-in gains which are
recognized in the five year recognition period subsequent to the ownership
change. Since sufficient built-in gains have been recognized in the five year
recognition period, this $11 million of NOL carryforwards will be available to
offset income, if any, generated in years 2001 through 2008. The Company
recognized approximately $4 million of capital gains in 1997 and $8 million in
1998 which were utilized to offset some of the capital loss carryover. The
remaining capital loss carryforward of approximately $17 million expired in
2000. A portion of the carryforwards may be reduced or lost based upon the
ultimate disposition of FRD's operating subsidiaries.

NOTE 12 EMPLOYEE BENEFIT PLANS

Certain Company employees are eligible to participate in Advantica's defined
contribution plans, whereby eligible employees can elect to contribute from 1%
to 15% of their compensation to the plans. The Company makes matching
contributions, with certain limitations. The amounts charged to income under
these plans were not significant for the one week ended January 7, 1998, the
fifty-one weeks ended December 30, 1998 and the fiscal years ended December 29,
1999 and December 27, 2000.

Certain employees of FRD have been granted stock options under Advantica's stock
option plans which are described below. Advantica and FRD have adopted the
disclosure-only provisions of Financial Accounting Standards Board Statement
123, "Accounting for Stock Based Compensation" ("SFAS 123"), while continuing to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"), and related Interpretations in accounting for their
stock-based compensation plans. Under APB 25, because the exercise price of the
Company's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

Pursuant to the Plan, and shortly after the Effective Date, Advantica adopted
the Advantica Restaurant Group Stock Option Plan (the "Non-Officer Plan") and
the Advantica Restaurant Group Officer Stock Option Plan (the "Officer Plan").
Effective March 15, 1999, the Non-Officer Plan and the Officer Plan were merged
together and the surviving plan's name was changed to the Advantica Stock Option
Plan (the "Company Plan"). All participants in the Non-Officer Plan and Officer
Plan on the effective date of the plan merger continued to be participants in
the Company Plan and retained all options previously issued to participants
under the Officer Plan and the Non-Officer Plan under the same terms and
conditions existing at the time of grant.

The Company Plan permits the Compensation and Incentives Committee of the
Advantica Board (the "Committee") to award stock options as incentives to
employees and consultants of Advantica. The Committee has sole discretion to
determine the exercise price, term and vesting schedule of options awarded under
such plans. A total of 7,388,888 shares of Advantica common stock are authorized
to be issued under the Company Plan. Under the terms of the

                                      F-20

<PAGE>   48

Company Plan, optionees who terminate for any reason other than cause,
disability, retirement or death will be allowed 60 days after the termination
date to exercise vested options. Vested options are exercisable for one year
when termination is by a reason of disability, retirement or death. If
termination is for cause, no option shall be exercisable after the termination
date.

In addition to the Company Plan, Advantica has adopted the Advantica Restaurant
Group Director Stock Option Plan (the "Director Plan"), the terms of which are
substantially similar to the terms of the Company Plan. A total of 200,000
shares of Advantica common stock are authorized to be issued under the Director
Plan.

Under each plan, options granted to date generally vest evenly over three to
five years, have a 10-year life and are issued at the market value at the date
of grant.

Pro forma information regarding net income is required by SFAS 123, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that statement. The fair value of the stock options
granted in 1999 was estimated at the date of grant using the Black-Scholes
option pricing model. No options were granted in 2000. The following weighted
average assumptions were used for such grants:


                                                     1999
                                                     ----
        Dividend yield                               0.0%
        Expected volatility                          0.72
        Risk-free interest rate                      6.4%
        Weighted average expected life               9.0 years

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. FRD is a wholly owned
subsidiary of Advantica, and accordingly, per share data is not meaningful and
has not been provided. The Company's pro forma information follows:


                                                Fiscal Year Ended
                                          ------------------------------
                                          December 29,      December 27,
                                              1999              2000
                                             ------            -----
(In millions)
Pro forma net loss                          $(136.1)          $(110.8)

A summary of the Plans as they relate to options granted to FRD employees is
presented below:


<TABLE>
<CAPTION>
                                                 1999                            2000
                                       ---------------------------    ---------------------------
                                                      Weighted-                      Weighted-
                                                       Average                        Average
                                       Options      Exercise Price    Options      Exercise Price
                                       -------      --------------    -------      --------------
<S>                                       <C>           <C>             <C>           <C>
(Option amounts in thousands)
Outstanding, beginning of year            395           $8.19           588           $5.77
Granted                                   339            3.58            --              --
Exercised                                  --              --            --              --
Forfeited/Expired                        (146)           7.24          (242)           4.77
                                         ----                          ----
Outstanding, end of year                  588            5.77           346            6.47
                                         ====                          ====
Options exercisable at year end           115            8.94           224            7.28
</TABLE>

                                      F-21

<PAGE>   49

The following table summarizes information about stock options outstanding at
December 27, 2000:


<TABLE>
<CAPTION>
                                               Weighted-
                           Number               Average              Weighted-            Number             Weighted-
                       Outstanding at          Remaining              Average         Exercisable at          Average
EXERCISE PRICES           12/27/00          Contractual Life      Exercise Price         12/27/00         Exercise Price
---------------           ---------         ----------------      --------------        ----------        --------------

<S> <C>                   <C>                    <C>                <C>                  <C>                <C>
    $  3.50               144,750                8.50               $ 3.50               67,125             $  3.50
       4.69                52,800                7.71                 4.69               32,650                4.69
      10.00               148,000                7.09                10.00              124,600               10.00
                          -------                                                       -------
                          345,550                7.77                 6.47              224,375                7.28
                          =======                                                       =======
</TABLE>


The weighted average fair value per option of options granted during the fiscal
year ended December 29, 1999 was $2.69. No options were granted during 2000.

NOTE 13 REORGANIZATION ITEMS

Reorganization items for the week ended January 7, 1998 include professional
fees and other expenditures incurred and gains recognized by the Company as a
result of the Advantica bankruptcy and the "push down" of fresh start reporting
from Advantica.

NOTE 14 COMMITMENTS AND CONTINGENCIES

The Company is involved in various litigation matters incidental to their
business. The Company does not believe that any of the claims or actions filed
against it will have a significant adverse effect upon the consolidated
financial position and results of operations of the Company.

NOTE 15 STOCKHOLDER'S EQUITY (DEFICIT)


                                                                    TOTAL
                                   TOTAL                        SHAREHOLDER'S
                                OTHER EQUITY      DEFICIT     EQUITY (DEFICIT)
                                ------------      -------     ---------------

(In thousands)
Balance January 7, 1998             $99,719       $     ---       $  99,719
  Net loss                              ---         (41,808)        (41,808)
                                 ----------     -----------     -----------
Balance December 30, 1998            99,719         (41,808)         57,911
  Net loss                              ---        (135,657)       (135,657)
                                -----------      ----------      ----------
Balance December 29, 1999            99,719        (177,465)        (77,746)
  Net loss                              ---        (110,559)       (110,559)
                                -----------      ----------      ----------
Balance December 27, 2000           $99,719       $(288,024)      $(188,305)
                                    =======       =========       =========

NOTE 16 RELATED PARTY TRANSACTIONS

In 1998, the Company entered into lease buyout agreements with Denny's, Inc.
Under the terms of the agreements, Denny's, Inc. paid $2.8 million in cash
proceeds in exchange for the right to assume the leases associated with 14
restaurants. As a result of the transactions, the Company recorded a $3.3
million gain, which is included in "Gains on refranchising and other, net," in
the Statement of Consolidated Operations.

Subsequent to year end, on January 8, 2001, Advantica paid $70 million in full
and complete satisfaction of Advantica's guarantee of the FRD Credit Facility
(see Note 10). As a result of its satisfaction of obligations under its
guarantee, Advantica was subrogated to the rights and collateral of the former
lenders. Immediately after obtaining its subrogation rights, Advantica assigned
such rights to its wholly owned subsidiary, Denny's, Inc. On February 14, 2001,
to facilitate the divestiture of its Coco's and Carrows brands and to preserve
their going concern value, FRD

                                      F-22

<PAGE>   50

filed for protection under Chapter 11 of the Bankruptcy Code (see Note 1). FRD's
operating subsidiaries have received certain waivers of default from Denny's,
Inc., as lender under the FRD Credit Facility, with respect to FRD's Chapter 11
filing and to certain covenants for the quarters ending September 27, 2000 and
December 27, 2000.

Certain administrative functions are provided for the Company by Advantica. The
Company is allocated a portion of these expenses based upon services received.
These allocations, which are in addition to fees equal to one percent of
revenues payable to Advantica under the management service agreement, totaled
$2.2 million, $2.6 million and $2.5 million for the fifty-one weeks ended
December 30, 1998 and the fiscal years ended December 29, 1999 and December 27,
2000, respectively. Allocated fees for the week ended January 7, 1998 were not
significant. Payment of the fees to Advantica cannot occur unless certain
financial targets are met as described in the Company's Senior Notes indenture
and in the FRD Credit Facility. Because the Company has not met the financial
targets, no payment has been made relative to these allocations and the related
amounts are included in the "Payable to Advantica" in "Liabilities subject to
compromise" in the Consolidated Balance Sheets (see Note 9). Advantica's method
of allocating these expenses is not the only reasonable method and other
reasonable methods of allocation might produce different results.

NOTE 17 SEGMENT INFORMATION

The Company operates entirely in the food service industry with substantially
all revenues resulting from the sale of menu products at restaurants operated by
the Company, franchisees or licensees. The Company operates two restaurant
concepts -- Coco's and Carrows -- and each concept is considered a reportable
segment. Administrative costs and assets of the corporate headquarters have been
allocated to the reportable segments primarily on the basis of percentage of
sales.

The Company evaluates performance based on several factors, of which the primary
financial measure is business segment operating income before interest, taxes,
depreciation, amortization, management fees payable to Advantica and
restructuring and impairment charges ("EBITDA as defined"). EBITDA as defined is
a key internal measure used to evaluate the amount of cash flow available for
debt repayment and funding of additional investments; however, it is not a
measure defined by generally accepted accounting principles and should not be
considered as an alternative to net income or cash flow data prepared in
accordance with generally accepted accounting principles. The Company's measure
of EBITDA as defined may not be comparable to similarly titled measures reported
by other companies. The accounting policies of the business segments are the
same as those described in the summary of significant accounting policies in
Note 3.

                                      F-23

<PAGE>   51

<TABLE>
<CAPTION>
                                                          FRD
                                                       SUCCESSOR                       FRD EMERGED SUCCESSOR
                                                       ---------        -------------------------------------------------
                                                        ONE WEEK         FIFTY-ONE               FISCAL YEAR ENDED
                                                         ENDED          WEEKS ENDED       -------------------------------
                                                       JANUARY 7,       DECEMBER 30,      DECEMBER 29,       DECEMBER 27,
                                                          1998              1998             1999                2000
                                                       ---------          --------         ---------          ---------

<S>                                                     <C>               <C>               <C>               <C>
(In thousands)
REVENUE
Coco's                                                  $  4,892          $255,442          $ 225,307         $ 214,688
Carrows                                                    3,515           183,950            164,483           156,372
                                                        --------          --------          ---------         ---------
Total consolidated revenue                              $  8,407          $439,392          $ 389,790         $ 371,060
                                                        ========          ========          =========         =========

DEPRECIATION AND AMORTIZATION
Coco's                                                  $    319          $ 41,819          $  39,153         $  26,601
Carrows                                                      272            33,503             31,467            20,874
                                                        --------          --------          ---------         ---------
Total consolidated depreciation and amortization        $    591          $ 75,322          $  70,620         $  47,475
                                                        ========          ========          =========         =========

EBITDA AS DEFINED
Coco's                                                  $    737          $ 37,215          $  25,259         $  20,397
Carrows                                                      (16)           23,410             18,113            15,316
                                                        --------          --------          ---------         ---------
Total consolidated EBITDA as defined                         721            60,625             43,372            35,713
Management fees to Advantica                                 (84)           (4,381)            (3,873)           (3,689)
Depreciation and amortization expense                       (591)          (75,322)           (70,620)          (47,475)
Impairment charge                                             --                --            (60,500)          (68,000)
Other charges:
     Interest expense, net                                  (585)          (26,897)           (24,769)          (26,607)
     Other, net                                               --               515               (116)             (117)
Reorganization items                                      44,993                --                 --                --
                                                        --------          --------          ---------         ---------
Consolidated (loss) income before income taxes          $ 44,454          $(45,460)         $(116,506)        $(110,175)
                                                        ========          ========          =========         =========

CAPITAL EXPENDITURES
Coco's                                                  $     --          $  5,436          $  12,997         $   9,966
Carrows                                                       --             4,931              9,573             3,713
                                                        --------          --------          ---------         ---------
Total consolidated capital expenditures                 $     --          $ 10,367          $  22,570         $  13,679
                                                        ========          ========          =========         =========
</TABLE>




                                   December 29,         December 27,
                                      1999                  2000
                                     -------               ------

(In thousands)
ASSETS
Coco's                               $137,489           $  77,934
Carrows                                94,385              45,986
                                   ----------           ---------
Total consolidated assets            $231,874            $123,920
                                     ========            ========

Because all of the Company's international restaurants are operated by
licensees, revenues and long-lived assets located outside the United States are
not material.

                                      F-24

<PAGE>   52

                                                                      SCHEDULE I

                               FRD ACQUISITION CO.
                              DEBTOR-IN-POSSESSION
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            CONDENSED BALANCE SHEETS


                                                December 29,        December 27,
                                                    1999                2000
                                                   ------              ------

(In thousands)
ASSETS
Deferred financing costs, net of accumulated
  amortization of: 1999 -- $471; 2000 -- $624      $     698         $     545
Investment in subsidiary                             233,757           147,350
                                                   ---------         ---------
                                                   $ 234,455         $ 147,895
                                                   =========         =========

LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
   Accrued interest                                $   8,989         $      --

Long-term liabilities:
   Payable to subsidiary                             112,970                --
   Payable to Advantica                               23,174                --
   Senior Notes payable                              167,068                --
                                                   ---------         ---------
Total liabilities not subject to compromise          312,201                --
Liabilities subject to compromise                         --           336,200
                                                   ---------         ---------
Total Liabilities                                    312,201           336,200
                                                   ---------         ---------
Stockholder's Deficit:
Common stock: par value $0.10; 1,000 shares
  authorized                                              --                --
Paid-in capital                                       99,719            99,719
Deficit                                             (177,465)         (288,024)
                                                   ---------         ---------
Total Stockholder's Deficit                          (77,746)         (188,305)
                                                   ---------         ---------
                                                   $ 234,455         $ 147,895
                                                   =========         =========

            See accompanying notes to condensed financial statements.

                                       S-1

<PAGE>   53

                                                                      SCHEDULE I

                               FRD ACQUISITION CO.
                              DEBTOR-IN-POSSESSION
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                        CONDENSED STATEMENT OF OPERATIONS


                                                       FISCAL YEAR ENDED
                                               --------------------------------
                                               DECEMBER 29,        DECEMBER 27,
                                                   1999                2000
                                                  ------              ------

(In thousands)
General and administrative expenses              $   6,473         $   6,237
                                                 ---------         ---------
Operating loss                                      (6,473)           (6,237)
                                                 ---------         ---------
Other expense:
    Equity in net loss of subsidiary              (111,102)          (86,407)
    Interest expense                               (18,082)          (17,915)
                                                 ---------         ---------
       Total other expense                        (129,184)         (104,322)
                                                 ---------         ---------
Net loss                                         $(135,657)        $(110,559)
                                                 =========         =========


            See accompanying notes to condensed financial statements.

                                       S-2

<PAGE>   54

                                                                      SCHEDULE I

                               FRD ACQUISITION CO.
                              DEBTOR-IN-POSSESSION
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                        CONDENSED STATEMENT OF CASH FLOWS



                                                       FISCAL YEAR ENDED
                                                -------------------------------
                                                DECEMBER 29,       DECEMBER 27,
                                                    1999               2000
                                                   ------             ------

(In thousands)
Cash Flows Used In Operating Activities:
   Net loss                                       $(135,657)        $(110,559)
   Amortization of deferred financing costs             137               153
   Amortization of debt premium                      (1,667)           (1,850)
   Equity in net loss from subsidiary               111,102            86,407
   Increase in amount payable to Advantica            6,473             6,237
                                                  ---------         ---------
Net cash used in operating activities               (19,612)          (19,612)
                                                  ---------         ---------
Net cash flows used in investing activities              --                --
                                                  ---------         ---------
Cash Flows Provided by Financing Activities:
   Increase in payable to subsidiary                 19,612            19,612
                                                  ---------         ---------
Net cash flows provided by financing activities      19,612            19,612
                                                  ---------         ---------
Net Change in Cash                                       --                --
                                                  ---------         ---------
Cash at Beginning and End of Period               $      --         $      --
                                                  =========         =========

Cash Paid for Interest                            $  19,612         $  19,612
                                                  =========         =========



Notes to Condensed Financial Statements

Note 1: The condensed financial information included in this schedule reflects
FRD Acquisition Co.'s investment in FRI-M, its wholly owned subsidiary, on the
equity method. FRD Acquisition Co. was formed to acquire the stock of FRI-M.
Such acquisition occurred May 23, 1996 and was effected when FRD paid cash of
$125,000,000 and issued notes payable of $150,000,000 (subsequently increased by
$6,896,902).

Note 2: The 12.5% Senior Notes (which are included in liabilities subject to
compromise), by their terms, are due July 2004. Interest is payable
semi-annually.

Note 3: Liabilities subject to compromise differ from amounts reflected as such
in the consolidated financial statements of FRD Acquisition Co. due to the
intercompany payable from FRD Acquisition Co. to subsidiary that eliminates in
consolidation.

                                       S-3

<PAGE>   55

                                   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.

                                          FRD ACQUISITION CO.

                                          By: /s /RONALD B. HUTCHISON
                                             -------------------------
                                             Ronald B. Hutchison
                                             Executive Vice President
                                             Date: March 27, 2001



SIGNATURE                              TITLE                           DATE
---------                              -----                           ----

  /s/ DAVID O. DEVOY          President and Chief Financial       March 27, 2001
----------------------------  Officer (Principal Executive,
   (DAVID O. DEVOY)           Financial and Accounting Officer)

  /s/ JAMES B. ADAMSON        Director                            March 27, 2001
----------------------------
   (JAMES B. ADAMSON)

  /s/ VERA K. FARRIS          Director                            March 27, 2001
----------------------------
   (VERA K. FARRIS)

  /s/ JAMES J.GAFFNEY         Director                            March 27, 2001
----------------------------
   (JAMES J. GAFFNEY)

  /s/ DARRELL JACKSON         Director                            March 27, 2001
----------------------------
   (DARRELL JACKSON)

  /s/ NELSON J. MARCHIOLI     Director                            March 27, 2001
----------------------------
   (NELSON J. MARCHIOLI)

  /s/ ROBERT E. MARKS         Director                            March 27, 2001
----------------------------
   (ROBERT E. MARKS)

  /s/ LLOYD I. MILLER, III    Director                            March 27, 2001
----------------------------
   (LLOYD I. MILLER III)

  /s/ CHARLES F. MORAN        Director                            March 27, 2001
----------------------------
   (CHARLES F. MORAN)

  /s/ ELIZABETH A. SANDERS    Director                            March 27, 2001
----------------------------
   (ELIZABETH A. SANDERS)

  /s/ DONALD R. SHEPHERD      Director                            March 27, 2001
----------------------------
   (DONALD R. SHEPHERD)

  /s/ RAUL R. TAPIA           Director                            March 27, 2001
----------------------------
   (RAUL R. TAPIA)