<PAGE>

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

                                    FORM 10-K

         (Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934
    For the fiscal year ended OCTOBER 26, 2003
                                       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 0-23420

                              QUALITY DINING, INC.
             (Exact name of registrant as specified in its charter)

                 INDIANA                                 35-1804902
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)

        4220 EDISON LAKES PARKWAY
           MISHAWAKA, INDIANA                               46545
(Address of principal executive offices)                 (Zip Code)

                                 (574) 271-4600
              (Registrant's telephone number, including area code)

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

                                      NONE

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

                         COMMON STOCK, WITHOUT PAR VALUE

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. [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ]  No [X]

                                   $15,738,329

Aggregate market value of the voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or
the average bid and asked price of such common equity, as of May 11, 2003
(assuming solely for the purposes of this calculation that all Directors and
executive officers of the Registrant are "affiliates").

                                   11,596,781

Number of shares of Common Stock, without par value, outstanding at January 12,
                                      2004

                       DOCUMENT INCORPORATED BY REFERENCE

Portions of the following document have been incorporated by reference into this
Annual Report on Form 10-K

  IDENTITY OF DOCUMENT                     PART OF FORM 10-K INTO WHICH DOCUMENT
                                           IS INCORPORATED

  Definitive Proxy Statement for the
  Annual Meeting of Shareholders to be
  held March 9, 2004.                      PART III

<PAGE>

                              QUALITY DINING, INC.
                               Mishawaka, Indiana
               Annual Report to Securities and Exchange Commission
                                October 26, 2003

                                     PART I

ITEM 1. BUSINESS.

GENERAL

         Quality Dining, Inc. (the "Company") operates four distinct restaurant
concepts. It owns the Grady's American Grill(R) concept and an Italian Dining
concept. The Company operates its Italian Dining restaurants under the
tradenames of Spageddies Italian Kitchen(R) ("Spageddies"(R)) and Papa Vino's
Italian Kitchen(R) ("Papa Vino's"(R)). The Company also operates Burger King(R)
restaurants and Chili's Grill & Bar(TM) ("Chili's"(R)) as a franchisee of Burger
King Corporation and Brinker International, Inc. ("Brinker"), respectively. As
of October 26, 2003, the Company operated 176 restaurants, including 118 Burger
King restaurants, 37 Chili's, 12 Grady's American Grill restaurants, three
Spageddies and six Papa Vino's. Summarized financial information concerning the
Company's reportable segments is included in Note 14 to the Company's financial
statements included elsewhere in this report.

         The Company was founded in 1981 and has grown from a two-unit Burger
King franchisee to a multi-concept restaurant operator. The Company has grown by
capitalizing on (i) its significant presence in targeted markets, (ii) the
stable operating performance of its Burger King and Chili's restaurants, (iii)
strategic acquisitions of Burger King restaurants and Chili's restaurants and
(iv) management's extensive experience.

         The Company is an Indiana corporation, which is the indirect successor
to a corporation that commenced operations in 1981. Prior to the consummation of
the Company's initial public offering on March 8, 1994 (the "Offering"), the
business of the Company was transacted by the Company and eight affiliated
corporations. As a result of a reorganization effected prior to the Offering,
the Company became a management holding company. The Company, as used herein,
means Quality Dining, Inc. and all of its subsidiaries.

BUSINESS STRATEGY

         The Company's fundamental business strategy is to optimize the cash
flow of its operations through proven operating management. The Company plans to
use the majority of its cash flow to refurbish existing restaurants, build or
acquire new restaurants and reduce debt. The Company believes its strategy will
ultimately maximize the long term value of the Company for its shareholders.

         Management's operating philosophy, which is shared by all of the
Company's concepts, is comprised of the following key elements:

         Value-Based Concepts. Value-based restaurant concepts are important to
the Company's business strategy. Accordingly, in each of its restaurants, the
Company seeks to provide customers with value, which is a product of
high-quality menu selections, reasonably priced food, prompt, courteous service
and a pleasant dining atmosphere.

         Focus on Customer Satisfaction. Through its comprehensive management
training programs and experienced management team, the Company seeks to ensure
that its employees provide customers with an enjoyable dining experience on a
consistent basis.

         Hands-On Management Style. Members of the Company's senior management
are actively involved in the operations of each of the Company's restaurant
concepts. This active management approach is a key factor in the Company's
efforts to control costs, enhance training and development of employees and
optimize operating income.

         Quality Franchise Partners. The Company has partnered with franchisors
with established reputations for leadership in their segments of the restaurant
industry who have proven integrity and share the Company's focus on value,
customer service and quality.

                                       2

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         Use of Technology. The Company actively tracks the performance of its
business utilizing computer and point-of-sale technology to provide timely and
accurate reporting.

EXPANSION

         The Company currently plans to build two or three full service
restaurants in fiscal 2004. The Company does not plan to develop any new Burger
King restaurants in fiscal 2004. The Company's long-term expansion strategy is
focused on the development of restaurants in existing markets in order to
optimize market penetration. In addition, the Company will consider strategic
acquisitions in the Burger King system that meet certain acquisition criteria.

         During fiscal 2003, the Company built one new Burger King restaurant
and three new Chili's restaurants. The Company also replaced two Burger King
restaurant buildings with new buildings at the same locations and opened two
additional Burger King restaurants in facilities leased from a related party.
The Company sold four Grady's American Grill restaurants in fiscal 2003. (See
"Grady's American Grill" and Note 11 and Note 13 to the Company's financial
statements.)

         During fiscal 2001, the Company purchased 42 Burger King restaurants in
the Grand Rapids metropolitan area (See Note 13 to the Company's financial
statements). The Company paid $4.2 million in cash and assumed certain
liabilities of approximately $1.8 million. Three of these restaurants were
closed in fiscal 2002.

         The amount of the Company's total investment to develop new restaurants
depends upon various factors, including prevailing real estate prices and lease
rates, raw material costs and construction labor costs in each market in which a
new restaurant is to be opened. The Company may own or lease the real estate for
future development.

BURGER KING

         General. Prior to December, 2002 Burger King Corporation was an
indirect wholly-owned subsidiary of Diageo, PLC. In July, 2002 Diageo agreed to
sell Burger King Corporation to an investment group led by Texas Pacific Group
for $2.26 billion. In December, 2002, Diageo, PLC announced that it had
completed the sale of Burger King Corporation to an equity sponsor group led by
Texas Pacific Group although the purchase price had been reduced to $1.5 billion
due in part to the highly competitive environment in which Burger King operates.
Burger King Corporation has been franchising Burger King restaurants since 1954
and has locations throughout the world.

         Menu. Each Burger King restaurant offers a diverse menu containing a
variety of traditional and innovative food items, featuring the Whopper(R)
sandwich and other flame-broiled hamburgers and sandwiches, which are prepared
to order with the customer's choice of condiments. The menu also typically
includes breakfast entrees, french fries, onion rings, desserts and soft drinks.
The Burger King system philosophy is characterized by its "Have It Your Way"(R)
service, generous portions and competitive prices, resulting in high value to
its customers. Management believes these characteristics distinguish Burger King
restaurants from their competitors and have the potential to provide a
competitive advantage.

         Advertising and Marketing. As required by its franchise agreements, the
Company contributes 4.0% of its restaurant sales to an advertising and marketing
fund controlled by Burger King Corporation. Burger King Corporation uses this
fund primarily to develop system-wide advertising, sales promotions and
marketing materials and concepts. In addition to its required contribution to
the advertising and marketing fund, the Company makes local advertising
expenditures intended specifically to benefit its own Burger King restaurants.
Typically, the Company spends its local advertising dollars on television and
radio.

CHILI'S GRILL & BAR

         General. The Chili's concept is owned by Brinker, a publicly-held
corporation headquartered in Dallas, Texas. The first Chili's Grill & Bar
restaurant opened in 1975.

         Menu. Chili's restaurants are full service, casual dining restaurants
featuring quick and friendly table service designed to minimize customer waiting
and facilitate table turnover. Service personnel are dressed casually to

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<PAGE>

reinforce the casual environment. Chili's restaurants feature a diverse menu of
broadly appealing food items, including a variety of hamburgers, fajitas, steak,
chicken and seafood entrees and sandwiches, barbecued ribs, salads, appetizers
and desserts, all of which are prepared fresh daily according to recipes
specified by Chili's. Emphasis is placed on serving substantial portions of
quality food at modest prices. Each Chili's restaurant has a full-service bar.

         Advertising and Marketing. Pursuant to its franchise agreements with
Brinker, the Company contributes 0.5% of sales from each restaurant to Brinker
for advertising and marketing to benefit all restaurants. As part of a
system-wide promotional effort, the Company paid an additional advertising fee
as follows:

<TABLE>
<CAPTION>
                  Period                        % of Sales
                  ------                        ----------
<S>                                             <C>
September 1, 1999 through August 30, 2000         0.375%
September 1, 2000 through June 27, 2001             1.0%
June 28, 2001 through June 26, 2002                 1.2%
June 27, 2002 through June 25, 2003                 2.0%
June 26, 2003 through June 30, 2004                2.25%
</TABLE>

The Company is also required to spend 2.0% of sales from each restaurant on
local advertising which, since June, 2002, is considered to be met by the
additional fees described in the preceding table. The Company's advertising
expenditures typically exceed the levels required under its agreements with
Brinker and the Company spends substantially all of its advertising dollars on
television and radio advertising. The Company also conducts promotional
marketing efforts targeted at its various local markets.

         The Chili's franchise agreements provide that Brinker may establish
advertising cooperatives ("Cooperatives") for geographic areas where one or more
restaurants are located. Any restaurants located in areas subject to a
Cooperative are required to contribute 3.0% of sales to the Cooperative in lieu
of contributing 0.5% of sales to Brinker. Each such restaurant is also required
to directly spend 0.5% of sales on local advertising. To date, no Cooperatives
have been established in any of the Company's markets.

GRADY'S AMERICAN GRILL

         General. Grady's American Grill restaurants feature high-quality food
in a classic American style, served in a warm and inviting setting. The Company
sold 15 and closed three Grady's American Grill restaurants during fiscal 2002
and sold four restaurants in fiscal 2003. These units did not fit the Company's
long-term strategic plan and were not meeting the Company's performance
expectations. The Company expects to sell four more restaurants in fiscal 2004.

         Fiscal 2003 Impairment Charge. In light of the disposals and the
continued decline in sales and cash flow in its Grady's American Grill division,
the Company reviewed the carrying amounts for the balance of its Grady's
American Grill Restaurant assets in the second quarter of fiscal 2003. The
Company estimated the future cash flows expected to result from the continued
operation and the residual value of the remaining restaurant locations in the
division and concluded that, for the division as a whole, and in particular with
respect to eight locations, the undiscounted estimated future cash flows were
less than the carrying amount of the related assets. Accordingly, the Company
concluded that these assets had been impaired. The Company measured the
impairment and recorded an impairment charge related to these assets aggregating
$4,411,000 in the second quarter of fiscal 2003, consisting of a reduction in
the net book value of the Grady's American Grill trademark of $2,882,000 and a
reduction in the net book value of certain fixed assets in the amount of
$1,529,000. In accordance with SFAS 144, $640,000 of this amount has been
reclassified to discontinued operations in the Consolidated Statement of
Operations for fiscal 2003. In determining the fair value of the aforementioned
restaurants, the Company relied primarily on discounted cash flow analyses that
incorporated an investment horizon of five years and utilized a risk adjusted
discount factor.

         As part of the impairment analysis discussed above, the Company also
reviewed the remaining useful life of the Grady's American Grill trademark. In
light of the continuing negative trends in both sales and cash flows, the
increase in the pervasiveness of these declines amongst individual stores, and
the accelerating rate of decline in both sales and cash flow, the Company also
determined that the useful life of the Grady's American Grill trademark should
be reduced from 15 to five years.

         The Company continues to pursue various management actions in response
to the negative trend in its Grady's business, including evaluating strategic
business alternatives for the division both as a whole and at each of its
restaurant locations.

                                       4

<PAGE>

         Fiscal 2001 Impairment Charge. During the second half of fiscal 2001,
the Company experienced a significant decrease in sales and cash flow in its
Grady's American Grill division. The Company initiated various management
actions in response to this declining trend, including evaluating strategic
business alternatives for the division both as a whole and at each of its
restaurant locations. Subsequently, the Company entered into an agreement to
sell nine of its Grady's American Grill restaurants for approximately $10.4
million. Because the carrying amount of the related assets as of October 28,
2001 exceeded the estimated net sale proceeds, the Company recorded an
impairment charge of $4.1 million related to these nine restaurants. As a
consequence of this loss and in connection with the aforementioned evaluation,
the Company estimated the future cash flows expected to result from the
continued operation and the residual value of the remaining restaurant locations
in the division and concluded that, in 12 locations, the undiscounted estimated
future cash flows were less than the carrying amount of the related assets.
Accordingly, the Company concluded that these assets had been impaired. The
Company measured the impairment and recorded an impairment charge related to
these assets aggregating $10.4 million, consisting of a reduction in the net
book value of the Grady's American Grill trademark of $4.9 million and a
reduction in the net book value of certain fixed assets in the amount of $5.5
million.

         Menu. The Grady's American Grill menu features signature prime rib,
high-quality steaks, seafood, inviting salads, sandwiches, soups and high
quality desserts. Entrees emphasize on-premise scratch preparation in a classic
American style.

         Advertising and Marketing. As the owner of the Grady's American Grill
concept, the Company has full responsibility for marketing and advertising. The
Company focuses advertising and marketing efforts in local print media, use of
direct mail programs and radio, with total annual expenditures of approximately
2.0% of the sales for its Grady's American Grill restaurants.

ITALIAN DINING CONCEPT

         General. The Company's Italian Dining concepts operate under the
tradenames Papa Vino's Italian Kitchen and Spageddies Italian Kitchen. The
Company had been a franchisee of Spageddies since 1994, and became the owner of
the concept in October 1995. The first Papa Vino's restaurant was opened in 1996
and the first Spageddies restaurant was opened in 1994. Papa Vino's and
Spageddies each offers a casual dining atmosphere with high-quality food,
generous portions and moderate prices, all enjoyed in a setting featuring the
ambiance of a traditional Italian trattoria with stone archways, large wine
casks and wine racks lining the walls and exhibition cooking in an inviting,
comfortable environment. The Company's Italian Dining concept is proprietary and
provides the Company with flexibility for expansion and development.

         Menu. A fundamental component of the Italian Dining concepts is to
provide the customer with a wide variety of high-quality, value-priced Italian
food. The restaurant menu includes an array of entrees, including traditional
Italian pasta, grilled meats and freshly prepared selections of pizzas, soups,
salads and sandwiches. The menu also includes specialty appetizers, fresh baked
bread and desserts, together with a full-service bar.

         Advertising and Marketing. As the owner of these concepts, the Company
has full responsibility for marketing and advertising its Italian Dining
restaurants. The Company focuses its advertising and marketing efforts in local
print media, use of direct mail programs and radio, with total annual
expenditures estimated to range between 2% and 3% of the sales for these
restaurants.

TRADEMARKS

         The Company owns the following registered trademarks: Grady's American
Grill(R), Spageddies Italian Kitchen(R), Spageddies(R), Papa Vino's(R) and Papa
Vino's Italian Kitchen(R). The Company also owns a number of other trademarks
and service marks which are used in connection with its owned concepts. The
Company believes its marks are valuable and intends to maintain its marks and
any related registrations. Burger King(R) is a registered trademark of Burger
King Corporation. Chili's(R) and Chili's Grill & Bar(TM) are a registered
trademark and trademark, respectively, of Brinker.

                                       5

<PAGE>

ADMINISTRATIVE SERVICES

         From its headquarters in Mishawaka, Indiana, the Company provides
accounting, treasury management, information technology, purchasing, human
resources, finance, marketing, advertising, menu development, budgeting,
planning, legal, site selection and development support services for each of its
operating subsidiaries.

         Management. The Company is managed by a team of senior managers who are
responsible for the establishment and implementation of a strategic plan. The
Company believes that its management team possesses the ability to manage its
diverse operations.

         The Company has an experienced management team in place for each of its
concepts. Each concept's operations are managed by geographic region with a
senior manager responsible for each specific region of operations.

         Site Selection. Site selection for new restaurants is made by the
Company's senior management under the direction of the Company's Chief
Development Officer, subject in the case of the Company's franchised restaurants
to the approval of its franchisors. Within a potential market area, the Company
evaluates high-traffic locations to determine profitable trading areas.
Site-specific factors considered by the Company include traffic generators,
points of distinction, visibility, ease of ingress and egress, proximity to
direct competition, access to utilities, local zoning regulations and various
other factors. In addition, in evaluating potential full service dining sites,
the Company considers applicable laws regulating the sale of alcoholic
beverages. The Company regularly reviews potential sites for expansion. Once a
potential site is selected, the Company utilizes demographic and site selection
data to assist in final site selection.

         Quality Control. The Company's senior management and restaurant
management staff are principally responsible for assuring compliance with the
Company's and its franchisors' operating procedures. The Company and its
franchisors have uniform operating standards and specifications relating to the
quality, preparation and selection of menu items, maintenance and cleanliness of
the premises and employee conduct. Compliance with these standards and
specifications is monitored by frequent on-site visits and inspections by the
Company's senior management. Additionally, the Company employs the use of toll
free customer feedback telephone services and outside "shopper services" to
visit restaurants periodically to ensure that the restaurants meet the Company's
operating standards. The Company's operational structure encourages all
employees to assume a proprietary role ensuring that such standards and
specifications are met.

                  Burger King. The Company's Burger King operations are focused
         on achieving a high level of customer satisfaction with speed, accuracy
         and quality of service closely monitored. The Company's senior
         management and restaurant management staff are principally responsible
         for ensuring compliance with the Company's and Burger King
         Corporation's operating procedures. The Company and Burger King
         Corporation have uniform operating standards and specifications
         relating to the quality, preparation and selection of menu items,
         maintenance and cleanliness of the premises and employee conduct. These
         standards include food preparation rules regarding, among other things,
         minimum cooking times and temperatures, sanitation and cleanliness.

                  Full Service Dining. The Company has uniform operating
         standards and specifications relating to the quality, preparation and
         selection of menu items, maintenance and cleanliness of the premises
         and employee conduct in its full service dining concepts. At the
         Company's Chili's restaurants, compliance with these standards and
         specifications is monitored by representatives of Brinker. Each full
         service dining restaurant typically has a general manager and three to
         four assistant managers who together train and supervise employees and
         are, in turn, overseen by a multi-unit manager.

         Information Technology Systems. Financial controls are maintained
through a centralized accounting system, which allows the Company to track the
operating performance of each restaurant. The Company has a point-of-sale system
in each of its restaurants which is linked directly to the Company's accounting
system, thereby making information available on a timely basis. During fiscal
2002, the Company replaced its financial and accounting system with integrated,
web-based software operating in a client/server hardware environment. This
information system enables the Company to analyze customer purchasing habits,
operating trends and promotional results.

         Training. The Company maintains comprehensive training programs for all
of its restaurant management personnel. Special emphasis is placed on quality
food preparation, service standards and total customer satisfaction.

                                       6

<PAGE>

                  Burger King. The training program for the Company's Burger
         King restaurant managers features an intensive hands-on training period
         followed by classroom instruction and simulated restaurant management
         activities. Upon certification, new managers work closely with
         experienced managers to solidify their skills and expertise. The
         Company's existing restaurant managers regularly participate in the
         Company's ongoing training efforts, including classroom programs,
         off-site training and other training/development programs, which the
         Company's senior concept management designs from time to time. The
         Company generally seeks to promote from within to fill Burger King
         restaurant management positions.

                  Full Service Dining. The Company requires all general and
         restaurant managers of its full service dining concepts to participate
         in a system-wide, comprehensive training program. These programs teach
         management trainees detailed food preparation standards and procedures
         for each concept. These programs are designed and implemented by the
         Company's senior concept management teams.

         Purchasing. Purchasing and procurement for the Company's Grady's
American Grill and Italian Dining concepts are generally contracted with
full-service distributors. Unit-level purchasing decisions from an approved list
of suppliers are made by each of the Company's restaurant managers based on
their assessment of the provisioning needs of the particular location. Purchase
orders and invoices are reviewed and approved by restaurant managers.

         The Company participates in system-wide purchasing and distribution
programs with respect to its Chili's and Burger King restaurants, which have
been effective in reducing store-level expenditures on food and paper packaging.

FRANCHISE AND DEVELOPMENT AGREEMENTS

         Burger King. The Company is responsible for all costs and expenses
incurred in locating, acquiring and developing restaurant sites. The Company
must also satisfy Burger King Corporation's development criteria, which include
the specific site, the related purchase contract or lease agreement and
architectural and engineering plans for each of the Company's new Burger King
restaurants. Burger King Corporation may refuse to grant a franchise for any
proposed Burger King restaurant if the Company is not conducting the operations
of each of its Burger King restaurants in compliance with Burger King
Corporation's franchise requirements. Burger King Corporation periodically
monitors the operations of its franchised restaurants and notifies its
franchisees of failures to comply with franchise or development agreements that
come to its attention.

         On January 27, 2000 the Company executed a "Franchisee Commitment"
pursuant to which it agreed to undertake certain "Transformational Initiatives"
including capital improvements and other routine maintenance in all of its
Burger King restaurants. The capital improvements include the installation of
signage bearing the new Burger King logo and the installation of a new
drive-through ordering system. The initial deadline for completing these capital
improvements, December 31, 2001, was extended to December 31, 2002, although the
Company met the initial deadline with respect to 66 of the 70 Burger King
restaurants subject to the Franchisee Commitment. The Company completed the
capital improvements to the remaining four restaurants prior to December 31,
2002. In addition, the Company agreed to perform, as necessary, certain routine
maintenance such as exterior painting, sealing and striping of parking lots and
upgraded landscaping. The Company completed this maintenance prior to September
30, 2000, as required. In consideration for executing the Franchisee Commitment,
the Company received "Transformational Payments" totaling approximately $3.9
million during fiscal 2000. In addition, the Company received supplemental
Transformational Payments of approximately $135,000 in fiscal 2001 and $180,000
in fiscal 2002. The portion of the Transformational Payments that corresponds to
the amount required for the capital improvements will be recognized as income
over the useful life of the capital improvements. The portion of the
Transformational Payments that corresponds to the required routine maintenance
was recognized as a reduction in maintenance expense over the period during
which maintenance was performed. The remaining balance of the Transformational
Payments was recognized as other income ratably through December 31, 2001, the
term of the initial Franchisee Commitment, except that the supplemental
Transformational Payments were recognized as other income when received.

         During fiscal 2000, Burger King Corporation increased its royalty and
franchise fees for most new restaurants. The franchise fee for new restaurants
increased from $40,000 to $50,000 for a 20 year agreement and the royalty rate
increased from 3.5% of sales to 4.5% of sales, after a transitional period. For
franchise agreements entered into

                                       7

<PAGE>

during the transitional period, the royalty rate will be 4.0% of sales for the
first 10 years and 4.5% of sales for the balance of the term.

         For new restaurants, the transitional period was from July 1, 2000 to
June 30, 2003. Since July 1, 2003, the royalty rate is 4.5% of sales for the
full term of new restaurant franchise agreements. For renewals of existing
franchise agreements, the transitional period was from July 1, 2000 through June
30, 2001. As of July 1, 2001, existing restaurants that renew their franchise
agreements will pay a royalty of 4.5% of sales for the full term of the renewed
agreement. The advertising contribution remains at 4.0% of sales. Royalties
payable under existing franchise agreements are not affected by these changes
until the time of renewal, at which time the then prevailing rate structure will
apply.

         Burger King Corporation offered a voluntary program as an incentive for
franchisees to renew their franchise agreements prior to the scheduled
expiration date ("2000 Early Renewal Program"). Franchisees that elected to
participate in the 2000 Early Renewal Program are required to make capital
investments in their restaurants by, among other things, bringing them up to
Burger King Corporation's current image, and to extend occupancy leases.
Franchise agreements entered into under the 2000 Early Renewal Program have
special provisions regarding the royalty payable during the term, including a
reduction in the royalty to 2.75% over five years beginning April, 2002 and
concluding in April, 2007.

         The Company included 36 restaurants in the 2000 Early Renewal Program.
The Company paid franchise fees of $877,000 in the third quarter of fiscal 2000
to extend the franchise agreements of the selected restaurants for 16 to 20
years. In fiscal 2001 and 2002 the Company invested approximately $6.6 million
to remodel the selected restaurants to Burger King Corporation's current image.

         Burger King Corporation offered an additional voluntary program as an
incentive to franchisees to renew their franchise agreements prior to the
scheduled expiration date ("2001 Early Renewal Program"). Franchisees that
elected to participate in the 2001 Early Renewal Program are required to make
capital investments in their restaurants by, among other things, bringing them
up to Burger King Corporation's current image (Image 99), and to extend
occupancy leases. Franchise agreements entered into under the 2001 Early Renewal
Program have special provisions regarding the royalty payable during the term,
including a reduction in the royalty to 2.75% over five years commencing 90 days
after the semi-annual period in which the required capital improvements are
made.

         The Company included three restaurants in the 2001 Early Renewal
Program. The Company paid franchise fees of $144,925 in fiscal 2001 to extend
the franchise agreements of the selected restaurants for 17 to 20 years. The
Company invested approximately $1.7 million in fiscal 2003 to remodel two
participating restaurants to Burger King Corporation's current image. The
Company is considering withdrawing the third restaurant from the 2001 Early
Renewal Program.

         Burger King Corporation also provides general specifications for
designs, color schemes, signs and equipment, formulas for preparation of food
and beverage products, marketing concepts, inventory, operations and financial
control methods, management training, technical assistance and materials. Each
franchise agreement prohibits the Company from transferring a franchise without
the prior approval of Burger King Corporation.

         Burger King Corporation's franchise agreements prohibit the Company,
during the term of the agreements, from owning or operating any other hamburger
restaurant. For a period of one year following the termination of a franchise
agreement, the Company remains subject to such restriction within a two mile
radius of the Burger King restaurant which was the subject of the franchise
agreement.

         Chili's. The Company's development agreement with Brinker (the "Chili's
Agreement") expired on December 31, 2003. The development agreement entitled the
Company to develop up to 41 Chili's restaurants in two regions encompassing
counties in Indiana, Michigan, Ohio, Kentucky, Delaware, New Jersey and
Pennsylvania. The Company paid development fees totaling $260,000 for the right
to develop the restaurants in the regions. Each Chili's franchise agreement
requires the Company to pay an initial franchise fee of $40,000, a monthly
royalty fee of 4.0% of sales and certain advertising fees. See "Chili's Grill &
Bar, Advertising and Marketing", above. The Company completed all of its
obligations under the Chili's Agreement prior to its expiration.

                                       8

<PAGE>

         The Chili's Agreement prohibited Brinker or any other Chili's
franchisee from establishing a Chili's restaurant within a specified geographic
radius of the Company's Chili's restaurants. The Chili's Agreement and the
franchise agreements prohibit the Company, for the term of the agreements, from
owning or operating other restaurants which are similar to a Chili's restaurant.
The Chili's Agreement extends this prohibition, but only within the Company's
development territories, for a period of two years following the termination of
the Chili's Agreement. In addition, each franchise agreement prohibits the
Company, for the term of the franchise agreement and for a period of two years
following its termination, from owning or operating such other restaurants
within a 10-mile radius of the Chili's restaurant which was the subject of such
agreement.

         The Company is responsible for all costs and expenses incurred in
locating, acquiring and developing restaurant sites. Each proposed restaurant
site, the related purchase contract or lease agreement and the architectural and
engineering plans for each of the Company's new Chili's restaurants are subject
to Brinker's approval. Brinker may refuse to grant a franchise for any proposed
Chili's restaurant if the Company is not conducting the operations of each of
its Chili's restaurants in compliance with the Chili's restaurant franchise
requirements. Brinker periodically monitors the operations of its franchised
restaurants and notifies the franchisees of any failure to comply with franchise
or development agreements that comes to its attention.

         The franchise agreements convey the right to use the franchisor's trade
names, trademarks and service marks with respect to specific restaurant units.
The franchisor also provides general specifications for designs, color schemes,
signs and equipment, formulas for preparation of food and beverage products,
marketing concepts, inventory, operations and financial control methods,
management training and technical assistance and materials. Each franchise
agreement prohibits the Company from transferring a franchise without the prior
approval of the franchisor.

         Risks and Requirements of Franchisee Status. Due to the nature of
franchising and the Company's agreements with its franchisors, the success of
the Company's Burger King and Chili's concepts is, in large part, dependent upon
the overall success of its franchisors, including the financial condition,
management and marketing success of its franchisors and the successful operation
of restaurants opened by other franchisees. Certain matters with respect to the
Company's franchised concepts must be coordinated with, and approved by, the
Company's franchisors. In particular, the Company's franchisors must approve the
opening by the Company of any new franchised restaurant, including franchises
opened within the Company's existing franchised territories, and the closing of
any of the Company's existing franchised restaurants. The Company's franchisors
also maintain discretion over the menu items that may be offered in the
Company's franchised restaurants.

COMPETITION

         The restaurant industry is intensely competitive with respect to price,
service, location and food quality. The industry is mature and competition can
be expected to increase. There are many well-established competitors with
substantially greater financial and other resources than the Company, some of
which have been in existence for a substantially longer period than the Company
and may have substantially more units in the markets where the Company's
restaurants are, or may be, located. McDonald's and Wendy's restaurants are the
principal competitors to the Company's Burger King restaurants. The competitors
to the Company's Chili's and Italian Dining restaurants are other casual dining
concepts such as Applebee's, T.G.I. Friday's, Bennigan's, Olive Garden and Red
Lobster restaurants. The primary competitors to Grady's American Grill are
Houston's, Outback Steakhouse, Houlihan's, and O'Charley's Restaurant & Lounge,
as well as a large number of locally-owned, independent restaurants. The Company
believes that competition is likely to become even more intense in the future.

         The Company and the restaurant industry in general are significantly
affected by factors such as changes in local, regional or national economic
conditions, changes in consumer tastes, weather conditions and various other
consumer concerns. In addition, factors such as increases in food, labor and
energy costs, the availability and cost of suitable restaurant sites,
fluctuating insurance rates, state and local regulations and the availability of
an adequate number of hourly-paid employees can also adversely affect the
restaurant industry.

                                       9

<PAGE>

GOVERNMENT REGULATION

         Each of the Company's restaurants is subject to licensing and
regulation by a number of governmental authorities, which include alcoholic
beverage control in the case of the Chili's, Italian Dining and Grady's American
Grill restaurants, and health, safety and fire agencies in the state or
municipality in which the restaurant is located. Difficulties or failures in
obtaining the required licenses or approvals could delay or prevent the opening
of a new restaurant in a particular area.

         Alcoholic beverage control regulations require each of the Company's
Chili's, Italian Dining and Grady's American Grill restaurants to apply to a
state authority and, in certain locations, county or municipal authorities for a
license or permit to sell alcoholic beverages on the premises and to provide
service for extended hours and on Sundays. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the daily operations
of the Company's restaurants, including minimum age of patrons and employees,
hours of operation, advertising, wholesale purchasing, inventory control and
handling, storage and dispensing of alcoholic beverages. The loss of a liquor
license for a particular Grady's American Grill, Italian Dining or Chili's
restaurant would most likely result in the closing of the restaurant.

         The Company may be subject in certain states to "dramshop" laws, which
generally provide a person injured by an intoxicated patron the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance.

         The Company's restaurant operations are also subject to federal and
state minimum wage laws governing such matters as working conditions, overtime
and tip credits. Significant numbers of the Company's food service and
preparation personnel are paid at rates related to the federal minimum wage and,
accordingly, increases in the minimum wage could increase the Company's labor
costs.

         The Company is also subject to various local, state and federal laws
regulating the discharge of pollutants into the environment. The Company
believes that it conducts its operations in substantial compliance with
applicable environmental laws and regulations. In an effort to prevent and, if
necessary, to correct environmental problems, the Company conducts environmental
audits of a proposed restaurant site in order to determine whether there is any
evidence of contamination prior to purchasing or entering into a lease with
respect to such site. To date, the Company's operations have not been materially
adversely affected by the cost of compliance with applicable environmental laws.

EMPLOYEES

         As of October 26, 2003, the Company had approximately 7,430 employees.
Of those employees, approximately 106 held management or administrative
positions, approximately 600 were involved in restaurant management, and the
remainder were engaged in the operation of the Company's restaurants. None of
the Company's employees is covered by a collective bargaining agreement. The
Company considers its employee relations to be good.

                                       10

<PAGE>

ITEM 2. PROPERTIES.

         The following table sets forth, as of October 26, 2003, the 13 states
in which the Company operated restaurants and the number of restaurants in each
state. Of the 176 restaurants which the Company operated as of October 26, 2003,
the Company owned 42 and leased 134. Many leases provide for base rent plus an
additional rent based upon sales to the extent the additional rent exceeds the
base rent, while other leases provide for only a base rent.

                     NUMBER OF COMPANY-OPERATED RESTAURANTS

<TABLE>
<CAPTION>
                                       GRADY'S
                   BURGER             AMERICAN   ITALIAN
                    KING    CHILI'S    GRILL     DINING    TOTAL
                   ------   -------   --------   -------   -----
<S>                <C>      <C>       <C>        <C>       <C>
Alabama                                  1                   1
Arkansas                                 1                   1
Delaware                       2                             2
Georgia                                  1                   1
Indiana              44        5                    2       51
Michigan             74       12         1          5       92
Mississippi                              1                   1
New Jersey                     5         1                   6
North Carolina                           2                   2
Ohio                           4                    2        6
Oklahoma                                 1                   1
Pennsylvania                   9                             9
Tennessee                                3                   3
                   -------------------------------------------
     Total          118       37        12          9      176
                   ===========================================
</TABLE>

         Burger King. As of October 26, 2003, 43 of the Company's Burger King
restaurants were leased from real estate partnerships owned by certain of the
Company's founding shareholders. See ITEM 13, "Certain Relationships and Related
Transactions." The Company also leased six Burger King restaurants directly from
Burger King Corporation and 52 restaurants from unrelated third parties. The
Company owned 17 of its Burger King restaurants as of October 26, 2003.

         Chili's Grill & Bar. As of October 26, 2003, the Company owned 12 of
its Chili's restaurants and leased the 25 other restaurants from unrelated
parties.

         Grady's American Grill. As of October 26, 2003, the Company owned eight
of its Grady's American Grill restaurants and leased the other four Grady's
American Grill restaurants from unrelated parties.

         Italian Dining. As of October 26, 2003, the Company owned five of the
Italian Dining restaurants and leased the four other restaurants from unrelated
parties.

         Office Lease. The Company leases approximately 53,000 square feet for
its headquarters facility in an office building located in Mishawaka, Indiana
that was constructed in 1997 and is leased from a limited liability company in
which the Company owns a 50% interest. The remaining term of the lease agreement
is eight years. Approximately 4,500 square feet, 12,400 square feet and 5,200
square feet of the Company's headquarters building have been subleased to three
tenants with remaining terms of one, two and four years, respectively.

                                       11

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

         The Company is involved in various legal proceedings incidental to the
conduct of its business, including employment discrimination claims. Based upon
currently available information, the Company does not expect that any such
proceedings will have a material adverse effect on the Company's financial
position or results of operations but there can be no assurance thereof.

         During fiscal 2003, the Company was party to a lawsuit with BFBC Ltd
("BFBC"), a former franchisee of Bruegger's Bagels, and certain principals of
BFBC (the "Franchisee Parties"). During the second quarter of fiscal 2003, the
Company entered into a settlement agreement with the Franchisee Parties that
provided for a cash payment by the Franchisee Parties to the Company in the
amount of $3.75 million and the dismissal of all remaining claims in the
lawsuit. The Company recorded a gain of $3,459,000 in the second quarter of
fiscal 2003 as a result of this settlement. Subsequent to the end of the second
quarter of fiscal 2003, and ancillary to the BFBC settlement, the Company
transferred to Bruegger's Corporation's senior secured lender the Company's
interest in the $10.7 million Subordinated Note issued by Bruegger's Corporation
to the Company in connection with the divestiture of the Company's bagel-related
businesses in 1997. The Company received payment of $55,000 for the Subordinated
Note. The Company had previously reserved for the full amount of the
Subordinated Note. Accordingly, the Company recorded a $55,000 gain in respect
of this payment in the third quarter of fiscal 2003.

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

         The Company did not submit any matters to a vote of security holders
during the fourth quarter of the 2003 fiscal year.

                                       12

<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
         Name              Age                       Position
----------------------     ---     ---------------------------------------------
<S>                        <C>     <C>
Daniel B. Fitzpatrick      46      Chairman of the Board, President and Chief
                                   Executive Officer

John C. Firth              46      Executive Vice President, General Counsel and
                                   Secretary

James K. Fitzpatrick       48      Senior Vice President, Chief Development
                                   Officer and Director

Patrick J. Barry           41      Senior Vice President - Administration and
                                   Information Technology

Lindley E. Burns           49      Senior Vice President - Full Service Dining

Gerald O. Fitzpatrick      43      Senior Vice President - Burger King Division

Christopher L. Collier     42      Vice President - Finance

Jeanne M. Yoder            37      Vice President and Controller
</TABLE>

         Daniel B. Fitzpatrick has served as President and Chief Executive
Officer and a Director of the Company since 1982. Prior to founding the Company,
Mr. Fitzpatrick worked for a franchisee of Burger King Corporation, rising to
the level of regional director of operations. He has over 25 years of experience
in the restaurant business. Mr. Fitzpatrick also serves as a director of 1st
Source Corporation, a publicly held diversified bank holding company based in
South Bend, Indiana.

         John C. Firth serves as Executive Vice President, General Counsel and
Secretary. Prior to joining the Company in June 1996, he was a partner with the
law firm of Sopko and Firth. Beginning in 1985, he represented the Company as
outside legal counsel with responsibility for the Company's legal affairs.

         James K. Fitzpatrick has served as Senior Vice President and Chief
Development Officer of the Company since August 1995. Prior to that, Mr.
Fitzpatrick served as Vice President or Senior Vice President of the Company in
charge of the Company's Fort Wayne, Indiana Burger King restaurant operations
since 1984. Prior to joining the Company, he served as a director of operations
for a franchisee of Burger King Corporation. He has over 25 years of experience
in the restaurant business.

         Patrick J. Barry joined the Company in October 1996 and serves as the
Company's Senior Vice President - Administration and Information Technology.
Prior to joining the Company, Mr. Barry was a management consultant with The
Keystone Group and Andersen Consulting.

         Lindley E. Burns joined the Company in June of 1995. Prior to joining
the Company he worked for Brinker as a multi-unit manager in its Chili's
division for two years and was a Chili's franchisee for eight years prior to
joining Brinker. He has over 25 years of experience in the restaurant business.

         Gerald O. Fitzpatrick serves as a Senior Vice President in the
Company's Burger King Division. Mr. Fitzpatrick has served in various capacities
in the Company's Burger King operations since 1983. Prior to joining the
Company, he served as a district manager for a franchisee of Burger King
Corporation. He has over 20 years of experience in the restaurant business.

         Christopher L. Collier joined the Company in July of 1996. Since that
time he has served in various capacities in the Finance Department, most
recently as the Vice President of Financial Reporting. Prior to joining the
Company, he served as the Vice President-Finance at a regional restaurant chain.
Mr. Collier is a certified public accountant.

                                       13

<PAGE>

         Jeanne M. Yoder joined the Company in March of 1996. Since that time
she has served in various capacities in the Accounting Department, most recently
as Assistant Controller. Prior to joining the Company, she served as Controller
at a regional travel agency. Ms. Yoder is a certified public accountant.

         The above information includes business experience during the past five
years for each of the Company's executive officers. Executive officers of the
Company serve at the discretion of the Board of Directors. Messrs. Daniel B.
Fitzpatrick, James K. Fitzpatrick and Gerald O. Fitzpatrick are brothers. There
is no family relationship between any other Directors or executive officers of
the Company.

         The success of the Company's business is dependent upon the services of
Daniel B. Fitzpatrick, Chairman, President and Chief Executive Officer of the
Company. The Company maintains key man life insurance on the life of Mr.
Fitzpatrick in the principal amount of $3.0 million. The loss of the services of
Mr. Fitzpatrick would have a material adverse effect upon the Company.

         (Pursuant to General Instruction G(3) of Form 10-K, the foregoing
information is included as an unnumbered Item in Part I of this Annual Report in
lieu of being included in the Company's Proxy Statement for its 2004 Annual
Meeting of Shareholders.)

                                       14

<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES.

         The Company's Common Stock is traded on the Nasdaq Stock Market's
National Market under the symbol QDIN. The prices set forth below reflect the
high and low sales quotations for the Company's Common Stock as reported by
Nasdaq for the fiscal periods indicated. As of January 14, 2004, there were 428
holders of record and approximately 2,550 beneficial owners.

<TABLE>
<CAPTION>
                          Fiscal Year 2003          Fiscal Year 2002
                          High         Low          High         Low
                       -----------------------   -----------------------
<S>                    <C>          <C>          <C>          <C>
First Quarter          $     3.50   $     2.11   $     2.48   $     1.80
Second Quarter               2.35         1.94         3.98         2.06
Third Quarter                2.99         1.79         5.00         3.05
Fourth Quarter               3.25         2.50         3.98         2.93
</TABLE>

         The Company does not pay cash dividends on its Common Stock. The
Company does not anticipate paying cash dividends in the foreseeable future. The
Company's revolving credit agreement prohibits the payment of cash dividends and
restricts other distributions. The agreement expires November 1, 2005.

         No unregistered equity securities were sold by the Company during
fiscal 2003.

         Information about the Company's equity compensation plans required by
this Item is set forth in Part III, Item 12 of this report and is incorporated
herein by reference.

                                       15

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

    QUALITY DINING, INC.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                                      Fiscal Year Ended (1)
                                                               October 26,   October 27,   October 28,   October 29,   October 31,
                                                                  2003          2002          2001           2000         1999
----------------------------------------------------------------------------------------------------------------------------------
                                                                         (In thousands, except unit and per share data)
<S>                                                            <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales:
   Burger King                                                 $   114,983   $   123,795   $    80,791   $    83,228   $    84,171
   Chili's Grill & Bar                                              80,710        75,760        69,727        60,921        56,837
   Italian Dining Division                                          17,560        17,052        17,126        16,756        16,066
   Grady's American Grill                                           13,892        31,607        45,166        52,439        67,773
----------------------------------------------------------------------------------------------------------------------------------
Total revenues                                                     227,145       248,214       212,810       213,344       224,847
----------------------------------------------------------------------------------------------------------------------------------
Operating expenses
   Restaurant operating expenses
      Food and beverage                                             61,910        69,379        59,492        59,716        65,398
      Payroll and benefits                                          66,486        72,791        62,585        62,059        64,599
      Depreciation and amortization                                  9,977        10,117        10,876        10,424        10,579
      Other operating expenses                                      61,540        64,655        54,819        52,904        55,856
----------------------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses:                               199,913       216,942       187,772       185,103       196,432
   General and administrative (2)(3)                                15,961        18,638        15,111        17,073        15,912
   Amortization of intangibles                                         364           431           892           910         1,032
   Facility closing costs                                              (90)          355           898             -         1,047
   Impairment of assets                                              3,771             -        14,487             -         1,454
----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses                                           219,919       236,366       219,160       203,086       215,877
----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (4) (5) (6)                                  7,226        11,848        (6,350)       10,258         8,970
----------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
   Interest expense                                                 (7,479)       (8,429)      (10,419)      (11,174)      (10,709)
   Provision for uncollectible note receivable (7)                       -             -             -       (10,000)            -
   Recovery of note receivable                                       3,459             -             -             -             -
   Stock purchase expense                                           (1,294)            -             -             -             -
   Gain (loss) on sale of property and equipment                       (53)        1,034          (310)         (878)         (188)
   Other income (expense), net                                         992           655         1,185         1,024           146
----------------------------------------------------------------------------------------------------------------------------------
Total other expense                                                 (4,375)       (6,740)       (9,544)      (21,028)      (10,751)
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes         2,851         5,108       (15,894)      (10,770)       (1,781)
Income tax provision (benefit)                                       1,966         1,053         1,325         1,167           804
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations                               885         4,055       (17,219)      (11,937)       (2,585)
Income (loss) from discontinued operations                             (13)        1,029         1,689         2,226           628
----------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                              $       872   $     5,084   $   (15,530)  $    (9,711)  $    (1,957)
----------------------------------------------------------------------------------------------------------------------------------

Basic net income (loss) per share:
----------------------------------------------------------------------------------------------------------------------------------
   Continuing operations                                              0.08          0.36         (1.52)        (0.97)        (0.20)
   Discontinued operations                                               -          0.09          0.15          0.18          0.05
----------------------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share                              $      0.08   $      0.45   $      1.37   $     (0.79)  $     (0.15)
----------------------------------------------------------------------------------------------------------------------------------

Diluted net income (loss) per share:
----------------------------------------------------------------------------------------------------------------------------------
   Continuing operations                                              0.08          0.36         (1.52)        (0.97)        (0.20)
   Discontinued operations                                               -          0.09          0.15          0.18          0.05
----------------------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share                            $      0.08   $      0.45   $      1.37   $     (0.79)  $     (0.15)
----------------------------------------------------------------------------------------------------------------------------------

Weighted average shares outstanding:
----------------------------------------------------------------------------------------------------------------------------------
Basic                                                               11,311        11,248        11,356        12,329        12,668
----------------------------------------------------------------------------------------------------------------------------------
Diluted                                                             11,335        11,306        11,356        12,329        12,668
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       16

<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                                      Fiscal Year Ended (1)
                                                               October 26,   October 27,   October 28,   October 29,   October 31,
                                                                  2003          2002          2001           2000         1999
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>           <C>           <C>           <C>           <C>
RESTAURANT DATA:
Units open at end of period:
       Grady's American Grill                                           12            16            34            35            36
       Italian Dining Division                                           9             9             8             8             8
       Burger King (8)                                                 118           115           116            71            70
       Chili's Grill & Bar                                              37            34            33            31            28
                                                               -------------------------------------------------------------------
                                                                       176           174           191           145           142
                                                               -------------------------------------------------------------------

BALANCE SHEET DATA:
       Working capital (deficiency)                            $   (16,470)  $   (23,100)  $   (23,405)  $   (22,312)  $   (17,962)
       Total assets                                                145,407       156,941       167,238       178,861       189,037
       Long-term debt and capitalized lease
         obligations                                                86,481        99,031       113,194       106,815       112,815
       Total stockholders' equity                                   28,012        25,753        20,380        37,984        49,002
</TABLE>

(1)  All fiscal years presented consist of 52 weeks except fiscal 1999 which had
     53 weeks.

(2)  General and administrative costs in fiscal 2000 include approximately $1.25
     million in unanticipated expenses related to the litigation, proxy contest
     and tender offer initiated by NBO, LLC..

(3)  General and administrative costs in fiscal 2002 include $1,527,000 of
     expense related to the litigation with BFBC, Ltd.

(4)  Operating income for the fiscal year ended October 31, 1999 includes
     non-cash charges for the impairment of assets and facility closings
     totaling $2,501,000. The non-cash charges consist primarily of $650,000 for
     the disposal of obsolete point of sale equipment that the Company
     identified as a result of installing its new point-of-sale system in its
     full service dining restaurants, $1,047,000 for the estimated costs and
     losses associated with the anticipated closing of two regional offices and
     three restaurant locations and $804,000 primarily for a non-cash asset
     impairment write down for two under-performing restaurants.

(5)  Operating income for the fiscal year ended October 28, 2001 includes
     non-cash charges for the impairment of assets and facility closings
     totaling $15,385,000. The non-cash charges consist primarily of $14,525,000
     for the impairment of certain long-lived assets of under-performing Grady's
     American Grill restaurants and $860,000 for store closing expenses and
     lease guarantee obligations.

(6)  Operating loss for the fiscal year ended October 26, 2003 includes non-cash
     charges for the impairment of assets totaling $3,771,000. The non-cash
     charges are primarily for the impairment of certain long-lived assets of
     under-performing Grady's American Grill restaurants.

(7)  During fiscal 2000 the Company recorded a $10,000,000 non-cash charge to
     fully reserve for the Subordinated Note.

(8)  On October 15, 2001, the Company acquired 42 restaurants from BBD Business
     Consultants, Ltd. and its affiliates. The Company's financial statements
     include the operating results from the date of acquisition.

                                       17

<PAGE>

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

FORWARD-LOOKING STATEMENTS

         This report contains and incorporates forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including
statements about the Company's development plans and trends in the Company's
operations and financial results. Forward-looking statements can be identified
by the use of words such as "anticipates," "believes," "plans," "estimates,"
"expects," "intends," "may," and other similar expressions. Forward-looking
statements are made based upon management's current expectations and beliefs
concerning future developments and their potential effects on the Company. There
can be no assurance that the Company will actually achieve the plans, intentions
and expectations discussed in these forward-looking statements. Actual results
may differ materially. Among the risks and uncertainties that could cause actual
results to differ materially are the following: the availability and cost of
suitable locations for new restaurants; the availability and cost of capital to
the Company; the ability of the Company to develop and operate its restaurants;
the ability of the Company to sustain sales and margins in the increasingly
competitive environment; the hiring, training and retention of skilled corporate
and restaurant management and other restaurant personnel; the integration and
assimilation of acquired concepts; the overall success of the Company's
franchisors; the ability to obtain the necessary government approvals and
third-party consents; changes in governmental regulations, including increases
in the minimum wage; the results of pending litigation; and weather and other
acts of God. The Company undertakes no obligation to update or revise any
forward-looking information, whether as a result of new information, future
developments or otherwise.

CRITICAL ACCOUNTING POLICIES

         Management's Discussion and Analysis of Financial Condition and Results
of Operations are based upon the Company's consolidated financial statements,
which were prepared in accordance with accounting principles generally accepted
in the United States of America. These principles require management to make
estimates and assumptions that affect the reported amounts in the consolidated
financial statements and notes thereto. Actual results may differ from these
estimates, and such differences may be material to the consolidated financial
statements. Management believes that the following significant accounting
policies involve a higher degree of judgment or complexity.

         Property and equipment. Property and equipment are depreciated on a
straight-line basis over the estimated useful lives of the assets. The useful
lives of the assets are based upon management's expectations for the period of
time that the asset will be used for the generation of revenue. Management
periodically reviews the assets for changes in circumstances that may impact
their useful lives.

         Impairment of long-lived assets. Management periodically reviews
property and equipment for impairment using historical cash flows as well as
current estimates of future cash flows. This assessment process requires the use
of estimates and assumptions that are subject to a high degree of judgment. In
addition, at least annually, or as circumstances dictate, management assesses
the recoverability of goodwill and other intangible assets which requires
assumptions regarding the future cash flows and other factors to determine the
fair value of the assets. In determining fair value, the Company relies
primarily on discounted cash flow analyses that incorporates an investment
horizon of five years and utilizes a risk adjusted discount factor. If these
assumptions change in the future, management may be required to record
impairment charges for these assets. As a result of the adoption of Statement of
Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", the Company has classified the revenues,
expenses and related assets and liabilities of four Grady's American Grill
restaurants that were sold in fiscal 2003 and four Grady's American Grill
restaurants that are held for sale, as discontinued operations in the
accompanying consolidated financial statements.

         Income taxes. The Company has recorded a valuation allowance to reduce
its deferred tax assets since it is more likely than not that some portion of
the deferred assets will not be realized. Management has considered all
available evidence both positive and negative, including the Company's
historical operating results, estimates of future taxable income and ongoing
feasible tax strategies in assessing the need for the valuation allowance. In
estimating its deferred tax asset, management used its 2004 operating plan as
the basis for a forecast of future taxable earnings. Management did not
incorporate growth assumptions and limited the forecast to five years, the
period that management believes it can project results that are more likely than
not achievable. Absent a significant and unforeseen change in facts or
circumstances, management re-evaluates the realizability of its tax assets in
connection with its annual budgeting cycle.

                                       18

<PAGE>

         The Company operates in a very competitive industry that can be
significantly affected by changes in local, regional or national economic
conditions, changes in consumer tastes, weather conditions and various other
consumer concerns. Accordingly, the amount of the deferred tax asset considered
by management to be realizable, more likely than not, could change in the near
term if estimates of future taxable income change. This could result in a charge
to, or increase in, income in the period such determination is made.

         Other estimates. Management is required to make judgments and or
estimates in the determination of several of the accruals that are reflected in
the consolidated financial statements. Management believes that the following
accruals are subject to a higher degree of judgment.

         Management uses estimates in the determination of the required accruals
for general liability, workers' compensation and health insurance. These
estimates are based upon a detailed examination of historical and industry
claims experience. The claim experience may change in the future and may require
management to revise these accruals.

         The Company is periodically involved in various legal actions arising
in the normal course of business. Management is required to assess the
probability of any adverse judgments as well as the potential ranges of any
losses. Management determines the required accruals after a careful review of
the facts of each legal action and assistance from outside legal counsel. The
accruals may change in the future due to new developments in these matters.

         Management continually reassesses its assumptions and judgments and
makes adjustments when significant facts and circumstances dictate.
Historically, actual results have not been materially different than the
estimates that are described above.

                                       19

<PAGE>

For an understanding of the significant factors that influenced the Company's
performance during the past three fiscal years, the following discussion should
be read in conjunction with the consolidated financial statements appearing
elsewhere in this Annual Report.

RESULTS OF OPERATIONS

The following table reflects the percentages that certain items of revenue and
expense bear to total revenues.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                           Fiscal Year Ended
                                                                October 26,   October 27,   October 28,
                                                                   2003          2002          2001
-------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>           <C>
Restaurant sales:
    Burger King                                                     50.7%         49.9%         38.0%
    Chili's Grill & Bar                                             35.5          30.5          32.8
    Italian Dining Division                                          7.7           6.9           8.0
    Grady's American Grill                                           6.1          12.7          21.2
----------------------------------------------------------------------------------------------------
Total revenues                                                     100.0         100.0         100.0
----------------------------------------------------------------------------------------------------
Operating expenses:
    Restaurant operating expenses:
       Food and beverage                                            27.3          28.0          28.0
       Payroll and benefits                                         29.3          29.3          29.4
       Depreciation and amortization                                 4.4           4.1           5.1
       Other operating expenses                                     27.0          26.0          25.7
----------------------------------------------------------------------------------------------------
Total restaurant operating expenses                                 88.0          87.4          88.2
----------------------------------------------------------------------------------------------------
Income from restaurant operations                                   12.0          12.6          11.8
----------------------------------------------------------------------------------------------------
    General and administrative                                       7.0           7.5           7.1
    Amortization of intangibles                                      0.2           0.2           0.4
    Facility closing costs                                             -           0.1           0.4
    Impairment of assets                                             1.7             -           6.9
----------------------------------------------------------------------------------------------------
Operating income (loss)                                              3.1           4.8          (3.0)
----------------------------------------------------------------------------------------------------
Other income (expense):
    Interest expense                                                (3.3)         (3.4)         (4.9)
    Recovery of note receivable                                      1.5             -             -
    Stock purchase expense                                          (0.5)            -             -
    Gain (loss) on sale of property and equipment                      -           0.4          (0.1)
    Other income and expense, net                                    0.4           0.2           0.5
----------------------------------------------------------------------------------------------------
Total other expense, net                                            (1.9)         (2.8)         (4.5)
----------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes         1.2           2.0          (7.5)
Income tax provision                                                 0.8           0.4           0.6
----------------------------------------------------------------------------------------------------
Income (loss) from continuing operations                             0.4           1.6          (8.1)
Income (loss) from discontinued operations, net of tax                 -           0.4           0.8
----------------------------------------------------------------------------------------------------
Net income (loss)                                                    0.4%          2.0%         (7.3%)
----------------------------------------------------------------------------------------------------
</TABLE>

                                       20

<PAGE>

FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002

         Restaurant sales in fiscal 2003 were $227,145,000, a decrease of 8.5%
or $21,069,000, compared to restaurant sales of $248,214,000 in fiscal 2002. The
decrease was due to a $8,812,000 decrease in restaurant sales in the Company's
quick service segment and a $12,257,000 decrease in restaurant sales in the
Company's full service segment. As a result of the adoption of Statement of
Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", the Company has classified the revenues,
expenses and related assets and liabilities of four Grady's American Grill
restaurants that were sold in fiscal 2003 and four Grady's American Grill
restaurants that are held for sale, as discontinued operations in the
accompanying consolidated financial statements.

         The Company's Burger King restaurant sales were $114,983,000 in fiscal
2003 compared to sales of $123,795,000 in fiscal 2002, a decrease of $8,812,000.
The Company had increased revenue of $2,594,000 due to additional sales weeks
from three restaurants opened in fiscal 2003 and two restaurants opened in
fiscal 2002 that were open for their first full year in fiscal 2003. The
Company's Burger King restaurants' average weekly sales decreased to $18,998 in
fiscal 2003 versus $20,668 in fiscal 2002. Sales at restaurants open for more
than one year decreased 8.2% in fiscal 2003 when compared to the same period in
fiscal 2002. The Company believes that the sales decline it experienced in
fiscal 2003 resulted primarily from ineffective marketing and unsuccessful new
product introductions.

         The Company's Chili's Grill & Bar restaurant sales increased $4,950,000
to $80,710,000 in fiscal 2003 compared to restaurant sales of $75,760,000 in
fiscal 2002. The Company had increased revenue of $3,716,000 due to additional
sales weeks from three new restaurants opened in fiscal 2003 and one restaurant
opened in fiscal 2002 that was open for its first full year in fiscal 2003. The
Company's Chili's Grill & Bar restaurants average weekly sales increased to
$44,518 in fiscal 2003 versus $43,868 in fiscal 2002. Sales at restaurants open
for more than one year increased 2.1% in fiscal 2003 when compared to the same
period in fiscal 2002. The Company believes that the sales increases it
experienced in fiscal 2003 resulted from the application of the Company's
discipline operating systems and the franchisors successful marketing and menu
strategies.

         The Company's Grady's American Grill restaurant sales were $13,892,000
in fiscal 2003 compared to sales of $31,607,000 in fiscal 2002, a decrease of
$17,715,000. The Company sold or closed 18 units in fiscal 2002. The absence of
these units accounted for $14,061,000 of the sales decrease during fiscal 2003.
The Company sold four units in fiscal 2003 and has committed to sell four more
units in fiscal 2004. As required by SFAS 144 the results of operations for
these eight restaurants have been classified as discontinued operations for all
periods reported. The remaining eight Grady's American Grill restaurants had
average weekly sales of $33,394 in fiscal 2003 versus $42,029 in fiscal 2002, a
decrease of 20.5%. The Company believes sales declines in its Grady's American
Grill division resulted from competitive intrusion and the Company's inability
to efficiently market this concept.

         During the second quarter of fiscal 2003 the Company closed three
Grady's American Grill restaurants. The Company sold four Grady's American Grill
restaurants in fiscal 2003 receiving net proceeds of $4.8 million. In light of
these disposals and the continued decline in sales and cash flow in its Grady's
American Grill division, in the second quarter of fiscal 2003, the Company
reviewed the carrying amounts for the balance of its Grady's American Grill
Restaurant assets. The Company estimated the future cash flows expected to
result from the continued operation and the residual value of the remaining
restaurant locations in the division and concluded that, in eight locations, the
undiscounted estimated future cash flows were less than the carrying amount of
the related assets. Accordingly, the Company concluded that these assets had
been impaired. The Company measured the impairment and recorded an impairment
charge related to these assets aggregating $4,411,000 in the second quarter of
fiscal 2003, consisting of a reduction in the net book value of the Grady's
American Grill trademark of $2,882,000 and a reduction in the net book value of
certain fixed assets in the amount of $1,529,000. The impairment charge relating
to continuing operations was $3,771,000 and the amount relating to discontinued
operations was $640,000. In determining the fair value of the aforementioned
restaurants, the Company relied primarily on discounted cash flow analyses that
incorporated an investment horizon of five years and utilized a risk adjusted
discount factor.

                                       21

<PAGE>

         In light of the continuing negative trends in both sales and cash
flows, the increase in the pervasiveness of these declines amongst individual
stores, and the accelerating rate of decline in both sales and cash flow, the
Company also determined that the useful life of the Grady's American Grill
trademark should be reduced from 15 to five years.

         The Company continues to pursue various management actions in response
to the negative trend in its Grady's business, including evaluating strategic
business alternatives for the division both as a whole and at each of its
restaurant locations. While the Company believes that the Grady's American Grill
assets are reported at their estimated fair values as of October 26, 2003, there
can be no assurance thereof.

         The Company's Italian Dining Division's restaurant sales increased
$508,000 to $17,560,000 in fiscal 2003 when compared to restaurant sales of
$17,052,000 in fiscal 2002. The Company had increased revenue of $1,730,000 due
to additional sales weeks from one new restaurant opened in fiscal 2002. The
Italian Dining Division's average weekly sales decreased to $37,522 in fiscal
2003 from $40,122 in fiscal 2002. Sales at restaurants open for more than one
year decreased 7.3% in fiscal 2003 when compared to the same period in fiscal
2002. The Company believes that the sales declines it experienced in its Italian
division resulted primarily from competitive intrusion and the Company's
inability to efficiently market this concept.

         Total restaurant operating expenses were $199,913,000 in fiscal 2003,
compared to $216,942,000 in fiscal 2002. As a percentage of restaurant sales,
total restaurant operating expenses increased to 88.0% in fiscal 2003 from 87.4%
in fiscal 2002. The following factors influenced the operating margins:

         Food and beverage costs were $61,910,000 in fiscal 2003, compared to
$69,379,000 in fiscal 2002. As a percentage of total restaurant sales, food and
beverage costs decreased 0.7% to 27.3% in fiscal 2003 from 28.0% in fiscal 2002.
During fiscal 2003 food and beverage costs, as a percentage of sales, improved
in both the quick service segment and the full service segment. The improvement
in the quick service segment was mainly due to improved margins in the Company's
Grand Rapids, Michigan Burger King market. The Company acquired these
restaurants on October 15, 2001, and has implemented new procedures that have
reduced food costs as a percentage of sales. The decrease in the full service
segment was mainly due to the reduced number of Grady's American Grill
restaurants, which historically have had higher food and beverage costs, as a
percentage of total restaurant sales, than the Company's other full service
concepts.

         Payroll and benefits were $66,486,000 in fiscal 2003, compared to
$72,791,000 in fiscal 2002. As a percentage of total restaurant sales, payroll
and benefits were consistent at 29.3% in fiscal 2003 and fiscal 2002. Payroll
and benefits, as a percentage of sales, increased in the quick service segment
and decreased in the full service segment. The increase in the quick service
segment was mainly due to a decrease in average weekly sales. The decrease in
the full service segment was mainly due to the reduced number of Grady's
American Grill restaurants, which historically have had higher payroll and
benefit costs, as a percentage of total restaurant sales, than the Company's
other full service concepts.

         Depreciation and amortization decreased $140,000 to $9,977,000 in
fiscal 2003 compared to $10,117,000 in fiscal 2002. As a percentage of total
restaurant sales, depreciation and amortization increased to 4.4% in fiscal 2003
compared to 4.1% in fiscal 2002. The increase, as a percentage of revenues, was
mainly due to the decrease in average weekly sales at the Company's Burger King,
Italian Dining and Grady's American Grill restaurants.

         Other restaurant operating expenses include rent and utilities,
royalties, promotional expense, repairs and maintenance, property taxes and
insurance. Other restaurant operating expenses decreased $3,115,000 to
$61,540,000 in fiscal 2003 compared to $64,655,000 in 2002. The decrease was
mainly due to the reduced number of Grady's American Grill restaurants operating
in fiscal 2003 versus fiscal 2002. Other restaurant operating expenses, as a
percentage of total restaurant sales, increased to 27.0% in fiscal 2003 versus
26.0% in fiscal 2002. The increase, as a percentage of revenues, was mainly due
to the decrease in average weekly sales at the Company's Burger King, Italian
Dining and Grady's American Grill restaurants.

                                       22

<PAGE>

         Income from restaurant operations decreased $4,040,000 to $27,232,000,
or 12.0% of revenues, in fiscal 2003 compared to $31,272,000, or 12.6% of
revenues, in fiscal 2002. Income from restaurant operations in the Company's
quick service segment decreased $3,359,000 while the Company's full service
segment decreased $764,000 from the prior year.

         General and administrative expenses, which include corporate and
district management costs, were $15,961,000 in fiscal 2003, compared to
$18,638,000 in fiscal 2002. As a percentage of total revenues, general and
administrative expenses decreased to 7.0% in fiscal 2003 compared to 7.5% in
fiscal 2002. In fiscal 2002 the Company incurred approximately $1,527,000 in
legal expense for bagel-related litigation (See Note 10 to the Company's
consolidated financial statements) compared to $289,000 in legal expense in
fiscal 2003. The Company also had $1,059,000 less in bonus expense in fiscal
2003 than in fiscal 2002.

         Amortization of intangibles was $364,000 in fiscal 2003, compared to
$431,000 in fiscal 2002. The decrease was due to the decreased number of Grady's
American Grill restaurants operated by the Company. As a percentage of total
revenues, amortization of intangibles remained consistent at 0.2% in fiscal 2003
and fiscal 2002.

         The Company incurred $220,000 in facility closing costs in fiscal 2003
which has been recorded in discontinued operations and reversed $90,000 in
facility closing costs because actual facility closing costs were lower than the
Company's original estimates.

         The Company had operating income of $7,226,000 in fiscal 2003 compared
to operating income of $11,848,000 in fiscal 2002.

         Total interest expense decreased to $7,479,000 in fiscal 2003 from
$8,429,000 in fiscal 2002. The decrease was due to lower interest rates and
lower debt levels.

         During the third quarter of fiscal 2003, the Chairman and Chief
Executive Officer of the Company, Daniel B. Fitzpatrick, purchased all 1,148,014
shares of the Company's common stock owned by NBO, LLC, for approximately $4.1
million. As a result of this transaction, the Company incurred a one-time,
non-cash charge of $1,294,000, which is equal to the premium to the market price
that Mr. Fitzpatrick paid for the shares. The Company also recorded a
corresponding increase in the Company's additional paid-in capital of
$1,294,000.

         During the second quarter of fiscal 2003, the Company recorded a
$3,459,000 gain on the collection of a note receivable that had previously been
written off (See Note 10 to the Company's consolidated financial statements).
The Company did not have any similar activity in fiscal 2002.

         Income tax expense of $1,966,000 was recorded in fiscal 2003 compared
to $1,053,000 in fiscal 2002. At the end of fiscal 2003, the Company reviewed
its valuation reserve against its deferred tax asset consistent with its
historical practice. The Company's assessment of its ability to realize the net
deferred tax asset was based on the weight of both positive and negative
evidence, including the taxable income of its current operations. The Company
believes the positive evidence includes the Company's profitability in 2002 and
2003, consistent historical profitability of its Chili's, Italian Dining and
Burger King divisions, and the resolution of substantially all of its
bagel-related contingent liabilities. The Company believes the negative evidence
includes the persistent negative trends in its Grady's American Grill division
and the recent sales declines in its Burger King division, and statutory
limitations on available carryforward tax benefits. In estimating its deferred
tax asset, management used its 2004 operating plan as the basis for a forecast
of future taxable earnings. Management did not incorporate growth assumptions
and limited the forecast to five years, the period that management believes it
can project results that are more likely than not achievable. Absent a
significant and unforeseen change in facts or circumstances, management
re-evaluates the realizability of its tax assets in connection with its annual
budgeting cycle.

         Based on its assessment and using the methodology described above,
management believes more likely than not the net deferred tax asset will be
realized. The Company is currently profitable, has offset approximately $8.5
million of taxable income with net operating loss carryforward benefits in the
last two years, and management believes the issues that gave rise to historical
losses have been substantially resolved with no impact on its continuing

                                       23

<PAGE>

businesses. Moreover, the Company's Burger King and Chili's businesses have been
historically, and continue to be, profitable. Nonetheless, realization of the
net deferred tax asset will require approximately $26.5 million of future
taxable income. The Company operates in a very competitive industry that can be
significantly affected by changes in local, regional or national economic
conditions, changes in consumer tastes, weather conditions and various other
consumer concerns. Accordingly, the amount of the deferred tax asset considered
by management to be realizable, more likely than not, could change in the near
term if estimates of future taxable income change. This could result in a charge
to, or increase in, income in the period such determination is made.

         The Company has net operating loss carryforwards of approximately $57.0
million as well as FICA tip credits and alternative minimum tax credits of $5.1
million. Net operating loss carryforwards of $39.9 million expire in 2012, $3.0
million expire in 2018, $1.6 million expire in 2021 and $12.2 million expire in
2022. FICA tip credits of $1.3 million expire in 2012, $477,000 expire in 2013,
$572,000 expire in 2014, $571,000 expire in 2015, $727,000 expire in 2016,
$702,000 expire in 2017 and $561,000 expire in 2018. The alternative minimum tax
credits of $191,000 carryforward indefinitely. At the end of fiscal 2003 the
Company had a valuation reserve against its deferred tax asset of $24.2 million
resulting in a net deferred tax asset of $9.0 million.

         Discontinued operations includes four Grady's American Grill
restaurants sold during fiscal 2003 and four restaurants the Company expects to
sell before the end of fiscal 2004. The decision to dispose of these locations
reflects the Company's ongoing process of evaluating the performance and cash
flows of its various restaurant locations and using the proceeds from the sale
of closed restaurants to reduce outstanding debt. The net loss from discontinued
operations for fiscal 2003 was $13,000 versus income of $1,029,000 in fiscal
2002. The total restaurant sales from discontinued operations for fiscal 2003
were $8,435,000 versus $13,311,000 in fiscal 2002.

         The net income in fiscal 2003 was $872,000, or $0.08 per share,
compared to a net income of $5,084,000, or $0.45 per share, in fiscal 2002.

FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001

         Restaurant sales in fiscal 2002 were $248,214,000, an increase of 16.6%
or $35,404,000, compared to restaurant sales of $212,810,000 in fiscal 2001. The
increase was due to a $43,004,000 increase in restaurant sales in the Company's
quick service segment that was partially offset by a $7,600,000 decrease in
restaurant sales in the Company's full service segment.

         The Company's Burger King restaurant sales were $123,795,000 in fiscal
2002 compared to sales of $80,791,000 in fiscal 2001, an increase of
$43,004,000. The Company had increased revenues of $39,568,000 from the Burger
King restaurants in the Grand Rapids, Michigan metropolitan area which were
purchased on October 15, 2001. The Company also had increased revenue of
$2,564,000 due to additional sales weeks from two restaurants opened in fiscal
2002 and three restaurants opened in fiscal 2001 that were open for their first
full year in fiscal 2002. The Company's Burger King restaurants average weekly
sales decreased to $20,668 in fiscal 2002 versus $21,680 in fiscal 2001. The
restaurants in the Grand Rapids acquisition have significantly lower sales than
the Company's other Burger King restaurants, adversely affecting the average
weekly sales for the year ending October 27, 2002. Sales at restaurants open for
more than one year increased 0.5% in fiscal 2002 when compared to the same
period in fiscal 2001.

         The Company's Chili's Grill & Bar restaurant sales increased $6,033,000
to $75,760,000 in fiscal 2002 compared to restaurant sales of $69,727,000 in
fiscal 2001. The Company had increased revenue of $3,949,000 due to additional
sales weeks from one new restaurant opened in fiscal 2002 and two restaurants
opened in fiscal 2001 that were open for their first full year in fiscal 2002.
The Company's Chili's Grill & Bar restaurants average weekly sales increased to
$43,868 in fiscal 2002 versus $42,650 in fiscal 2001. Sales at restaurants open
for more than one year increased 3.5% in fiscal 2002 when compared to the same
period in fiscal 2001.

         The Company's Grady's American Grill restaurant sales were $31,607,000
in fiscal 2002 compared to sales of $45,166,000 in fiscal 2001, a decrease of
$13,559,000. The Company sold or closed 18 units in fiscal 2002. The absence of
these units accounted for $11,889,000 of the sales decrease during fiscal 2002.
The eight Grady's

                                       24

<PAGE>

American Grill restaurants remaining in continuing operations had average weekly
sales of $42,029 in fiscal 2002 versus $48,443 in the same period in fiscal 2001
which is a 13.2% decrease in comparable store sales.

         The Company sold nine of its Grady's American Grill restaurants for
approximately $10.5 million on May 16, 2002. The Company recorded an impairment
charge of $4.1 million related to these nine restaurants during the fourth
quarter of fiscal 2001. As a consequence of this loss and in connection with the
aforementioned evaluation, the Company estimated the future cash flows expected
to result from the continued operation and the residual value of the remaining
restaurant locations in the division and concluded in the fourth quarter of
fiscal 2001 that, in 12 locations, the undiscounted estimated future cash flows
were less than the carrying amount of the related assets. Accordingly, the
Company concluded that these assets had been impaired and recorded an impairment
charge related to these assets aggregating $10.4 million during the fourth
quarter of fiscal 2001.

         The Company's Italian Dining Division's restaurant sales decreased
$74,000 to $17,052,000 in fiscal 2002 when compared to restaurant sales of
$17,126,000 in fiscal 2001. The Company had increased revenue of $432,000 due to
additional sales weeks from one new restaurant opened in fiscal 2002. The
Italian Dining Division's average weekly sales decreased to $40,122 in fiscal
2002 from $41,169 in fiscal 2001. Sales at restaurants open for more than one
year decreased 3.0% in fiscal 2002 when compared to the same period in fiscal
2001.

         Total restaurant operating expenses were $216,942,000 in fiscal 2002,
compared to $187,772,000 in fiscal 2001. As a percentage of restaurant sales,
total restaurant operating expenses decreased to 87.4% in fiscal 2002 from 88.2%
in fiscal 2001. The following factors influenced the operating margins:

         On October 15, 2001, the Company purchased 42 Burger King restaurants
in the Grand Rapids, Michigan metropolitan area (three of which were
subsequently closed). The acquired Burger King restaurants had significantly
lower operating margins than the Company's other Burger King restaurants. The
new Burger King restaurants therefore had a negative effect on operating
margins.

         During fiscal 2002, the Company sold or closed 18 Grady's American
Grill Restaurants. The restaurants disposed of had lower operating margins than
the Company's other restaurants. The sale of the restaurants therefore had a
positive effect on operating margins during fiscal 2002.

         Food and beverage costs were $69,379,000 in fiscal 2002, compared to
$59,492,000 in fiscal 2001. As a percentage of total restaurant sales, food and
beverage costs were consistent at 28.0% in both fiscal 2002 and fiscal 2001.
Food and beverage costs in dollars and as a percentage of sales increased in the
quick service segment due to the purchase of Burger King restaurants in Grand
Rapids, Michigan. The Company had an increase in food and beverage costs of
$11,216,000 in fiscal 2002 due to the addition of the Burger King restaurants in
Grand Rapids, Michigan. The full service segment's food and beverage costs, as a
percentage of sales, were lower in fiscal 2002 than fiscal 2001. The decrease
was mainly due to the reduced number of Grady's American Grill restaurants,
which historically have had higher food and beverage costs, as a percentage of
total restaurant sales, than the Company's other full service concepts.

         Payroll and benefits were $72,791,000 in fiscal 2002, compared to
$62,585,000 in fiscal 2001. As a percentage of total restaurant sales, payroll
and benefits decreased 0.1% to 29.3% in fiscal 2002 from 29.4% in fiscal 2001.
The Company experienced an increase in payroll, as a percentage of sales, in the
quick service segment. The increase as a percent of sales and in total dollars
in the quick service segment was due to the purchase of the Burger King
restaurants in Grand Rapids, Michigan. The Company experienced an increase in
payroll of $11,950,000 in fiscal 2002 due to the addition of the Burger King
restaurants in Grand Rapids, Michigan. The Company experienced a decrease in
payroll as a percentage of sales in the full service segment mainly due to the
decreased number of Grady's American Grill restaurants.

         Depreciation and amortization decreased $759,000 to $10,117,000 in
fiscal 2002 compared to $10,876,000 in fiscal 2001. As a percentage of total
restaurant sales, depreciation and amortization decreased to 4.1% in fiscal 2002
compared to 5.1% in fiscal 2001. The decrease was mainly due to a $1,330,000
decrease at the Company's Grady's division, which was a direct result of the
fiscal 2001 asset impairment charge discussed above. This decrease was partially
offset by a $962,000 increase in depreciation and amortization in the quick
service segment due to the addition of Burger King restaurants in Grand Rapids,
Michigan.

                                       25
<PAGE>

         Other restaurant operating expenses include rent and utilities,
royalties, promotional expense, repairs and maintenance, property taxes and
insurance. Other restaurant operating expenses increased $9,836,000 to
$64,655,000 in fiscal 2002 compared to $54,819,000 in 2001. Other restaurant
operating expenses as a percentage of total restaurant sales increased to 26.0%
in fiscal 2002 versus 25.7% in fiscal 2001. The increase in dollars and as a
percent of sales is mainly due to the addition of Burger King restaurants in
Grand Rapids, Michigan.

         The Company recorded a $355,000 facility closing charge in fiscal 2002
consisting primarily of contractual lease costs for certain closed Grady's
American Grill restaurants. The Company recorded a $15.4 million impairment of
asset and facility closing charge in fiscal 2001. This amount consisted of a
$4.9 million charge for the reduction in the net book value of the Grady's
American Grill trademark, and a $9.6 million charge for the reduction in the net
book value of certain fixed assets and $860,000 in charges for the cost of
closing certain restaurant locations and certain lease guarantee obligations.

         Income from restaurant operations increased $6,234,000 to $31,272,000,
or 12.6% of revenues, in fiscal 2002 compared to $25,038,000, or 11.8% of
revenues, in fiscal 2001. Income from restaurant operations in the Company's
quick service segment increased $4,819,000 while the Company's full service
segment increased $1,546,000 from the prior year.

         General and administrative expenses, which include corporate and
district management costs, were $18,638,000 in fiscal 2002, compared to
$15,111,000 in fiscal 2001. As a percentage of total revenues, general and
administrative expenses increased to 7.5% in fiscal 2002 compared to 7.1% in
fiscal 2001. In fiscal 2002 the Company incurred approximately $1,527,000 for
the BFBC, Ltd. litigation (See Note 10 to the Company's consolidated financial
statements). The Company did not incur similar expenses during fiscal 2001. The
Company also incurred an additional $1,163,000 in general and administrative
expenses directly related to the addition of Burger King restaurants in Grand
Rapids, Michigan.

         Amortization of intangibles was $431,000 in fiscal 2002, compared to
$892,000 in fiscal 2001. As a percentage of total revenues, amortization of
intangibles decreased to 0.2% in fiscal 2002 compared to 0.4% in fiscal 2001.
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" at the
beginning of fiscal 2002. Under SFAS 142, amortization of goodwill was
discontinued.

         Total other expenses, as a percentage of total revenues, decreased to
2.8% in fiscal 2002 compared to 4.5% in fiscal 2001. The decrease was mainly due
to lower interest rates and lower debt levels that reduced the Company's
interest expense in fiscal 2002 versus fiscal 2001. The Company also had a
$1,034,000 gain on the sale of fixed assets in fiscal 2002 versus a $310,000
loss on the sale of fixed assets in fiscal 2001.

         Income tax expense of $1,053,000 was recorded in fiscal 2002 compared
to $1,325,000 in fiscal 2001. The decrease in income tax was largely due to a
federal refund of $330,000 related to previous years' alternative minimum tax
payments. The refund was made possible through the Job Creation and Worker
Assistance Act of 2002. The Company utilized $8.5 million of net operating loss
carryforwards to offset current year taxable income.

         Discontinued operations includes four Grady's American Grill
restaurants sold during fiscal 2003 and four Grady's American Grill restaurants
that the Company has decided to dispose of during fiscal 2004. The decision to
dispose of these locations reflects the Company's ongoing process of evaluating
the performance and cash flows of its various restaurant locations and using the
proceeds from the sale of closed restaurants to reduce outstanding debt. The net
income from discontinued operations for fiscal 2002 was $1,029,000 versus
$1,689,000 in fiscal 2001. The total restaurant sales from discontinued
operations in fiscal 2002 were $13,311,000 versus $15,281,000 in fiscal 2001.

         The net income in fiscal 2002 was $5,084,000, or $0.45 per share,
compared to a net loss of $15,530,000, or $1.37 per share, in fiscal 2001.

                                       26

<PAGE>

MANAGEMENT OUTLOOK

         The following section contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements about trends in and the impact of certain initiatives upon the
Company's operations and financial results. Forward-looking statements can be
identified by the use of words such as "anticipates," "believes," "plans,"
"estimates," "expects," "intends," "may," and other similar expressions.
Forward-looking statements are made based upon management's current expectations
and beliefs concerning future developments and their potential effects on the
Company. There can be no assurance that the Company will actually achieve the
plans, intentions and expectations discussed in these forward-looking
statements. Actual results may differ materially.

         Quick Service. The quick service segment of the restaurant industry is
a very mature and competitive segment, which is dominated by several national
chains. Market share is gained through national media campaigns promoting
specific sandwiches, usually at a discounted price. The national chains extend
marketing efforts to include nationwide premiums and movie tie-ins. During
fiscal 2003, the fast food hamburger segment of the restaurant industry
generally experienced positive growth, however, fierce competition in the quick
service segment negatively affected the Company's Burger King results. To date
in fiscal 2004, the competition that prevailed in the latter part of fiscal 2003
has continued. McDonald's and Wendy's promotional campaigns and new products
have been successful in taking away market share from Burger King. The Company
believes that the introduction of appealing new products and improved
promotional campaigns is a prerequisite to successfully competing for market
share in the quick service segment.

         Full Service. The full service segment of the restaurant industry is
also mature and competitive. This segment has a few national companies that
utilize national media efficiently. This segment also has numerous regional and
local chains that provide service and products comparable to the national chains
but which cannot support significant marketing campaigns. The Company operates
three restaurant concepts that compete in the full service segment.

         During fiscal 2003, the Company experienced strong results in its
Chili's division. These results were achieved by the application of the
Company's disciplined operating systems and successful marketing and menu
strategies. The Company also believes that the results in its Chili's division
were aided by effective product and marketing support from the franchisor.
During fiscal 2004, the Company intends to continue to emphasize the operational
and marketing initiatives that contributed to the success of its Chili's
division in fiscal 2003 and therefore expects steady financial results in fiscal
2004.

         During fiscal 2003, the Company experienced a deterioration in its
Italian Dining division's profitability. The Company has experienced significant
competitive intrusion in the markets where it has Italian Dining restaurants.
The Company expects the competitive pressures to continue in fiscal 2004.

         During fiscal 2003, the results of the Company's Grady's American Grill
division did not meet the Company's expectations. The Company believes that the
results in this division were negatively affected by competitive intrusion in
the Company's markets and limitations in the Company's ability to efficiently
market its Grady's American Grill restaurants. During fiscal 2003, the Company
sold four restaurants. The Company plans to sell four more restaurants in fiscal
2004. The Company will continue to consider opportunities to divest
under-performing or non-strategic restaurants in fiscal 2004. The Company
expects the Grady's American Grill division's operating performance to continue
to decline during fiscal 2004.

                                       27

<PAGE>

         Income taxes. The Company has recorded a valuation allowance to reduce
its deferred tax assets since it is more likely than not that some portion of
the deferred assets will not be realized. Management has considered all
available evidence both positive and negative, including the Company's
historical operating results, estimates of future taxable income and ongoing
feasible tax strategies in assessing the need for the valuation allowance. The
Company believes the positive evidence includes the historically consistent
profitability of its Chili's, Italian Dining and Burger King divisions, and the
resolution of substantially all of its bagel-related contingent liabilities. The
Company believes the negative evidence includes the persistent negative trends
in its Grady's American Grill division and the recent sales declines in its
Burger King division. The Company is currently experiencing unusual uncertainty
concerning whether, when and to what extent the recent sales declines in its
Burger King division will be reversed. In estimating its deferred tax asset,
management used its 2004 operating plan as the basis for a forecast of future
taxable earnings. Management did not incorporate growth assumptions and limited
the forecast to five years, the period that management believes it can project
results that are more likely than not achievable. Absent a significant and
unforeseen change in facts or circumstances, management re-evaluates the
realizability of its tax assets in connection with its annual budgeting cycle.

                                       28

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the Company's principal sources and uses of cash:

(Dollars in thousands)

<TABLE>
<CAPTION>
                                                            Fiscal Year Ended
                                                  October 26,   October 27,   October 28,
                                                     2003          2002          2001
-----------------------------------------------------------------------------------------
<S>                                               <C>           <C>           <C>
Net cash provided by operating activities         $    14,223   $    13,791   $     8,708

Cash flows from investing activities:
   Acquisition of business, net of cash                     -             -        (4,212)
   Purchase of property and equipment                  (9,570)      (16,102)      (11,821)
   Purchase of other assets                              (892)       (1,013)         (858)
   Proceeds from the sale of assets                     4,782        15,517           142

Cash flow from financing activities:
   Borrowings (repayment) of long-term debt, net       (8,824)      (13,523)        6,982
   Purchase of common stock                                 -          (264)       (1,925)
   Loan financing fees                                      -          (619)            -
   Repayment of capitalized lease                        (504)         (470)         (455)

Cash provided by discontinued operations                  544         1,634         2,597
</TABLE>

         The Company requires capital principally for building or acquiring new
restaurants, replacing equipment and remodeling existing restaurants. During the
three year period ended October 26, 2003, the Company financed these activities
principally using cash flows from operations, proceeds from the sale of assets
and its credit facilities. The Company's restaurants generate cash immediately
through sales. As is customary in the restaurant industry, the Company does not
have significant assets in the form of trade receivables or inventory, and
customary payment terms generally result in several weeks of trade credit from
its vendors. Therefore, the Company's current liabilities have historically
exceeded its current assets.

         In fiscal 2003, net cash provided by operating activities was
$14,223,000 compared to $13,791,000 in fiscal 2002. Lower income from restaurant
operations and changes in operating assets and liabilities that used cash were
partially offset by the gain on the note receivable collection, a reduction in
general and administrative costs and lower interest expense.

         During fiscal 2003, the Company had $9,570,000 in capital expenditures
in connection with the opening of new restaurants and the refurbishing of
existing restaurants. During fiscal 2003 the Company opened three new full
service restaurants and one quick service restaurant. The Company also replaced
two existing quick service restaurant buildings with new buildings at the same
locations and acquired two additional quick service restaurants in facilities
leased from a related party.

         During fiscal 2003, the Company received $4,782,000 in net proceeds
from the sale of assets, mainly from the sale of four Grady's American Grill
restaurants.

         The Company had a net repayment of $7,350,000 under its revolving
credit agreement during fiscal 2003. As of October 26, 2003, the Company's
revolving credit agreement had an additional $14,054,000 available for future
borrowings. The Company's average borrowing rate on October 26, 2003 was 4.18%.
The revolving credit agreement is subject to certain restrictive covenants that
require the Company, among other things, to achieve agreed upon levels of cash
flow. Under the revolving credit agreement the Company's funded debt to
consolidated cash flow ratio may not exceed 3.75 and its fixed charge coverage
ratio may not be less than 1.50 on October 26, 2003. The Company was in
compliance with these requirements with a funded debt to consolidated cash flow
ratio of 3.68 and a fixed charge coverage ratio of 1.72 as of and for the period
ended October 26, 2003.

                                       29

<PAGE>

         The Company's primary cash requirements in fiscal 2004 will be capital
expenditures in connection with the opening of new restaurants, remodeling of
existing restaurants, maintenance expenditures, and the reduction of debt under
the Company's debt agreements. During fiscal 2004, the Company anticipates
opening two or three full service restaurants. The Company does not plan to open
any new quick service restaurants. The actual amount of the Company's cash
requirements for capital expenditures depends in part on the number of new
restaurants opened, whether the Company owns or leases new units and the actual
expense related to remodeling and maintenance of existing units. While the
Company's capital expenditures for fiscal 2004 are expected to range from
$10,000,000 to $12,000,000, if the Company has alternative uses or needs for its
cash, the Company believes it could reduce such planned expenditures without
affecting its current operations. The Company has debt service requirements of
approximately $1,474,000 in fiscal 2003, consisting primarily of the principal
payments required under its mortgage facility.

         The Company anticipates that its cash flow from operations, together
with the $14,054,000 available under its revolving credit agreement as of
October 26, 2003, will provide sufficient funds for its operating, capital
expenditure, debt service and other requirements through the end of fiscal 2004.

         As of October 26, 2003, the Company had a financing package totaling
$109,066,000, consisting of a $60,000,000 revolving credit agreement (the "Bank
Facility") and a $49,066,000 mortgage facility (the "Mortgage Facility"), as
described below.

         The Mortgage Facility currently includes 34 separate mortgage notes,
with initial terms of either 15 or 20 years. The notes have fixed rates of
interest of either 9.79% or 9.94%. The notes require equal monthly interest and
principal payments. The mortgage notes are collateralized by a first
mortgage/deed of trust and security agreement on the real estate, improvements
and equipment on 19 of the Company's Chili's restaurants (nine of which the
Company mortgaged its leasehold interest) and 15 of the Company's Burger King
restaurants (three of which the Company mortgaged its leasehold interest). The
mortgage notes contain, among other provisions, financial covenants which
require the Company to maintain a consolidated fixed charge coverage ratio of at
least 1.30 for each of six subsets of the financed properties.

         The Company was not in compliance with the required consolidated fixed
charge coverage ratio for two of the subsets of the financed properties as of
October 26, 2003. Both of these subsets are comprised solely of Burger King
restaurants and had fixed charge coverage ratios of 1.11 and 1.26. The Company
sought and obtained waivers of these covenant defaults from the mortgage lenders
through November 28, 2004. If the Company is not in compliance with these
covenants as of November 28, 2004, the Company will most likely seek additional
waivers. The Company believes it would be able to obtain such waivers but there
can be no assurance thereof. If the Company is unable to obtain such waivers it
is contractually entitled to pre-pay the outstanding balances under one or more
of the separate mortgage notes such that the remaining properties in the subsets
would meet the required ratio. However, any such prepayments would be subject to
prepayment premiums and to the Company's ability to maintain its compliance with
the financial covenants in its Bank Facility. Alternatively, the Company is
contractually entitled to substitute one or more better performing restaurants
for under-performing restaurants such that the reconstituted subsets of
properties would meet the required ratio. However, any such substitutions would
require the consent of the lenders in the Bank Facility. For these reasons, the
Company believes that its rights to prepay mortgage notes or substitute
properties may be impractical depending on the circumstances existing at the
time.

         On June 10, 2002, the Company refinanced its Bank Facility with a
$60,000,000 revolving credit agreement with JP Morgan Chase Bank, as agent, and
four other banks. The Bank Facility is collateralized by the stock of certain
subsidiaries of the Company, certain interests in the Company's franchise
agreements with Brinker and Burger King Corporation and substantially all of the
Company's personal property not pledged in the Mortgage Facility.

         The Bank Facility contains restrictive covenants including maintenance
of certain prescribed debt and fixed charge coverage ratios, limitations on the
incurrence of additional indebtedness, limitations on consolidated capital
expenditures, cross-default provisions with other material agreements,
restrictions on the payment of dividends (other than stock dividends) and
limitations on the purchase or redemption of shares of the Company's capital
stock.

                                       30

<PAGE>

         The Bank Facility provides for borrowings at the adjusted LIBOR rate
plus a contractual spread which is as follows:

<TABLE>
<CAPTION>
              RATIO OF FUNDED DEBT
                  TO CASH FLOW                            LIBOR MARGIN
              --------------------                        ------------
<S>                                                       <C>
Greater than or equal to 3.50                                 3.00%
Less than 3.5x but greater than or equal to 3.00              2.75%
Less than 3.0x but greater than or equal to 2.5x              2.25%
Less than 2.5x                                                1.75%
</TABLE>

         The Bank Facility also contains covenants requiring maintenance of
funded debt to cash flow and fixed charge coverage ratios as follows:

<TABLE>
<CAPTION>
MAXIMUM FUNDED DEBT
TO CASH FLOW RATIO                              COVENANT
-------------------                             --------
<S>                                             <C>
Fiscal 2002
Q2  through Q4                                    4.00

Fiscal 2003
Q1 through Q3                                     4.00
Q4                                                3.75

Fiscal 2004
Q1 through Q3                                     3.75
Q4                                                3.50

Fiscal 2005
Q1 through Q2                                     3.50
Thereafter                                        3.00

FIXED CHARGE COVERAGE RATIO                       1.50
</TABLE>

         The Company's funded debt to consolidated cash flow ratio may not
exceed 3.75 through the third quarter of fiscal 2004 and 3.50 by the end of
fiscal 2004. The Company's funded debt to consolidated cash flow ratio on
October 26, 2003 was 3.68. To maintain the required ratios throughout fiscal
2004, the Company plans to continue to dispose of under-performing restaurants,
using the proceeds to reduce debt and to continue its efforts to optimize cash
flow from its restaurant operations. If the Company does not maintain the
required funded debt to consolidated cash flow ratio, that would constitute an
event of default under the Bank Facility. The Company would then need to seek
waivers from its lenders or amendments to the covenants.

                                       31

<PAGE>

         The Company has long-term contractual obligations primarily in the form
of lease and debt obligations. The following table summarizes the Company's
contractual obligations and their aggregate maturities as of October 26, 2003:

<TABLE>
<CAPTION>
                                                             Payment Due by Fiscal Year
                             ----------------------------------------------------------------------------------------
                                                                                               2009 and
Contractual Obligations        2004         2005         2006         2007         2008       thereafter      Total
---------------------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>          <C>          <C>          <C>          <C>            <C>
Mortgage debt-principal      $  1,625     $  1,792     $  1,985     $  2,175     $  2,316     $   34,462     $ 44,355
Mortgage debt-interest          4,548        4,383        4,199        3,998        3,527         19,751       40,406
Revolver debt                       -            -       43,600            -            -              -       43,600
Capital leases                  1,026        1,026          977          707          511          1,123        5,370
Operating leases               10,654        8,416        7,560        6,838        5,937         23,774       63,179
Construction commitments        1,680            -            -            -            -              -        1,680
                             ----------------------------------------------------------------------------------------
  Total contractual cash
  Obligations                $ 19,533     $ 15,617     $ 58,321     $ 13,718     $ 12,291     $   79,110     $198,590
                             ----------------------------------------------------------------------------------------
</TABLE>

RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. It
nullifies the guidance in Emerging Issues Task Force 94-3, which recognized a
liability for an exit cost on the date an entity committed itself to an exit
plan. This statement is effective for exit or disposal activities that are
initiated after December 31, 2002. The Company adopted the provisions of SFAS
146 in the first quarter of fiscal 2003. The adoption of this statement did not
have a material effect on the Company's results.

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No.
123." This statement amends SFAS No. 123, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company does not intend to adopt the recognition provisions of SFAS
No. 123, as amended by SFAS No. 148. However, the Company early-adopted the
disclosure provisions in fiscal 2002 and included this information in Note 8 to
the Company's financial statements.

         In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities". This Interpretation was
subsequently revised by the FASB in December 2003 (FIN 46R). The objective of
this Interpretation is to provide guidance on how to identify a variable
interest entity (VIE) and determine when the assets, liabilities, noncontrolling
interests, and results of operations of a VIE need to be included in a company's
consolidated financial statements. A company that holds variable interests in an
entity will need to consolidate the entity if the company's interest in the VIE
is such that the company will absorb a majority of the VIE's expected losses
and/or receive a majority of the entity's expected residual returns, if they
occur. FIN 46R also requires additional disclosures by primary beneficiaries and
other significant variable interest holders. FIN 46R is effective for periods
after June 15, 2003 for variable interest entities in which the Company holds a
variable interest it acquired before February 1, 2003. For entities acquired or
created before February 1, 2003, this Interpretation is effective no later than
the end of the first reporting period that ends after March 15, 2004, except for
those variable interest entities that are considered to be special-purpose
entities, for which the effective date is no later that the end of the first
reporting period that ends after December 31, 2003. The Company is still
assessing the impact, if any, the Interpretation will have on the Company's
financial statements.

                                       32

<PAGE>

IMPACT OF INFLATION

         Management does not believe that inflation has had a material effect on
the Company's operations during the past several years. Increases in labor,
food, and other operating costs could adversely affect the Company's operations.
In the past, however, the Company generally has been able to modify its
operating procedures or increase menu prices to substantially offset increases
in its operating costs.

         Many of the Company's employees are paid hourly rates related to
federal and state minimum wage laws and various laws that allow for credits to
that wage. Although the Company has been able to and will continue to attempt to
pass along increases in labor costs through food and beverage price increases,
there can be no assurance that all such increases can be reflected in its prices
or that increased prices will be absorbed by customers without diminishing, to
some degree, customer spending at the Company's restaurants.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company is exposed to interest rate risk in connection with its
$60.0 million revolving credit facility that provides for interest payable at
the LIBOR rate plus a contractual spread. The Company's variable rate borrowings
under this revolving credit facility totaled $43,600,000 at October 26, 2003.
The impact on the Company's annual results of operations of a one-point interest
rate change would be approximately $436,000.

                                       33

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

QUALITY DINING, INC.
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                    October 26,    October 27,
                                                                                        2003          2002
--------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                        $     1,074    $     1,021
   Accounts receivable                                                                    1,424          1,615
   Inventories                                                                            1,670          1,843
   Deferred income taxes                                                                  2,251          2,356
   Assets held for sale                                                                   5,821              -
   Other current assets                                                                   2,204          2,222
--------------------------------------------------------------------------------------------------------------
Total current assets                                                                     14,444          9,057
--------------------------------------------------------------------------------------------------------------
Property and equipment, net                                                              99,905        111,259
--------------------------------------------------------------------------------------------------------------
Other assets:
   Deferred income taxes                                                                  6,749          7,644
   Trademarks, net                                                                        1,285          5,317
   Franchise fees and development fees, net                                               8,801          9,379
   Goodwill, net                                                                          7,960          7,960
   Liquor licenses, net                                                                   2,820          2,653
   Other                                                                                  3,443          3,672
--------------------------------------------------------------------------------------------------------------
Total other assets                                                                       31,058         36,625
--------------------------------------------------------------------------------------------------------------
Total assets                                                                        $   145,407    $   156,941
--------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of capitalized leases and long-term debt                         $     5,200    $     1,978
   Accounts payable                                                                       6,181          9,884
   Accrued liabilities                                                                   19,533         20,295
--------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                30,914         32,157
Long-term debt                                                                           83,330         95,305
Capitalized leases principally to related parties, less current portion                   3,151          3,726
--------------------------------------------------------------------------------------------------------------
Total liabilities                                                                       117,395        131,188
--------------------------------------------------------------------------------------------------------------

Commitments and contingencies (Notes 9, 10 and 12)
Stockholders' equity:
   Preferred stock, without par value: 5,000,000 shares authorized; none issued               -              -
   Common stock, without par value: 50,000,000 shares authorized;
   12,955,781 and 12,969,672 shares issued, respectively                                     28             28
   Additional paid-in capital                                                           238,696        237,434
   Accumulated deficit                                                                 (206,514)      (207,386)
   Unearned compensation                                                                   (575)          (700)
--------------------------------------------------------------------------------------------------------------
                                                                                         31,635         29,376
   Less treasury stock, at cost, 1,360,573 and 1,360,573 shares, respectively             3,623          3,623
--------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                               28,012         25,753
--------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                          $   145,407    $   156,941
--------------------------------------------------------------------------------------------------------------
</TABLE>

       The accompanying notes are an integral part of the consolidated financial
                                                                     statements.

                                       34

<PAGE>

QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                          Fiscal Year Ended
                                                               October 26,    October 27,    October 28,
                                                                   2003          2002           2001
--------------------------------------------------------------------------------------------------------
<S>                                                            <C>            <C>            <C>
Revenues:
   Burger King                                                 $   114,983    $   123,795    $    80,791
   Chili's Grill & Bar                                              80,710         75,760         69,727
   Italian Dining Division                                          17,560         17,052         17,126
   Grady's American Grill                                           13,892         31,607         45,166
--------------------------------------------------------------------------------------------------------
Total revenues                                                     227,145        248,214        212,810
--------------------------------------------------------------------------------------------------------
Operating expenses:
   Restaurant operating expenses:
      Food and beverage                                             61,910         69,379         59,492
      Payroll and benefits                                          66,486         72,791         62,585
      Depreciation and amortization                                  9,977         10,117         10,876
      Other operating expenses                                      61,540         64,655         54,819
--------------------------------------------------------------------------------------------------------
Total restaurant operating expenses                                199,913        216,942        187,772
--------------------------------------------------------------------------------------------------------
Income from restaurant operations                                   27,232         31,272         25,038
--------------------------------------------------------------------------------------------------------
   General and administrative                                       15,961         18,638         15,111
   Amortization of intangibles                                         364            431            892
   Facility closing costs                                              (90)           355            898
   Impairment of assets                                              3,771              -         14,487
--------------------------------------------------------------------------------------------------------
Operating income (loss)                                              7,226         11,848         (6,350)
--------------------------------------------------------------------------------------------------------
Other income (expense):
      Interest expense                                              (7,479)        (8,429)       (10,419)
      Recovery of note receivable                                    3,459              -              -
      Stock purchase expense                                        (1,294)             -              -
      Gain (loss) on sale of property and equipment                    (53)         1,034           (310)
      Other income, net                                                992            655          1,185
--------------------------------------------------------------------------------------------------------
Total other expense                                                 (4,375)        (6,740)        (9,544)
--------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes         2,851          5,108        (15,894)
Income tax provision                                                 1,966          1,053          1,325
--------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations                               885          4,055        (17,219)
Income (loss) from discontinued operations, net of tax                 (13)         1,029          1,689
--------------------------------------------------------------------------------------------------------
Net income (loss)                                              $       872    $     5,084    $   (15,530)
--------------------------------------------------------------------------------------------------------

Basic net income (loss) per share:
--------------------------------------------------------------------------------------------------------
      Continuing operations                                           0.08           0.36          (1.52)
      Discontinued operations                                            -           0.09           0.15
--------------------------------------------------------------------------------------------------------
Basic net income (loss) per share                              $      0.08    $      0.45    $     (1.37)
--------------------------------------------------------------------------------------------------------

Diluted net income (loss) per share:
--------------------------------------------------------------------------------------------------------
      Continuing operations                                           0.08           0.36          (1.52)
      Discontinued operations                                            -           0.09           0.15
--------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share                            $      0.08    $      0.45    $     (1.37)
--------------------------------------------------------------------------------------------------------

Weighted average shares outstanding
--------------------------------------------------------------------------------------------------------
   Basic                                                            11,311         11,248         11,356
--------------------------------------------------------------------------------------------------------
   Diluted                                                          11,335         11,306         11,356
--------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       35

<PAGE>

QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Dollars and shares in thousands)

<TABLE>
<CAPTION>
                                Shares            Additional   Retained                               Stock-
                                Common   Common    Paid-in     Earnings      Unearned     Treasury   holders'
                                Stock    Stock     Capital     (Deficit)   Compensation     Stock     Equity
-------------------------------------------------------------------------------------------------------------
<S>                             <C>      <C>      <C>          <C>         <C>            <C>        <C>
Balance, October 29, 2000       12,855   $   28   $  237,031   $(196,940)  $       (437)  $ (1,698)  $ 37,984
   Purchase of treasury stock        -        -            -           -              -     (1,925)    (1,925)
   Restricted stock grants         103        -          265           -           (265)         -          -
   Amortization of unearned
    compensation                     -        -            -           -             96          -         96
   Common stock subject to
    redemption                                          (245)                                            (245)
   Restricted stock forfeited      (17)       -          (49)          -             49          -          -
   Net loss, fiscal 2001             -        -            -     (15,530)             -          -    (15,530)
-------------------------------------------------------------------------------------------------------------
Balance, October 28, 2001       12,941       28      237,002    (212,470)          (557)    (3,623)    20,380
   Restricted stock grants         125                   432           -           (432)         -          -
   Retirement of common
    stock                          (96)       -            -           -              -          -          -
   Amortization of unearned
    compensation                     -        -            -           -            289          -        289
   Net income, fiscal 2002                                         5,084                                5,084
-------------------------------------------------------------------------------------------------------------
Balance, October 27, 2002       12,970       28      237,434    (207,386)          (700)    (3,623)    25,753
   Restricted stock forfeited      (14)       -          (32)          -             32          -          -
   Stock purchase expense            -        -        1,294           -              -          -      1,294
   Amortization of unearned
    compensation                     -        -            -                         93          -         93
   Net income, fiscal 2003           -        -            -         872              -          -        872
-------------------------------------------------------------------------------------------------------------
Balance, October 26, 2003       12,956   $   28   $  238,696   $(206,514)  $       (575)  $ (3,623)  $ 28,012
-------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       36

<PAGE>

QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                    Fiscal Year Ended
                                                                        October 26,    October 27,    October 28,
                                                                           2003           2002           2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>            <C>
Cash flows from operating activities:
   Net income (loss)                                                    $       872    $     5,084    $   (15,530)
   Loss (income) from discontinued operations                                    13         (1,029)        (1,689)
   Adjustments to reconcile net income (loss) to net cash provided by
    operating activities:
      Depreciation and amortization of property and equipment                 9,638          9,855         10,903
      Amortization of other assets                                            1,572          1,606          1,880
      Impairment of assets and facility closing costs                         3,681            355         15,385
      Stock purchase expense                                                  1,294              -              -
      Loss (gain) on sale of property and equipment                              53         (1,034)           310
      Deferred income taxes                                                   1,000              -              -
      Amortization of unearned compensation                                      93            289             96
      Changes in operating assets and liabilities, excluding effects
       of acquisitions and dispositions:
        Accounts receivable                                                     191            227            374
        Inventories                                                             173            199            391
        Other current assets                                                     18           (180)            82
        Accounts payable                                                     (3,703)          (851)          (835)
        Accrued liabilities                                                    (672)          (730)        (2,659)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                    14,223         13,791          8,708
-----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Acquisition of business, net of cash                                           -              -         (4,212)
   Proceeds from sales of property and equipment                              4,782         15,517            142
   Purchase of property and equipment                                        (9,570)       (16,102)       (11,821)
   Purchase of other assets                                                    (892)        (1,013)          (858)
   Other, net                                                                   294              -              -
-----------------------------------------------------------------------------------------------------------------
Net cash used for investing activities                                       (5,386)        (1,598)       (16,749)
-----------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
   Purchase of treasury stock                                                     -              -         (1,925)
   Borrowings of long-term debt                                              51,513         95,790         70,150
   Repayment of long-term debt                                              (60,337)      (109,313)       (63,168)
   Repayment of capitalized lease obligations                                  (504)          (470)          (455)
   Loan financing fees                                                            -           (619)             -
   Purchase of common stock subject to redemption                                 -           (264)             -
-----------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by financing activities                         (9,328)       (14,876)         4,602
-----------------------------------------------------------------------------------------------------------------

Cash provided by discontinued operations                                        544          1,634          2,597
-----------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                             53         (1,049)          (842)
Cash and cash equivalents, beginning of year                                  1,021          2,070          2,912
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                  $     1,074    $     1,021    $     2,070
-----------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid for interest, net of amounts capitalized                   $     7,355    $     8,597    $     9,993
   Cash paid for income taxes                                           $       793    $     1,131    $     1,284
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       37

<PAGE>

QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

{1} NATURE OF BUSINESS

NATURE OF BUSINESS - Quality Dining, Inc. and its subsidiaries (the "Company")
develop and operate both quick service and full service restaurants in 13
states. The Company owns and operates 12 Grady's American Grill restaurants,
three restaurants under the tradename of Spageddies Italian Kitchen and six
restaurants under the tradename Papa Vino's Italian Kitchen. The Company also
operates, as a franchisee, 118 Burger King restaurants and 37 Chili's Grill &
Bar restaurants.

{2} SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR - The Company maintains its accounts on a 52/53 week fiscal year
ending the last Sunday in October. The fiscal year ended October 26, 2003
(fiscal 2003) contained 52 weeks. The fiscal years ended October 27, 2002
(fiscal 2002) and October 28, 2001 (fiscal 2001) also contained 52 weeks.

BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of Quality Dining, Inc. and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation of
financial statements in conformity with generally accepted accounting principles
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION - The Company recognizes revenue upon delivery of products
to its customers.

INVENTORIES - Inventories consist primarily of restaurant food and supplies and
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.

INSURANCE/SELF-INSURANCE - The Company uses a combination of insurance,
self-insurance retention and self-insurance for a number of risks including
workers' compensation, general liability, employment practices, directors and
officers liability, vehicle liability and employee related health care benefits.
Liabilities associated with these risks are estimated in part by considering
historical claims experience, demographic factors, severity factors and other
actuarial assumptions.

PROPERTY AND EQUIPMENT - Property and equipment, including capitalized leased
properties, are stated at cost. Depreciation and amortization are being recorded
on the straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized over the shorter of the estimated
useful life or the lease term of the related asset. The general ranges of
original depreciable lives are as follows:

<TABLE>
<CAPTION>
                                              Years
                                              -----
<S>                                         <C>
Capitalized Lease Property                      17-20
Buildings and Leasehold Improvements        10-3 11/2
Furniture and Equipment                           3-7
Computer Equipment and Software                   5-7
</TABLE>

Upon the sale or disposition of property and equipment, the asset cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in Other Expense. Normal repairs and maintenance costs
are expensed as incurred.

LONG-LIVED ASSETS - Long-lived assets and intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of a
restaurant's long-lived asset group to be held and used is measured by a
comparison of the carrying amount of the assets to the future net cash flows
expected to be generated by the asset or asset group. If such assets are
considered to be

                                       38

<PAGE>

impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Considerable
management judgment is necessary to estimate the fair value of the assets,
including a discounted value of estimated future cash flows and fundamental
analyses. Accordingly, actual results could vary from such estimates. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less the cost to sell.

ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 141 AND NO. 142. In
July 2001, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires that the
purchase method of accounting be used for business combinations initiated after
June 30, 2001. SFAS 141 also establishes criteria that must be used to determine
whether acquired intangible assets should be recognized separately from goodwill
in the Company's financial statements. Under SFAS 142, amortization of goodwill,
including goodwill recorded in past business combinations, will discontinue upon
adoption of this standard. In addition, goodwill and indefinite-lived intangible
assets will be tested for impairment in accordance with the provisions of SFAS
142. SFAS 142 is effective for fiscal years beginning after December 15, 2001.
The Company early adopted the provisions of SFAS 142, in the first quarter of
fiscal 2002. SFAS 142 allows up to six months from the date of adoption to
complete the transitional goodwill impairment test which requires the comparison
of the fair value of a reporting unit to its carrying value (using amounts
measured as of the beginning of the year of adoption) to determine whether there
is an indicated transitional goodwill impairment. The quantification of an
impairment requires the calculation of an "implied" fair value for a reporting
unit's goodwill. If the implied fair value of the reporting unit's goodwill is
less than its recorded goodwill, a transitional goodwill impairment charge is
recognized and reported as a cumulative effect of a change in accounting
principle. The Company completed the impairment testing of goodwill during the
second quarter of fiscal 2002 and determined that there is no transitional
goodwill impairment.

Amortized intangible assets consist of the following:

(Dollars in thousands)

<TABLE>
<CAPTION>
                                                              As of October 26, 2003
                                                    ------------------------------------------
                                                    Gross Carrying   Accumulated       Net
Amortized intangible assets                             Amount       Amortization   Book Value
----------------------------------------------------------------------------------------------
<S>                                                 <C>              <C>            <C>
Trademarks                                          $        2,961   $     (1,676)  $    1,285
Franchise fees and development fees                         14,782         (5,981)       8,801
                                                    ------------------------------------------
    Total                                           $       17,743   $     (7,657)  $   10,086
                                                    ------------------------------------------
</TABLE>

The Company's intangible asset amortization expense for fiscal 2003 was
$1,113,000. The estimated intangible amortization expense for each of the next
five years is $1,359,000.

In the second quarter of fiscal 2003, the Company recorded an impairment charge
related to certain Grady's American Grill restaurants that resulted in a
reduction of the net book value of the Grady's American Grill trademark by
$2,882,000. In conjunction with the Company's impairment assessment, the Company
revised its estimate of the remaining useful life of the trademark from 15 to 5
years. As a result of these changes, net income for fiscal 2003 increased by
$87,000, which is approximately $0.01 per diluted share.

In the fourth quarter of fiscal 2001, the Company recorded an impairment charge
related to certain Grady's American Grill restaurants that resulted in a
reduction of the net book value of the Grady's American Grill trademark by
$4,920,000. In conjunction with the Company's impairment assessment, the Company
revised its estimate of the remaining useful life of the trademark to 15 years.
The original estimated life of the trademark was 40 years. As a result of these
changes, net income for fiscal 2002 was decreased by $89,000, which is
approximately $0.01 per diluted share.

The Company operates four distinct restaurant concepts in the food-service
industry. It owns the Grady's American Grill concept, an Italian Dining concept
and it operates Burger King restaurants and Chili's Grill & Bar restaurants as a
franchisee of Burger King Corporation and Brinker International, Inc.,
respectively. The Company has identified each

                                       39

<PAGE>

restaurant concept as an operating segment based on management structure and
internal reporting. The Company has two operating segments with goodwill -
Chili's Grill & Bar and Burger King. The Company had a total of $7,960,000 in
goodwill as of October 26, 2003. The Chili's Grill and Bar operating segment had
$6,902,000 of goodwill and the Burger King operating segment had $1,058,000 of
goodwill.

ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142. The following
table reports the comparative impact the adoption of Statement 142 has on the
Company's reported results of operations.

<TABLE>
<CAPTION>
                                                                           Fiscal Year Ended
                                                                October 26,   October 27,   October 28,
(Dollars in thousands, except for earnings-per-share amounts)      2003          2002           2001
-------------------------------------------------------------   -----------   -----------   -----------
<S>                                                             <C>           <C>           <C>
Reported net income (loss)                                      $       872   $     5,084   $   (15,530)
  Add back: Goodwill amortization                                         -             -           541
                                                                -----------   -----------   -----------
  Adjusted net income (loss)                                    $       872   $     5,084   $   (14,989)
                                                                ===========   ===========   ===========

Basic earnings (loss) per share:
  Reported net income (loss)                                    $      0.08   $      0.45   $     (1.37)
  Goodwill amortization                                                   -             -          0.05
                                                                -----------   -----------   -----------
  Adjusted net income (loss)                                    $      0.08   $      0.45   $     (1.32)
                                                                ===========   ===========   ===========

Diluted earnings (loss) per share:
  Reported net income (loss)                                    $      0.08   $      0.45   $     (1.37)
  Goodwill amortization                                                   -             -          0.05
                                                                -----------   -----------   -----------
  Adjusted net income (loss)                                    $      0.08   $      0.45   $     (1.32)
                                                                ===========   ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                           Fiscal Year Ended
                                                                October 26,   October 27,   October 28,
(Dollars in thousands, except for earnings-per-share amounts)      2003          2002           2001
-------------------------------------------------------------   -----------   -----------   -----------
<S>                                                             <C>           <C>           <C>
Reported net income (loss) from continuing operations           $       885   $     5,084   $   (15,530)
  Add back: Goodwill amortization                                         -             -           541
                                                                -----------   -----------   -----------
  Adjusted net income (loss) from continuing operations         $       885   $     5,084   $   (14,989)
                                                                ===========   ===========   ===========

Basic earnings (loss) per share:
  Reported net income (loss) from continuing operations         $      0.08   $      0.45   $     (1.37)
  Goodwill amortization                                                   -             -          0.05
                                                                -----------   -----------   -----------
  Adjusted net income (loss) from continuing operations         $      0.08   $      0.45   $     (1.32)
                                                                ===========   ===========   ===========

Diluted earnings (loss) per share:
  Reported net income (loss) from continuing operations         $      0.08   $      0.45   $     (1.37)
  Goodwill amortization                                                   -             -          0.05
                                                                -----------   -----------   -----------
  Adjusted net income (loss) from continuing operations         $      0.08   $      0.45   $     (1.32)
                                                                ===========   ===========   ===========
</TABLE>

FRANCHISE FEES AND DEVELOPMENT FEES - The Company's Burger King and Chili's
franchise agreements require the payment of a franchise fee for each restaurant
opened. Franchise fees are deferred and amortized on the straight-line method
over the lives of the respective franchise agreements. Development fees paid to
the respective franchisors are deferred and expensed in the period the related
restaurants are opened. Franchise fees are being amortized on a straight-line
basis, generally over 20 years. Accumulated amortization of franchise fees as of
October 26, 2003 and October 27, 2002 was $5,981,000 and $5,239,000,
respectively.

                                       40

<PAGE>

ADVERTISING - The Company incurs advertising expense related to its concepts
under franchise agreements (See Note 5) or through local advertising.
Advertising costs are expensed at the time the related advertising first takes
place. Advertising costs were $8,011,000, $8,523,000 and $7,630,000 for fiscal
years 2003, 2002 and 2001, respectively.

LIQUOR LICENSES - Costs incurred in securing liquor licenses for the Company's
restaurants and the fair value of liquor licenses acquired in acquisitions are
capitalized and amortized on a straight-line basis, principally over 20 years.
Accumulated amortization of liquor licenses as of October 26, 2003 and October
27, 2002 was $1,514,000 and $1,316,000, respectively.

DEFERRED FINANCING COSTS - Deferred costs of debt financing included in other
non-current assets are amortized over the life of the related loan agreements,
which range from three to 20 years.

COMPUTER SOFTWARE COSTS - Costs of purchased and internally developed computer
software are capitalized in accordance with SOP 98-1 and amortized over a five
to seven year period using the straight-line method. As of October 26, 2003 and
October 27, 2002, capitalized computer software costs, net of related
accumulated amortization, aggregated $890,000 and $1,188,000, respectively.
Amortization of computer software costs was $265,000, $259,000 and $391,000 for
fiscal years 2003, 2002 and 2001 respectively.

CAPITALIZED INTEREST - Interest costs capitalized during the construction period
of new restaurants and major capital projects were $18,000, $28,000 and $18,000
for fiscal years 2003, 2002 and 2001 respectively.

STOCK-BASED COMPENSATION - The Company has adopted the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation", as amended by SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an
amendment of SFAS No. 123." These statements encourage rather than require
companies to adopt a new method that accounts for stock-based compensation
awards based on their estimated fair value at the date they are granted.
Companies are permitted, however, to continue accounting for stock compensation
awards under APB Opinion No. 25 which requires compensation cost to be
recognized based on the excess, if any, between the quoted market price of the
stock at the date of the grant and the amount an employee must pay to acquire
the stock. Under this method, no compensation cost has been recognized for stock
option awards. The Company has elected to continue to apply APB Opinion No. 25.

Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value method as prescribed by SFAS 123, the
Company's net earnings (loss) and net earnings (loss) per share would have been
the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                     October 26,   October 27,   October 28,
             (in thousands, except per share amounts)                   2003          2002           2001
------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>           <C>           <C>
Net income (loss), as reported                                       $       872   $     5,084   $   (15,530)
Deduct: Total stock option based employee compensation expense
determined by using the Black-Scholes option pricing model, net of
related tax effects                                                          (38)          (48)          (61)
                                                                     ---------------------------------------
Net income (loss), pro forma                                         $       834   $     5,036   $   (15,591)
                                                                     ---------------------------------------

Basic net income (loss) per common share, as reported                $      0.08   $      0.45   $     (1.37)
Basic net income (loss) per common share, pro forma                  $      0.07   $      0.45   $     (1.37)
------------------------------------------------------------------------------------------------------------
</TABLE>

The weighted average fair value at the date of grant for options granted during
fiscal 2003, 2002 and 2001 was $1.05, $1.76 and $1.12 per share, respectively.
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in fiscal 2003, 2002 and 2001: dividend yield of 0%
for all years; expected volatility of 53.5%, 55.0% and 54.1%, respectively;
risk-free interest rate of 3.6%, 3.5% and 4.6%, respectively; and expected lives
of 5 years for all fiscal years.

                                       41

<PAGE>

STOCK PURCHASE EXPENSE - During the third quarter of fiscal 2003, the Chairman
and Chief Executive Officer of the Company, Daniel B. Fitzpatrick, purchased all
1,148,014 shares of the Company's common stock owned by NBO, LLC ("NBO"), for
approximately $4.1 million. The Company was required to take a one-time non-cash
charge of $1,294,000, which is equal to the premium to the market price that Mr.
Fitzpatrick paid for the shares. There was also a corresponding increase in the
Company's additional paid-in capital of $1,294,000.

NET INCOME (LOSS) PER SHARE - Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding. Diluted earnings per share is based on the weighted average number
of common shares outstanding plus all potential dilutive common shares
outstanding. For all years presented, the difference between basic and dilutive
shares represents options on common stock. For the fiscal year ended October 28,
2001, 17,000 options were excluded from the diluted earnings per share
calculations because to do so would have been anti-dilutive.

CONCENTRATIONS OF CREDIT RISK - Financial instruments, which potentially subject
the Company to credit risk, consist primarily of cash and cash equivalents and
notes receivable. Substantially all of the Company's cash and cash equivalents
at October 26, 2003 were concentrated with a bank located in Chicago, Illinois.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.

INCOME TAXES - The Company utilizes SFAS No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse. SFAS 109
requires the establishment of a valuation reserve against any deferred tax
assets if the realization of such assets is not deemed more likely than not.

RECLASSIFICATIONS - To enhance comparative data, management concluded during
fiscal 2003 that sales of promotional items, consisting primarily of toys
accompanying kids meals in the quick service segment, should be reported as
revenues. Previously, these items were immaterial in amount and the value
attributable to them was recorded as an offset to other restaurant operating
expense. Amounts reported in prior periods have been reclassified to conform to
the current quarter's presentation. For all periods presented, the
reclassifications result in an increase of approximately 1% in consolidated
revenue and restaurant operating expenses as compared to amounts previously
reported. Such reclassifications had no impact on previously reported income
from restaurant operations, operating income, net income, or stockholders'
equity.

ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 144 - As a result of
the adoption of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", the Company has classified the revenues, expenses and
related assets and liabilities of four Grady's American Grill restaurants that
were sold in 2003 and four Grady's American Grill that are held for sale, as
discontinued operations in the accompanying consolidated financial statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. It
nullifies the guidance in Emerging Issues Task Force 94-3, which recognized a
liability for an exit cost on the date an entity committed itself to an exit
plan. This statement is effective for exit or disposal activities that are
initiated after December 31, 2002. The Company adopted the provisions of SFAS
146 in the first quarter of fiscal 2003. The adoption of this statement did not
have a material affect on the Company's results.

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No.
123." This statement amends SFAS No. 123, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-

                                       42

<PAGE>

based employee compensation and the effect of the method used on reported
results. The Company does not intend to adopt the recognition provisions of SFAS
No. 123, as amended by SFAS No. 148. The Company has adopted the disclosure
provisions.

         In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities". This Interpretation was
subsequently revised by the FASB in December 2003 (FIN 46R). The objective of
this Interpretation is to provide guidance on how to identify a variable
interest entity (VIE) and determine when the assets, liabilities, noncontrolling
interests, and results of operations of a VIE need to be included in a company's
consolidated financial statements. A company that holds variable interests in an
entity will need to consolidate the entity if the company's interest in the VIE
is such that the company will absorb a majority of the VIE's expected losses
and/or receive a majority of the entity's expected residual returns, if they
occur. FIN 46R also requires additional disclosures by primary beneficiaries and
other significant variable interest holders. FIN 46R is effective for periods
after June 15, 2003 for variable interest entities in which the Company holds a
variable interest it acquired before February 1, 2003. For entities acquired or
created before February 1, 2003, this Interpretation is effective no later than
the end of the first reporting period that ends after March 15, 2004, except for
those variable interest entities that are considered to be special-purpose
entities, for which the effective date is no later that the end of the first
reporting period that ends after December 31, 2003. The Company is still
assessing the impact, if any, the Interpretation will have on the Company's
financial statements.

                                       43

<PAGE>

{3} OTHER CURRENT ASSETS AND ACCRUED LIABILITIES

Other current assets and accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                         October 26,      October 27,
(Dollars in thousands)                                      2003             2002
-------------------------------------------------------------------------------------
<S>                                                      <C>              <C>
Other current assets:
       Prepaid real estate taxes                         $       689      $       652
       Prepaid insurance                                         589              611
       Deposits                                                  406              428
       Prepaid expenses and other current assets                 520              531
-------------------------------------------------------------------------------------
                                                         $     2,204      $     2,222
-------------------------------------------------------------------------------------
Accrued liabilities:
       Accrued salaries, wages and severance             $     3,711      $     4,601
       Accrued insurance costs                                 3,688            3,286
       Unearned income                                         2,214            2,269
       Accrued advertising and royalties                       1,324            1,214
       Accrued property taxes                                  1,344            1,106
       Accrued sales taxes                                       738              908
       Other accrued liabilities                               6,514            6,911
-------------------------------------------------------------------------------------
                                                         $    19,533      $    20,295
-------------------------------------------------------------------------------------
</TABLE>

{4} PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                    October 26,      October 27,
(Dollars in thousands)                                                  2003             2002
------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>
Land and land improvements                                          $    24,076      $    31,219
Capitalized lease property                                                7,297            7,297
Buildings and leasehold improvements                                     83,085           81,602
Furniture and equipment                                                  62,013           63,718
Construction in progress                                                    571            2,060
------------------------------------------------------------------------------------------------
                                                                        177,042          185,896
------------------------------------------------------------------------------------------------
Less, accumulated depreciation and capitalized lease amortization        77,137           74,637
------------------------------------------------------------------------------------------------
Property and equipment, net                                         $    99,905      $   111,259
------------------------------------------------------------------------------------------------
</TABLE>

{5} FRANCHISE AND DEVELOPMENT RIGHTS

     The Company has entered into franchise agreements with two franchisors for
the operation of two of its restaurant concepts, Burger King and Chili's. The
existing franchise agreements provide the franchisors with significant rights
regarding the business and operations of the Company's franchised restaurants.
The franchise agreements with Burger King Corporation require the Company to pay
royalties ranging from 2.75% to 4.5% of sales and advertising fees of 4.0% of
sales. The franchise agreements with Brinker International, Inc. ("Brinker")
covering the Company's Chili's restaurant concept require the Company to pay
royalty and advertising fees equal to 4.0% and 0.5% of Chili's restaurant sales,
respectively. In addition, the Company is required to spend 2.0% of sales from
each of its Chili's restaurants on local advertising which is considered to be
met by the additional contributions described below. As part of a system-wide
promotional effort, the Company paid an additional advertising fee as follows:

                                       44

<PAGE>

<TABLE>
<CAPTION>
                 Period                                % of Sales
                 ------                                ----------
<S>                                                    <C>
September 1, 1999 through August 30, 2000                 0.375%
September 1, 2000 through June 27, 2001                     1.0%
June 28, 2001 through June 26, 2002                         1.2%
June 27, 2002 through June 25, 2003                         2.0%
June 26, 2003 through June 30, 2004                        2.25%
</TABLE>

     The Company's development agreement with Brinker expired on December 31,
2003. The development agreement entitled the Company to develop up to 41 Chili's
restaurants in two regions encompassing counties in Indiana, Michigan, Ohio,
Kentucky, Delaware, New Jersey and Pennsylvania. The Company paid development
fees totaling $260,000 for the right to develop the restaurants in the regions.
Each Chili's franchise agreement requires the Company to pay an initial
franchise fee of $40,000, a monthly royalty fee of 4.0% of sales and advertising
fees of 0.5% of sales. The Company completed all of its obligations under its
development agreement prior to its expiration.

     On January 27, 2000 the Company executed a "Franchisee Commitment" pursuant
to which it agreed to undertake certain "Transformational Initiatives" including
capital improvements and other routine maintenance in all of its Burger King
restaurants. The capital improvements include the installation of signage
bearing the new Burger King logo and the installation of a new drive-through
ordering system. The initial deadline for completing these capital improvements
- December 31, 2001 - was extended to December 31, 2002, although the Company
met the initial deadline with respect to 66 of the 70 Burger King restaurants
subject to the Franchisee Commitment. The Company completed the capital
improvements to the remaining four restaurants prior to December 31, 2002. In
addition, the Company agreed to perform, as necessary, certain routine
maintenance such as exterior painting, sealing and striping of parking lots and
upgraded landscaping. The Company completed this maintenance prior to September
30, 2000, as required. In consideration for executing the Franchisee Commitment,
the Company received "Transformational Payments" totaling approximately $3.9
million during fiscal 2000. In addition, the Company received supplemental
Transformational Payments of approximately $135,000 in October of 2001 and
$180,000 in 2002. The portion of the Transformational Payments that corresponds
to the amount required for the capital improvements will be recognized as income
over the useful life of the capital improvements. The portion of the
Transformational Payments that corresponds to the required routine maintenance
was recognized as a reduction in maintenance expense over the period during
which maintenance was performed. The remaining balance of the Transformational
Payments was recognized as other income ratably through December 31, 2001, the
term of the initial Franchisee Commitment, except that the supplemental
Transformational Payments were recognized as other income when received.

     During fiscal 2000, Burger King Corporation increased its royalty and
franchise fees for most new restaurants. The franchise fee for new restaurants
increased from $40,000 to $50,000 for a 20 year agreement and the royalty rate
increased from 3.5% of sales to 4.5% of sales, after a transitional period. For
franchise agreements entered into during the transitional period, the royalty
rate will be 4.0% of sales for the first 10 years and 4.5% of sales for the
balance of the term.

     For new restaurants, the transitional period was from July 1, 2000 to June
30, 2003. Since July 1, 2003, the royalty rate is 4.5% of sales for the full
term of new restaurant franchise agreements. For renewals of existing franchise
agreements, the transitional period was from July 1, 2000 through June 30, 2001.
As of July 1, 2001, existing restaurants that renew their franchise agreements
will pay a royalty of 4.5% of sales for the full term of the renewed agreement.
The advertising contribution remains at 4.0% of sales. Royalties payable under
existing franchise agreements are not affected by these changes until the time
of renewal, at which time the then prevailing rate structure will apply.

     Burger King Corporation offered a voluntary program as an incentive for
franchisees to renew their franchise agreements prior to the scheduled
expiration date ("2000 Early Renewal Program"). Franchisees that elected to
participate in the 2000 Early Renewal Program were required to make capital
investments in their restaurants by, among other things, bringing them up to
Burger King Corporation's current image, and to extend occupancy leases.
Franchise agreements entered into under the 2000 Early Renewal Program have
special provisions regarding the royalty payable during the term, including a
reduction in the royalty to 2.75% over five years generally beginning April,
2002 and concluding in April, 2007.

                                       45

<PAGE>

     The Company included 36 restaurants in the 2000 Early Renewal Program. The
Company paid franchise fees of $877,000 in the third quarter of fiscal 2000 to
extend the franchise agreements of the selected restaurants for 16 to 20 years.
In fiscal 2001 and 2002, the Company invested approximately $6.6 million to
remodel the selected restaurants to Burger King Corporation's current image.

     Burger King Corporation offered an additional voluntary program as an
incentive to franchisees to renew their franchise agreements prior to the
scheduled expiration date ("2001 Early Renewal Program"). Franchisees that
elected to participate in the 2001 Early Renewal Program are required to make
capital investments in their restaurants by, among other things, bringing them
up to Burger King Corporation's current image (Image 99), and to extend
occupancy leases. Franchise agreements entered into under the 2001 Early Renewal
Program have special provisions regarding the royalty payable during the term,
including a reduction in the royalty to 2.75% over five years commencing 90 days
after the semi-annual period in which the required capital improvements are
made.

     The Company included three restaurants in the 2001 Early Renewal Program.
The Company paid franchise fees of $144,925 in fiscal 2001 to extend the
franchise agreements of the selected restaurants for 17 to 20 years. The Company
invested approximately $1.7 million in fiscal 2003 to remodel two participating
restaurants to Burger King Corporation's current image. The Company is
considering withdrawing the third restaurant from the 2001 Early Renewal
Program.

     Burger King Corporation also provides general specifications for designs,
color schemes, signs and equipment, formulas for preparation of food and
beverage products, marketing concepts, inventory, operations and financial
control methods, management training, technical assistance and materials. Each
franchise agreement prohibits the Company from transferring a franchise without
the prior approval of Burger King Corporation.

     Burger King Corporation's franchise agreements prohibit the Company, during
the term of the agreements, from owning or operating any other hamburger
restaurant. For a period of one year following the termination of a franchise
agreement, the Company remains subject to such restriction within a two mile
radius of the Burger King restaurant which was the subject of the franchise
agreement.

                                       46
<PAGE>

{6} INCOME TAXES

The provision for income taxes for the fiscal years ended October 26, 2003,
October 27, 2002 and, October 28, 2001 is summarized as follows:

<TABLE>
<CAPTION>
                                                          Fiscal Year Ended
                                             October 26,     October 27,   October 28,
(Dollars in thousands)                          2003            2002          2001
--------------------------------------------------------------------------------------
<S>                                          <C>             <C>           <C>
Current:
    Federal                                    $     -         $  (330)      $     -
    State                                          966           1,383         1,325
------------------------------------------------------------------------------------
                                                   966           1,053         1,325
------------------------------------------------------------------------------------
Deferred:
    Provision (benefit) for the period           1,000               -             -
------------------------------------------------------------------------------------
    Total                                      $ 1,966         $ 1,053       $ 1,325
------------------------------------------------------------------------------------
</TABLE>

The components of the deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                      October 26,       October 27,
(Dollars in thousands)                                   2003              2002
-----------------------------------------------------------------------------------
<S>                                                   <C>               <C>
Deferred tax assets:
     Net operating loss carryforwards                  $ 19,852          $ 15,589
     Note receivable allowance                                -             6,991
     FICA tip credit and minimum tax credit               5,141             4,580
     Accrued liabilities                                  2,531             2,290
     Property and equipment                               2,888             2,401
     Capitalized lease obligations                          637               686
     Trademarks                                           1,767               666
     Franchise Fees                                         803               737
     Other                                                  616               790
---------------------------------------------------------------------------------
     Deferred tax assets                                 34,235            34,730
     Less: Valuation allowance                          (24,169)          (23,958)
---------------------------------------------------------------------------------
                                                         10,066            10,772
---------------------------------------------------------------------------------
Deferred tax liabilities:
     Goodwill                                              (958)             (686)
     Other                                                 (108)              (86)
---------------------------------------------------------------------------------
     Deferred tax liabilities                            (1,066)             (772)
---------------------------------------------------------------------------------
     Net deferred tax assets                            $ 9,000          $ 10,000
---------------------------------------------------------------------------------
</TABLE>

         The Company has net operating loss carryforwards of approximately $56.7
million as well as FICA tip credits and alternative minimum tax credits of $5.1
million.

         Net operating loss carryforwards expire as follows:

<TABLE>
<CAPTION>
                                                      Net operating loss
                                                        carryforwards
                                                      ------------------
<S>                                                   <C>
Net operating loss carryforwards expiring 2012           $ 39,921,000
Net operating loss carryforwards expiring 2018              3,000,000
Net operating loss carryforwards expiring 2021              1,619,000
Net operating loss carryforwards expiring 2022             12,181,000
---------------------------------------------------------------------
Total net operating loss carryforwards                   $ 56,721,000
---------------------------------------------------------------------
</TABLE>

                                       47
<PAGE>

FICA tip credits expire as follows:

<TABLE>
<CAPTION>
                                                       FICA Tip Credits
                                                       ----------------
<S>                                                    <C>
FICA tip credit expiring in 2012                          $ 1,340,000
FICA tip credit expiring in 2013                              477,000
FICA tip credit expiring in 2014                              572,000
FICA tip credit expiring in 2015                              571,000
FICA tip credit expiring in 2016                              727,000
FICA tip credit expiring in 2017                              702,000
FICA tip credit expiring in 2018                              561,000
---------------------------------------------------------------------
Total FICA tip credits                                    $ 4,950,000
---------------------------------------------------------------------
</TABLE>

         The alternative minimum tax credits of $191,000 carryforward
indefinitely.

         At October 26, 2003, the Company has deferred tax assets consisting
principally of carryforward tax losses and credits aggregating $34,235,000.
After considering the weight of available positive and negative evidence
regarding the realizability of these assets, the Company has recorded a
valuation allowance aggregating $24,169,000, to reduce its net deferred tax
asset to $9,000,000, the amount management believes more likely than not will be
realized. The significant positive evidence considered by management in making
this judgment included the Company's profitability in 2002 and 2003, the
consistent historical profitability of the Company's Burger King, Chili's and
Italian Dining divisions, and the resolution during 2003 of substantially all
contingent liabilities related to its sold bagel businesses. The negative
evidence considered by management includes persistent negative operating trends
in its Grady's American Grill division, recent same store sales declines in the
Burger King division (the largest operating unit) and statutory limitations on
available carryforward tax benefits.

         In estimating its deferred tax asset, management used its 2004
operating plan as the basis for a forecast of future taxable earnings.
Management did not incorporate growth assumptions and limited the forecast to
five years, the period that management believes it can project results that are
more likely than not achievable. Absent a significant and unforeseen change in
facts or circumstances, management re-evaluates the realizability of its tax
assets in connection with its annual budgeting cycle.

         Based on its assessment and using the methodology described above,
management believes more likely than not the net deferred tax asset will be
realized. The Company is currently profitable, has offset approximately $8.5
million of taxable income with net operating loss carryforward benefits in the
last two years, and management believes the issues that gave rise to historical
losses have been substantially resolved with no impact on its continuing
businesses. Moreover, these core businesses have been historically, and continue
to be, profitable. Nonetheless, realization of the net deferred tax asset will
require approximately $26.5 million of future taxable income. The Company
operates in a very competitive industry that can be significantly affected by
changes in local, regional or national economic conditions, changes in consumer
tastes, weather conditions and various other consumer concerns. Accordingly, the
amount of the deferred tax asset considered by management to be realizable, more
likely than not, could change in the near term if estimates of future taxable
income change. This could result in a charge to, or increase in, income in the
period such determination is made.

Differences between the effective income tax rate and the U.S. statutory tax
rate are as follows:

<TABLE>
<CAPTION>
                                                                        Fiscal Year Ended
                                                             October 26,    October 27,     October 28,
(Percent of pretax income)                                      2003           2002           2001
-------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>             <C>
Statutory tax rate                                              34.0%          34.0%         (34.0)%
State income taxes, net of federal income tax benefit           22.8           15.0            6.3
FICA tax credit                                                (19.6)         (11.4)          (5.1)
Change in valuation allowance                                    7.4          (26.9)          40.5
Stock purchase expense                                          15.4              -              -
Other, net                                                       9.6            6.7            1.9
--------------------------------------------------------------------------------------------------
Effective tax rate                                              69.6%          17.4%           9.6%
--------------------------------------------------------------------------------------------------
</TABLE>

                                       48
<PAGE>

{7} LONG-TERM DEBT AND CREDIT AGREEMENTS

         The Company has a financing package totaling $109,066,000, consisting
of a $60,000,000 revolving credit agreement and a $49,066,000 mortgage facility,
as described below. The revolving credit agreement executed with JP Morgan Chase
Bank, as agent for a group of five banks, provides for borrowings of up to
$60,000,000 with interest payable at the adjusted LIBOR rate plus a contractual
spread. The weighted average borrowing rate under the revolving credit agreement
on October 26, 2003 was 4.18%. The revolving credit agreement will mature on
November 1, 2005, at which time all amounts outstanding thereunder are due. The
Company had $14,054,000 available under its revolving credit agreement as of
October 26, 2003. The revolving credit agreement is collateralized by the stock
of certain subsidiaries of the Company, certain interests in the Company's
franchise agreements with Brinker and Burger King Corporation and substantially
all of the Company's real and personal property not pledged in the mortgage
financing.

         The revolving credit agreement contains, among other provisions,
restrictive covenants including maintenance of certain prescribed debt and fixed
charge coverage ratios, limitations on the incurrence of additional
indebtedness, limitations on consolidated capital expenditures, cross-default
provisions with other material agreements, restrictions on the payment of
dividends (other than stock dividends) and limitations on the purchase or
redemption of shares of the Company's capital stock. Under the revolving credit
agreement the Company's funded debt to consolidated cash flow ratio could not
exceed 3.75 and its fixed charge coverage ratio could not be less than 1.50 on
October 26, 2003. The Company was in compliance with these requirements with a
funded debt to consolidated cash flow ratio of 3.68 and a fixed charge coverage
ratio of 1.72.

         Letters of credit reduce the Company's borrowing capacity under its
revolving credit facility and represent purchased guarantees that ensure the
Company's performance or payment to third parties in accordance with specified
terms and conditions which amounted to $2,346,000 and $1,876,000 as of October
26, 2003 and October 27, 2002, respectively.

         The $49,066,000 mortgage facility currently includes 34 separate
mortgage notes, with terms of either 15 or 20 years. The notes have fixed rates
of interest of either 9.79% or 9.94%. The notes require equal monthly interest
and principal payments. The mortgage notes are collateralized by a first
mortgage/deed of trust and security agreement on the real estate, improvements
and equipment on 19 of the Company's Chili's restaurants and 15 of the Company's
Burger King restaurants. The mortgage notes contain, among other provisions,
financial covenants which require the Company to maintain a consolidated fixed
charge coverage ratio of at least 1.30 for each of six subsets of the financed
properties.

         The Company was not in compliance with the required consolidated fixed
charge coverage ratio for two of the subsets of the financed properties as of
October 26, 2003 Both of these subsets are comprised solely of Burger King
restaurants and had fixed charge coverage ratios of 1.11 and 1.26. The Company
sought and obtained waivers of these covenant defaults from the mortgage lenders
through November 28, 2004. If the Company is not in compliance with these
covenants as of November 28, 2004, the Company will most likely seek additional
waivers. The Company believes it would be able to obtain such waivers but there
can be no assurance thereof. If the Company is unable to obtain such waivers it
is contractually entitled to pre-pay the outstanding balances under one or more
of the separate mortgage notes such that the remaining properties in the subsets
would meet the required ratio. However, any such prepayments would be subject to
prepayment premiums and to the Company's ability to maintain its compliance with
the financial covenants in its revolving credit agreement. Alternatively, the
Company is contractually entitled to substitute one or more better performing
restaurants for under-performing restaurants such that the reconstituted subsets
of properties would meet the required ratio. However, any such substitutions
would require the consent of the lenders in the revolving credit agreement. For
these reasons, the Company believes that its rights to prepay mortgage notes or
substitute properties may be impractical depending on the circumstances existing
at the time.

                                       49
<PAGE>

         The aggregate maturities of long-term debt subsequent to October 26,
2003 are as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)
-----------------------------------------------
FISCAL YEAR
-----------------------------------------------
<S>                                    <C>
2004                                   $  4,625
2005                                      1,792
2006                                     42,585
2007                                      2,175
2008                                      2,316
2009 and thereafter                      34,462
-----------------------------------------------
Total                                  $ 87,955
-----------------------------------------------
</TABLE>

{8} EMPLOYEE BENEFIT PLANS

STOCK OPTIONS

         The Company has four stock option plans: the 1993 Stock Option and
Incentive Plan, the 1997 Stock Option and Incentive Plan, the 1993 Outside
Directors Stock Option Plan and the 1999 Outside Directors Stock Option Plan .

         On March 26, 1997 the Company's shareholders approved the 1997 Stock
Option and Incentive Plan and therefore no awards for additional shares of the
Company's common stock will be made under the 1993 Stock Option and Incentive
Plan. Under the 1997 Stock Option and Incentive Plan, shares of restricted stock
and options to purchase shares of the Company's common stock may be granted to
officers and other employees. An aggregate of 1,100,000 shares of common stock
has been reserved for issuance under the 1997 Stock Option and Incentive Plan.
As of October 26, 2003, there were 105,935 and 545,083 options outstanding under
the 1993 Stock Option and Incentive Plan and the 1997 Stock Option and Incentive
Plan, respectively. Typically, options granted under these plans have a term of
10 years and become exercisable incrementally over 3 years.

         In December of 2000 the Company's Board of Directors approved the 1999
Outside Directors Stock Option Plan. Under the 1999 Outside Directors Stock
Option Plan, 80,000 shares of common stock have been reserved for the issuance
of nonqualified stock options to be granted to non-employee directors of the
Company. On May 1, 2001, and on each May 1 thereafter, each then non-employee
director of the Company will receive an option to purchase 2,000 shares of
common stock at an exercise price equal to the fair market value of the
Company's common stock on the date of grant. Each option has a term of 10 years
and becomes exercisable six months after the date of grant. During fiscal 2003
the Company issued 10,000 shares under the 1999 Outside Directors Stock Option
Plan. As of October 26, 2003, there were 38,000 and 46,000 options outstanding
under the 1993 Outside Directors Stock Option Plan and the 1999 Outside
Directors Stock Option Plan, respectively.

         On June 1, 1999, the Company implemented a Long Term Incentive
Compensation Plan (the "Long Term Plan") for seven of its executive officers and
certain other senior executives (the "Participants"). The Long Term Plan is
designed to incent and retain those individuals who are critical to achieving
the Company's long term business objectives. The Long Term Plan consists of (a)
options granted with an exercise price equal to the closing price of the
Company's common stock on the grant date, which vest over three years; (b)
restricted stock awards of common shares which vest over seven years, subject to
accelerated vesting in the event the price of the Company's common stock
achieves certain targets; and, for certain Participants, (c) a cash bonus
payable at the conclusion of fiscal year 2000. Under the Long Term Plan, the
Company issued 102,557 restricted shares in fiscal 2001 and 104,360 restricted
shares in fiscal 2000. There were 14,318 of restricted stock forfeited in fiscal
2003, no shares of restricted stock were forfeited in fiscal 2002 and 17,415
shares of restricted stock forfeited in fiscal 2001.

         During fiscal 2002, the Company issued 125,000 restricted shares and
75,000 options on similar terms as those which were issued under the Long Term
Plan. During fiscal 2003, the Company did not issue any restricted shares or
stock options to employees.

                                       50
<PAGE>

         As a result of the restricted stock grants, the Company recorded an
increase to additional paid in capital and an offsetting deferred charge for
unearned compensation. The deferred charge is equal to the number of shares
granted multiplied by the Company's closing share price on the day of the grant.
The deferred charge is classified in the equity section of the Company's
consolidated balance sheet as unearned compensation and is being amortized to
compensation expense on a straight-line basis over the vesting period, subject
to accelerated vesting if the Company's common stock reaches certain benchmarks.

         Activity with respect to the Company's stock option plans for fiscal
years 2003, 2002 and 2001 was as follows:

<TABLE>
<CAPTION>
                                                                           Weighted Average
                                                        Number of Shares    Exercise Price
-------------------------------------------------------------------------------------------
<S>                                                     <C>                <C>
Outstanding, October 29, 2000                                634,825           $5.78
  Granted                                                     19,000            2.17
  Canceled                                                   (45,371)           5.07
  Exercised                                                       -                -
-------------------------------------------------------------------------------------------
Outstanding, October 28, 2001                                608,454            5.72
  Granted                                                     75,000            3.46
  Canceled                                                   (11,955)           9.11
  Exercised                                                       -                -
-------------------------------------------------------------------------------------------
Outstanding, October 27, 2002                                671,499            5.41
  Granted                                                     10,000            2.11
  Canceled                                                   (30,481)           3.41
  Exercised                                                       -                -
-------------------------------------------------------------------------------------------
Outstanding, October 26, 2003                                651,018           $5.45
-------------------------------------------------------------------------------------------
Exercisable, October 26, 2003                                606,518
--------------------------------------------------------------------
Available for future grants at October 26, 2003              240,943
--------------------------------------------------------------------
</TABLE>

         The following table summarizes information relating to fixed-priced
stock options outstanding for all plans as of October 26, 2003.

<TABLE>
<CAPTION>
                                            Options Outstanding                         Options Exercisable
                               ------------------------------------------------   --------------------------------
                                                 Weighted
                                                  Average           Weighted                          Weighted
                                 Number          Remaining          Average          Number            Average
Range of Exercise Price        Outstanding   Contractual Life    Exercise Price   Exercisable       Exercise Price
------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>                 <C>              <C>               <C>
     $  .10 - $3.50              436,698         5.20 years         $ 3.06          422,198            $ 3.09
     $ 3.51 - $12.00             133,200         5.29 years         $ 6.70          103,200            $ 7.63
     $12.01 - $32.875             81,120         1.78 years         $16.28           81,120            $16.28
</TABLE>

RETIREMENT PLANS

         On October 27, 1986, the Company implemented the Quality Dining, Inc.
Retirement Plan and Trust ("Plan I"). Plan I is designed to provide all of the
Company's employees with a tax-deferred long-term savings vehicle. The Company
provides a matching cash contribution equal to 50% of a participant's
contribution, up to a maximum of 5% of such participant's compensation. Plan I
is a qualified 401(k) plan. Participants in Plan I elect the percentage of pay
they wish to contribute as well as the investment alternatives in which their
contributions are to be invested. Participant's contributions vest immediately
while Company contributions vest 25% annually beginning in the participant's
second year of eligibility since Plan I inception.

         On May 18, 1998, the Company implemented the Quality Dining, Inc.
Supplemental Deferred Compensation Plan ("Plan II"). Plan II is a non-qualified
deferred compensation plan. Plan II participants are considered a select group
of management and highly compensated employees according to Department of Labor
guidelines. Since the implementation of Plan II, Plan II participants are no
longer eligible to contribute to Plan I. Plan II participants elect the
percentage of their pay they wish to defer into their Plan II account. They also
elect the percentage of their account to be allocated among various investment
options. The Company makes matching

                                       51
<PAGE>

allocations to the Plan II participants' deferral accounts equal to 50% of a
participant's contribution, up to a maximum of 5% of such participant's
compensation, subject to the same limitations as are applicable to Plan I
participants. Company allocations vest 25% annually, beginning in the
participant's second year of eligibility since Plan I inception.

         The Company's contributions under Plan I and Plan II aggregated
$246,000, $197,000 and $184,000 for fiscal years 2003, 2002 and 2001,
respectively.

OTHER PLANS

         The Company also entered into agreements with five of its executive
officers and two other senior executives pursuant to which the employees have
agreed not to compete with the Company for a period of time after the
termination of their employment and are entitled to receive certain payments in
the event of a change of control of the Company.

{9} LEASES

         The Company leases its office facilities and a substantial portion of
the land and buildings used in the operation of its restaurants. The restaurant
leases generally provide for a noncancelable term of five to 20 years and
provide for additional renewal terms at the Company's option. Most restaurant
leases contain provisions for percentage rentals on sales above specified
minimums. Rental expense incurred under these percentage rental provisions
aggregated $585,000, $927,000 and $810,000 for fiscal years 2003, 2002 and 2001,
respectively.

As of October 26, 2003, future minimum lease payments related to these leases
were as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)
-------------------------------------------------------------------------------------------------------------
                                                                           Capital       Operating
Fiscal Year                                                                 Leases        Leases       Total
-------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>           <C>          <C>
2004                                                                        $1,026        $10,654     $11,680
2005                                                                         1,026          8,416       9,442
2006                                                                           977          7,560       8,537
2007                                                                           707          6,838       7,545
2008                                                                           511          5,937       6,448
2009 and thereafter                                                          1,123         23,774      24,897
-------------------------------------------------------------------------------------------------------------
                                                                             5,370        $63,179     $68,549
                                                                                          -------------------
Less: Amount representing interest                                           1,644
----------------------------------------------------------------------------------
Present value of future minimum lease payments of which
     $575 is included in current liabilities at October 26, 2003            $3,726
----------------------------------------------------------------------------------
</TABLE>

         Rent expense, including percentage rentals based on sales, was
$11,342,000, $12,519,000 and $9,079,000 for fiscal years 2003, 2002 and 2001,
respectively.

         The Company has ten subleases at restaurants and four subleases at its
corporate headquarters building. As of October 26, 2003, future minimum lease
payments related to these subleases were $4,770,000. Sublease payments were
$848,000, $656,000 and $460,000 for fiscal years 2003, 2002 and 2001
respectively.

                                       52
<PAGE>

{10} COMMITMENTS AND CONTINGENCIES

         The Company is self-insured for a portion of its employee health care
costs. The Company is liable for medical claims up to $125,000 per eligible
employee annually, and aggregate annual claims up to approximately $3,160,000.
The aggregate annual deductible is determined by the number of eligible covered
employees during the year and the coverage they elect.

         The Company is self-insured with respect to any worker's compensation
claims not covered by insurance. The Company maintains a $250,000 per occurrence
deductible and is liable for aggregate claims up to $2,400,000 for the
twelve-month period beginning September 1, 2003 and ending August 31, 2004.

         The Company is self-insured with respect to any general liability
claims below the Company's self-insured retention of $150,000 per occurrence for
the twelve-month period beginning September 1, 2003 and ending August 31, 2004.

         The Company has accrued $3,688,000 (see Note 3) for the estimated
expense for its self-insured insurance plans. These accruals require management
to make significant estimates and assumptions. Actual results could differ from
management's estimates.

         At October 26, 2003, the Company had commitments aggregating $1,680,000
for the construction of restaurants.

         During fiscal 2003, the Company was party to a lawsuit with BFBC Ltd
("BFBC"), a former franchisee of Bruegger's Bagels, and certain principals of
BFBC (the "Franchisee Parties"). During the second quarter of fiscal 2003, the
Company entered into a settlement agreement with the Franchisee Parties that
provided for a cash payment by the Franchisee Parties to the Company in the
amount of $3.75 million and the dismissal of all remaining claims in the
lawsuit. The Company recorded a gain of $3,459,000 in the second quarter of
fiscal 2003 as a result of this settlement. Subsequent to the end of the second
quarter of fiscal 2003, and ancillary to the BFBC settlement, the Company
transferred to Bruegger's Corporation's senior secured lender the Company's
interest in the $10.7 million Subordinated Note issued by Bruegger's Corporation
to the Company in connection with the divestiture of the Company's bagel-related
businesses in 1997. The Company received payment of $55,000 for the Subordinated
Note. The Company had previously reserved for the full amount of the
Subordinated Note. Accordingly, the Company recorded a $55,000 gain in respect
of this payment in the third quarter of fiscal 2003.

         The Company is involved in various other legal proceedings incidental
to the conduct of its business, including employment discrimination claims.
Based upon currently available information, the Company does not expect that any
such proceedings will have a material adverse effect on the Company's financial
position or results of operations but there can be no assurance thereof.

{11} IMPAIRMENT OF LONG-LIVED ASSETS

         During fiscal 2003 the Company closed four Grady's American Grill
restaurants. In light of these disposals and the continued decline in sales and
cash flow in its Grady's American Grill division the Company reviewed the
carrying amounts for the balance of its Grady's American Grill Restaurant
assets. The Company estimated the future cash flows expected to result from the
continued operation and the residual value of the remaining restaurant locations
in the division and concluded that, for the division as a whole, and in
particular with respect to eight locations, the undiscounted estimated future
cash flows were less than the carrying amount of the related assets.
Accordingly, the Company concluded that these assets had been impaired. The
Company measured the impairment and recorded an impairment charge related to
these assets aggregating $4,411,000 in the second quarter of fiscal 2003,
consisting of a reduction in the net book value of the Grady's American Grill
trademark of $2,882,000 and a reduction in the net book value of certain fixed
assets in the amount of $1,529,000. In accordance with SFAS 144, $640,000 of
this amount has been reclassified to discontinued operations in the Consolidated
Statement of Operations for fiscal 2003.

                                       53
<PAGE>

         In determining the fair value of the aforementioned restaurants, the
Company relied primarily on discounted cash flow analyses that incorporated an
investment horizon of five years and utilized a risk adjusted discount factor.

         In light of the continuing negative trends in both sales and cash
flows, the increase in the pervasiveness of these declines amongst individual
stores, and the accelerating rate of decline in both sales and cash flow, the
Company also determined that the useful life of the Grady's American Grill
trademark should be reduced from 15 to five years.

         During the second half of fiscal 2001, the Company experienced a
significant decrease in sales and cash flow in its Grady's American Grill
division. The Company initiated various management actions in response to this
declining trend, including evaluating strategic business alternatives for the
division both as a whole and at each of its 34 restaurant locations.
Subsequently, the Company entered into an agreement to sell nine of its Grady's
American Grill restaurants for approximately $10.4 million. Because the carrying
amount of the related assets as of October 28, 2001 exceeded the estimated net
sale proceeds, the Company recorded an impairment charge of $4.1 million related
to these nine restaurants. As a consequence of this loss and in connection with
the aforementioned evaluation, the Company estimated the future cash flows
expected to result from the continued operation and the residual value of the
remaining restaurant locations in the division and concluded that, in 12
locations, the undiscounted estimated future cash flows were less than the
carrying amount of the related assets. Accordingly, the Company concluded that
these assets had been impaired. The Company measured the impairment and recorded
an impairment charge related to these assets aggregating $10.4 million in fiscal
2001, consisting of a reduction in the net book value of the Grady's American
Grill trademark of $4.9 million and a reduction in the net book value of certain
fixed assets in the amount of $5.5 million.

         In determining the fair value of the aforementioned 12 restaurants, the
Company relied primarily on discounted cash flow analyses that incorporated
investment horizons ranging from three to 15 years and utilized a risk adjusted
discount factor.

         Also, in the fourth quarter of fiscal 2001, the Company committed to
plans to close two Grady's American Grill restaurants during the first quarter
of 2002. The Company accrued exit costs aggregating approximately $0.2 million,
principally for on-going rental costs.

         While the Company believes that the Grady's assets are reported at
their estimated fair values as of October 26, 2003, there can be no assurances
that future asset impairments may not occur.

{12} RELATED PARTY TRANSACTIONS

The Company leases 43 of its Burger King restaurants from entities that are
substantially owned by certain directors, officers and stockholders of the
Company. Amounts paid for leases with these related entities are as follows:

<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended
                                                   October 26,      October 27,     October 28,
(Dollars in thousands)                                2003             2002            2001
-----------------------------------------------------------------------------------------------
<S>                                                <C>              <C>             <C>
Operating leases:
           Base rentals                              $ 2,305          $ 2,187         $ 2,393
           Percentage rentals                            215              376             362
-----------------------------------------------------------------------------------------------
                                                       2,520            2,563           2,755
-----------------------------------------------------------------------------------------------
Capitalized leases:
           Interest                                      522              583             636
           Reduction of lease obligations                504              443             389
           Percentage rentals                             74              150             144
-----------------------------------------------------------------------------------------------
                                                       1,100            1,176           1,169
-----------------------------------------------------------------------------------------------
           Total                                     $ 3,620          $ 3,739         $ 3,924
-----------------------------------------------------------------------------------------------
</TABLE>

                                       54
<PAGE>

         Affiliated real estate partnerships and two other entities related
through common ownership pay management fees to the Company as reimbursement for
administrative services provided. Total management fees for fiscal 2003 were
$12,000 and $14,000 in each of fiscal 2002 and 2001.

         During the fiscal years 2003, 2002 and 2001, the Company made payments
to companies owned by certain directors, stockholders and officers of the
Company of $231,000, $301,000 and $339,000, respectively, for air transportation
services. These amounts exclude salary and related expenses paid to the pilots
during fiscal years 2003 and 2002 in the amounts of $104,000 and $16,000,
respectively. Prior to fiscal 2002, the pilots' salaries and related expenses
were borne by the Airplane Companies.

{13} ACQUISITIONS AND DISPOSITIONS

         On October 15, 2001, the Company purchased certain assets from BBD
Business Consultants, LTD. and its affiliates. BBD Business Consultants, LTD.
operated 42 Burger King restaurants in the Grand Rapids, Michigan metropolitan
area. The Company also purchased leasehold improvements and entered into lease
agreements with the landlords of 41 of the 42 Burger King restaurants. During
fiscal 2002, the Company closed three of these restaurants. In conjunction with
this transaction the Company obtained franchise agreements for the acquired
restaurants from Burger King Corporation. The purchase price for the restaurants
aggregated $6,067,000 and consisted of $4,212,000 in cash and $1,855,000 in
assumed liabilities. The acquisition was accounted for as a purchase. Goodwill
of approximately $1,096,000 was recorded in connection with the acquisition, and
subsequently was adjusted to $988,000 for the finalization of various
liabilities. The operating results of the restaurants have been included in the
Company's consolidated financial statements since the date of the acquisition.

         The following table summarizes the fair values of the assets acquired
and liabilities assumed at the date of the acquisition.

<TABLE>
<CAPTION>
                     At October 15, 2001
--------------------------------------------------------------
<S>                                                <C>
Current assets                                     $   657,000
Property and equipment                               3,276,000
Franchise fees                                       1,038,000
Goodwill                                               988,000
                                                   -----------
Total assets acquired                              $ 5,959,000
Cash paid                                            4,212,000
                                                   -----------
Liabilities assumed                                $ 1,747,000
                                                   -----------
</TABLE>

         The franchise fees will be amortized over the remaining life of each
restaurant's franchise agreement which is between one and 18 years. The $988,000
of goodwill was allocated within the quick service segment and has not been
amortized in accordance with FASB 142.

         The following unaudited pro forma results for the fiscal year ended
October 28, 2001 were developed assuming the Grand Rapids Burger Kings had been
acquired as of the beginning of the period presented. Prior to the acquisition,
BBD Business Consultant's fiscal year ended December 31. BBD Business
Consultants' prior period financial statements have been conformed with the
Company's year end for the fiscal 2001 unaudited pro forma results. The
unaudited pro forma results reflect certain adjustments, including interest
expense (including capitalized interest on occupancy leases), depreciation of
property and equipment and amortization of intangible assets.

<TABLE>
<CAPTION>
                                          Fiscal Year
                                          -----------
                                          October 28,
                                             2001
                                          -----------
                                          (Unaudited)
<S>                                       <C>
Total revenues                            $ 268,144
Pro forma net loss                          (14,538)
Pro forma net loss per share                  (1.28)
</TABLE>

                                       55
<PAGE>

         The unaudited pro forma results shown above are not necessarily
indicative of the consolidated results that would have occurred had the
acquisitions taken place at the beginning of the respective period, nor are they
necessarily indicative of results that may occur in the future.

         During fiscal 2003, the Company sold four of its Grady's American Grill
restaurants for net proceeds of $4,779,000. The Company recorded a $1,160,000
gain related to these sales.

         During fiscal 2002, the Company sold 15 of its Grady's American Grill
restaurants for net proceeds of $15,512,000. The Company recorded a $1,360,000
gain related to these sales.

         As discussed in Note 2, discontinued operations includes the revenues
and expenses of the eight Grady's American Grill restaurants that either had
been sold or were being held for sale as of October 26, 2003. The decision to
dispose of these locations reflects the Company's ongoing process of evaluating
the performance of the Grady's American Grill restaurants and using the proceeds
from dispositions to reduce debt. Assets held for sale includes property, plant
and equipment totaling $5,821,000 as of October 26, 2003. Net income from
discontinued operations for the periods ended October 26, 2003, and October 27,
2002 were made up of the following components:

<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended
                                                                October 26,    October 27,    October 28,
(Percent of pretax income)                                         2003           2002           2001
---------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>            <C>
Revenue discontinued operations                                   $ 8,435        $13,311        $15,281
Income discontinued restaurant operations                             518          1,050          1,718
Facility closing costs                                               (220)             -              -
Impairment of assets                                                 (640)             -              -
Gain on sale of assets                                                352              -              -
                                                                ---------------------------------------
Income before taxes                                                    10          1,050          1,718
Income tax provision                                                  (23)           (21)           (29)
                                                                ---------------------------------------
Income (loss) from discontinued operations                            (13)         1,029          1,689
                                                                =======================================
Basic and diluted net income per share from discontinued
   operations                                                     $     -        $  0.09        $  0.15
                                                                =======================================
</TABLE>

{14} SEGMENT REPORTING

         The segment information has been prepared in accordance with SFAS 131,
"Disclosure about Segments of an Enterprise and Related Information" (SFAS 131).

         The Company operates four distinct restaurant concepts in the
food-service industry. It owns the Grady's American Grill and two Italian Dining
concepts and operates Burger King and Chili's Grill & Bar restaurants as a
franchisee of Burger King Corporation and Brinker International, Inc.,
respectively. The Company has identified each restaurant concept as an operating
segment based on management structure and internal reporting. For purposes of
applying SFAS 131, the Company considers the Grady's American Grill, the two
Italian Dining concepts and Chili's Grill & Bar to be similar and has aggregated
them into a single reportable segment (Full Service). The Company considers the
Burger King restaurants as a separate reportable segment (Quick Service).
Summarized financial information concerning the Company's reportable segments is
shown in the following table. The "other" column includes corporate related
items and income and expense not allocated to reportable segments.

                                       56
<PAGE>

<TABLE>
<CAPTION>
                                                   FULL                 QUICK
         (Dollars in thousands)                  SERVICE               SERVICE           OTHER              TOTAL
----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                   <C>               <C>              <C>
FISCAL 2003

Revenues                                        $ 112,162             $ 114,983         $      -         $ 227,145
Income from restaurant operations (1)              14,468                12,677               87            27,232

Operating income                                    5,029 (2)             3,173             (976)        $   7,226
Interest expense                                                                                             7,479
Other income                                                                                                 3,104 (3)
                                                                                                         ---------
Income from continuing operations before
income taxes                                                                                             $   2,851
                                                                                                         =========

Total assets                                       79,154                51,296           14,957         $ 145,407
Depreciation and amortization                       5,020                 5,011            1,179            11,210

FISCAL 2002

Revenues                                        $ 124,419             $ 123,795         $      -         $ 248,214
Income from restaurant operations (1)              15,232                16,036                4            31,272

Operating income                                    7,971                 5,314           (1,437)        $  11,848
Interest expense                                                                                             8,429
Other income                                                                                                 1,689
                                                                                                         ---------
Income from continuing operations before                                                                 $   5,108
                                                                                                         =========
income taxes

Total assets                                       91,630                51,210           14,101         $ 156,941
Depreciation and amortization                       5,549                 4,672            1,240            11,461

FISCAL 2001

Revenues                                        $ 132,019             $  80,791         $      -         $ 212,810
Income from restaurant operations (1)              13,686                11,217              135            25,038

Operating income (loss)                            (8,918)(4)             4,538           (1,970)        $  (6,350)
Interest expense                                                                                            10,419
Other income                                                                                                   875
                                                                                                         ---------
Loss from continuing operations before                                                                   $ (15,894)
                                                                                                         =========
income taxes

Total assets                                      104,425                45,268           17,545         $ 167,238
Depreciation and amortization                       8,127                 3,312            1,344            12,783
</TABLE>

(1) Income from operations is restaurant sales minus total operating expenses.

(2) Includes charges for the impairment of assets and facility closing costs
totaling $3,681,000.

(3) Includes stock purchase expense of $1,294,000 and recovery of note
receivable of $3,459,000.

(4) Includes charges for the impairment of assets and facility closing costs
totaling $15,385,000.

                                       57
<PAGE>

{15} SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
        (in thousands, except per share amounts)

<TABLE>
<CAPTION>


                                             First            Second           Third            Fourth
    Year ended October 26, 2003             Quarter           Quarter         Quarter           Quarter
    ---------------------------             -----------------------------------------------------------
<S>                                         <C>             <C>               <C>              <C>
Total revenues                              $ 67,868        $ 51,517          $ 53,704         $ 54,056
Operating income (loss)                        2,317          (1,358)(1)         2,596            3,671
Income (loss) before income taxes                334             525 (2)          (198) (3)       2,190
Net income                                  $    179        $   (280)         $   (133)        $  1,106
                                            ========        ========          ========         ========
Basic net income (loss) per share           $   0.02        $  (0.02)         $  (0.01)        $   0.10
                                            ========        ========          ========         ========
Diluted net income (loss) per share         $   0.02        $  (0.02)         $  (0.01)        $   0.10
                                            ========        ========          ========         ========
Weighted average shares:
Basic                                         11,311          11,311            11,311           11,311
Diluted                                       11,358          11,311            11,311           11,356
</TABLE>

<TABLE>
<CAPTION>


                                             First           Second            Third            Fourth
Year ended October 27, 2002                 Quarter         Quarter           Quarter          Quarter
---------------------------                 -----------------------------------------------------------
<S>                                         <C>             <C>               <C>              <C>
Total revenues                              $ 80,504        $ 62,169          $ 59,509         $ 57,074
Operating income                               3,791           2,950             3,716            2,441
Income  before income taxes                    1,374           1,547             2,042            1,195
Net income                                  $    942        $  1,223          $  1,718         $  1,201
                                            ========        ========          ========         ========
Basic net income per share                  $   0.08        $   0.11          $   0.15         $   0.11
                                            ========        ========          ========         ========
Diluted net income per share                $   0.08        $   0.11          $   0.15         $   0.11
                                            ========        ========          ========         ========

Weighted average shares:
Basic                                         11,206          11,206            11,270           11,311
Diluted                                       11,298          11,422            11,617           11,417
</TABLE>

(1) Includes charges for the impairment of assets and facility closing costs
totaling $3,681,000.

(2) Includes recovery of note receivable in the amount of $3,459,000.

(3) Includes stock purchase expense of $1,294,000.

                                       58
<PAGE>

QUALITY DINING, INC.
REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors of Quality Dining, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Quality
Dining, Inc. and its subsidiaries at October 26, 2003 and October 27, 2002, and
the results of their operations and their cash flows for each of the three years
in the period ended October 26, 2003 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item
15(a)(2) presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. 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 based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and 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, the Company
changed the manner in which it accounts for goodwill and other intangible assets
as of October 29, 2001. As also discussed in Note 2 to the consolidated
financial statements, the Company changed the manner in which it accounts for
long-lived assets to be disposed of as of October 28, 2002.

PricewaterhouseCoopers LLP

Chicago, Illinois
December 23, 2003

                                       59
<PAGE>

               II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   Additions
                                                                   ---------
                                              Balance at     Charged to     Charged                          Balance at
                                             Beginning of    Costs and      to Other                           End of
                                                Period        Expenses      Accounts        Deductions         Period
                                             --------------------------------------------------------------------------
<S>                                          <C>             <C>            <C>             <C>              <C>
Year ended October 28, 2001

     Income tax valuation allowance            $ 20,362        5,343           -                   -          $  25,705

Year ended October 27, 2002

     Income tax valuation allowance            $ 25,705            -           -              (1,747) (1)     $  23,958

Year ended October 26, 2003

     Income tax valuation allowance            $ 23,958          211           -                   -          $  24,169
</TABLE>

(1) During fiscal 2002 the Company utilized NOL carryforwards to offset
current-year taxable income.

                                       60
<PAGE>

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

     There have been no changes in or disagreements with the Company's
independent accountants on accounting or financial disclosures.

ITEM 9A. CONTROLS AND PROCEDURES

     We maintain a set of disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the reports filed
by us under the Securities Exchange Act of 1934, as amended ("Exchange Act") is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. As of October 26, 2003, we carried out an
evaluation, under the supervision and with the participation of our management,
including our President and Chief Executive Officer and our Executive Vice
President (Principal Financial Officer), of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-14 of
the Exchange Act. Based on that evaluation, our President and Chief Executive
Officer and our Executive Vice President concluded that our disclosure controls
and procedures are effective.

     There was no change in our internal control over financial reporting during
the fourth quarter of our 2003 fiscal year that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

                                       61
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required by this Item concerning the Directors and nominees
for Director of the Company, and concerning disclosure of delinquent filers and
concerning a code of ethics is incorporated herein by reference to the Company's
definitive Proxy Statement for its 2004 Annual Meeting of Shareholders, to be
filed with the Commission pursuant to Regulation 14A within 120 days after the
end of the Company's last fiscal year. Information concerning the executive
officers of the Company is included under the caption "Executive Officers of the
Company" at the end of Part I of this Annual Report. Such information is
incorporated herein by reference, in accordance with General Instruction G(3) to
Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.

     The Company has adopted a Code of Business Conduct and Ethics (the "Code")
that applies to all of the Company's directors, officers and employees,
including its principal executive officer, principal financial officer,
principal accounting officer and controller. The Code is posted on the Company's
website at www.qdi.com. The Company intends to disclose any amendments to the
Code by posting such amendments on its website. In addition, any waivers of the
Code for directors or executive officers of the Company will be disclosed in a
report on Form 8-K.

ITEM 11. EXECUTIVE COMPENSATION.

     The information required by this Item concerning remuneration of the
Company's officers and Directors and information concerning material
transactions involving such officers and Directors is incorporated herein by
reference to the Company's definitive Proxy Statement for its 2004 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

     The information required by this Item concerning the stock ownership of
management and five percent beneficial owners is incorporated herein by
reference to the Company's definitive Proxy Statement for its 2004 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.

Equity Compensation Plan Information

The following table provides certain information regarding the Company's equity
compensation plans as of October 26, 2003:

<TABLE>
<CAPTION>
                                                       Weighted
                                 Number of             average           Number of securities
                              securities to be      exercise price     remaining available for
                            issued upon exercise    of outstanding   future issuance under equity
                               of outstanding          options,            compensation plans
                            options, warrants and    warrants and        (excluding securities
                                   rights               rights           reflected in column (a)
    Plan Category                   (a)                   (b)                       (c)
-------------------------   ---------------------   --------------   ----------------------------
<S>                         <C>                     <C>              <C>
Equity compensation plans
approved by security
holders                           605,018 (1)           $5.66                 206,943 (2)

Equity compensation plans
not approved by security
holders (3)                        46,000               $2.77                  34,000

                                  -------               -----                 -------
Total                             651,018               $5.45                 240,943
                                  -------               -----                 -------
</TABLE>

                                       62

<PAGE>

     (1)  Includes 105,935 options issued under the Company's 1993 Stock Option
          and Incentive Plan (the "1993 Plan"), 461,083 options issued under the
          Company's 1997 Stock Option and Incentive Plan (the "1997 Plan") and
          38,000 options issued under the Company's 1993 Outside Director's Plan
          (the "1993 Director's Plan").

     (2)  Includes 204,943 shares available for issuance as stock options,
          shares of restricted stock, stock appreciation rights or performance
          stock under the Company's 1997 Plan and 2,000 shares available for
          issuance as options issued under the Company's 1993 Director's Plan.

     (3)  Reflects shares issuable under the Company's 1999 Outside Director's
          Stock Option Plan (the "1999 Director's Plan").

     Equity compensation plans approved by the Company's security holders
include the Company's 1993 Plan, 1993 Director's Plan and 1997 Plan.

     The one equity compensation plan of the Company which was not approved by
the Company's security holders is the 1999 Director's Plan. The 1999 Director's
Plan reserves for issuance 80,000 shares of the Company's common stock (subject
to adjustment for subsequent stock splits, stock dividends and certain other
changes in the Common Stock) pursuant to non-qualified stock options to be
granted to non-employee Directors of the Company. The 1999 Directors Plan
provides that on May 1 of each year, each non-employee Director automatically
receives an option to purchase 2,000 shares of Common Stock. Each option has an
exercise price equal to the fair market value of the Common Stock on the date of
grant.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item concerning certain relationships and
related transactions is incorporated herein by reference to the Company's
definitive Proxy Statement for its 2004 Annual Meeting of Shareholders which
will be filed pursuant to Regulation 14A within 120 days after the end of the
Company's last fiscal year.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item concerning principal accountant fees and
services is incorporated herein by reference to the Company's definitive Proxy
Statement for its 2004 Annual Meeting of Shareholders which will be filed
pursuant to Regulation 14A within 120 days after the end of the Company's last
fiscal year.

                                       63

<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)  1. Financial Statements:

          The following consolidated financial statements of the Company and its
          subsidiaries are set forth in Part II, Item 8.

          Consolidated Balance Sheets as of October 26, 2003 and October 27,
          2002.

          Consolidated Statements of Operations for the fiscal years ended
          October 26, 2003, October 27, 2002 and October 28, 2001.

          Consolidated Statements of Stockholders' Equity for the fiscal years
          ended October 26, 2003, October 27, 2002 and October 28, 2001.

          Consolidated Statements of Cash Flows for the fiscal years ended
          October 26, 2003, October 27, 2002 and October 28, 2001.

          Notes to Consolidated Financial Statements

          Report of Independent Auditors

     2. Financial Statement Schedules:

          The following financial statement schedule of the Company and its
          subsidiaries is set forth in Part II, Item 8 for each of the three
          years in the period ended October 26, 2003.

          II - Valuation and Qualifying Accounts and Reserves

          All other schedules are omitted because they are not applicable or the
          required information is shown on the financial statements or notes
          thereto.

     3. Exhibits:

          A list of exhibits required to be filed as part of this report is set
          forth in the Index to Exhibits, which immediately precedes such
          exhibits, and is incorporated herein by reference.

(b)  Reports on Form 8-K

          None.

                                       64
<PAGE>

                                   SIGNATURES

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

                                  Quality Dining, Inc.

                                  By: /s/ Daniel B. Fitzpatrick
                                      Daniel B. Fitzpatrick
                                      Chairman, President and Chief Executive
                                      Officer

Date: January 23, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         Signature                                 Title                                      Date
         ---------                                 -----                                      ----
<S>                               <C>                                                    <C>
  /s/ Daniel B. Fitzpatrick       Chairman of the Board, President, Chief Executive      January 23, 2004
-----------------------------     Officer and Director (Principal Executive Officer)
Daniel B. Fitzpatrick

   /s/ John C. Firth              Executive Vice President and General Counsel           January 23, 2004
-----------------------------     (Principal Financial Officer)
John C. Firth

   /s/ Jeanne M. Yoder            Vice President, Controller                             January 23, 2004
-----------------------------     (Principal Accounting Officer)
Jeanne M. Yoder

    /s/ James K. Fitzpatrick      Senior Vice President, Chief Development Officer and   January 23, 2004
-----------------------------     Director
James K. Fitzpatrick

    /s/ Philip J. Faccenda        Director                                               January 23, 2004
-----------------------------
Philip J. Faccenda

    /s/ Ezra H. Friedlander       Director                                               January 23, 2004
-----------------------------
Ezra H. Friedlander

    /s/ Bruce M. Jacobson         Director                                               January 23, 2004
-----------------------------
Bruce M. Jacobson

    /s/ Steven M. Lewis           Director                                               January 23, 2004
-----------------------------
Steven M. Lewis

/s/ Christopher J. Murphy III     Director                                               January 23, 2004
-----------------------------
Christopher J. Murphy III
</TABLE>

                                       65
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
 Exhibit
   No.                                            Description
--------                                          -----------
<S>         <C>
   3-A      (1)  (i) Restated Articles of Incorporation of Registrant..........................................

            (1)  (ii)  Amendment to Registrant's Restated Articles of Incorporation establishing
                 the Series A Convertible Cumulative Preferred Stock of the Registrant.........................

            (1)  (iii)  Amendment to Registrant's Restated Articles of Incorporation establishing
                 the Series B Participating Cumulative Preferred Stock of the Registrant
                 ..............................................................................................

   3-B     (16)  By-Laws of the Registrant, amended as of June 11, 2003........................................

   4-A      (2)  Form of Mortgage, Assignment of Rents, Fixture Filing and Security Agreement
                 ..............................................................................................

   4-B      (2)  Form of Lease.................................................................................

   4-C      (2)  Form of Promissory Note.......................................................................

   4-D      (2)  Intercreditor Agreement by and among Burger King Corporation, the Company and
                 Chase Bank of Texas, National Association, NBD Bank, N.A. and NationsBank, N.A.
                 effective as of May 11, 1999..................................................................

   4-E      (2)  Intercreditor Agreement by and among Captec Financial Group, Inc., CNL Financial
                 Services, Inc., Chase Bank of Texas, National Association and the Company dated
                 August 3, 1999................................................................................

   4-F      (2)  Collateral Assignment of Lessee's Interest in Leases by and between Southwest
                 Dining, Inc. and Chase Bank of Texas, National Association dated July 26, 1999................

   4-G      (2)  Collateral Assignment of Lessee's Interest in Leases by and between Grayling
                 Corporation and Chase Bank of Texas, National Association dated July 26, 1999.................

   4-H      (2)  Collateral Assignment of Lessee's Interest in Leases by and between Bravokilo,
                 Inc. and Chase Bank of Texas, National Association dated July 26, 1999........................

   4-L      (3)  Rights Agreement, dated as of March 27, 1997, by and between Quality Dining, Inc.
                 and KeyCorp Shareholder Services, Inc., with exhibits ........................................

   4-N     (12)  Reaffirmation of Subsidiary Guaranty..........................................................

   4-O     (14)  Fourth Amended and Restated Revolving Credit Agreement dated as of May 30, 2002 by
                 and between Quality Dining, Inc. and GAGHC, Inc. as borrowers, and JP Morgan Chase
                 Bank, as Administrative Agent, Bank of America, National Association, as
                 Syndication Agent and J.P. Morgan Securities, Inc. as Arranger................................

   4-P     (14)  Intercreditor Agreement dated as of the 15th day of October, 2001 by and among Burger King....
                 Corporation, the Franchisee and JP Morgan Chase Bank, as Administrative Agent for the
                 Banks.........................................................................................
</TABLE>

                                       66
<PAGE>

<TABLE>
<S>        <C>
   4-Q     (16)  First Amendment dated May 5, 2003 to Fourth Amended and Restated Revolving Credit Agreement
                 dated as of May 30, 2003...................................................................

  10-A      (4)  Form of Burger King Franchise Agreement....................................................

  10-B      (4)  Form of Chili's Franchise Agreement........................................................

  10-D      (2)  Second Amendment to Development Agreement by and between Southwest Dining, Inc. and Brinker
                 International, Inc. dated July 26, 1999....................................................

  10-E     (17)  Standstill Agreement by and among Daniel B. Fitzpatrick, Quality Dining, Inc.,
                 NBO, LLC, Jerome L. Schostak, David W. Schostak, Robert I. Schostak and Mark S.
                 Schostak dated June 27, 2003...............................................................

  10-G      (2)  *Employment Agreement between the Company and John C. Firth dated August 24, 1999
                 ...........................................................................................

  10-H      (5)  *1997 Stock Option and Incentive Plan of the Registrant....................................

  10-I      (6)  *1993 Stock Option and Incentive Plan, as amended of the Registrant .......................

  10-J      (4)  *Outside Directors Stock Option Plan of the Registrant adopted December 17, 1993...........

  10-K      (4)  Lease Agreement between B.K. Main Street Properties and the Registrant dated January 1,
                 1994.......................................................................................

  10-L           Schedule of Related Party Leases...........................................................

  10-M      (4)  Form of Related Party Lease................................................................

  10-N     (18)  First Amendment to Lease Agreement entered into as of the 14th day of February, 2003
                 by and between Bendan Properties, LLC an Indiana limited liability company (the "Lessor"),.
                 successor to Burger King Corporation, a Florida corporation, and Bravokilo, Inc., an
                 Indiana corporation........................................................................

  10-O     (10)  *1999 Outside Directors Stock Option Plan..................................................

  10-Q      (2)  *Non Compete Agreement between the Company and James K. Fitzpatrick dated June 1, 1999.....

  10-R      (2)  *Non Compete Agreement between the Company and Gerald O. Fitzpatrick dated June 1, 1999 ...

  10-S     (15)  * Amendment, dated September 9, 2002 to Employment Agreement between the Company
                 and John C. Firth..........................................................................

  10-T      (7)  First Amendment dated May 2, 1995 to Development Agreement between Chili's, Inc.
                 and the Registrant dated June 27, 1990 ....................................................

  10-U      (2)  *Non Compete Agreement between the Company and Robert C. Hudson dated June 1, 1999 ........

  10-W     (16)  Lease by Fitzpatrick Properties, LLC, an Indiana limited liability company and
                 Bravokilo, Inc. for Burger King #2148, Southfield, MI......................................

  10-X     (16)  Lease by Fitzpatrick Properties, LLC, an Indiana limited liability company and
                 Bravokilo, Inc. for Burger King #6296, Taylor, MI..........................................
</TABLE>

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<PAGE>

<TABLE>
<S>        <C>
 10-AE     (15)  Aircraft Hourly Rental Agreement by and between BMSB, Inc. and Quality Dining,
                 Inc., dated as of August 22, 2002..........................................................

 10-AF      (8)  Lease Agreement between the Registrant and Six Edison Lakes, L.L.C. dated September 19,
                 1996.......................................................................................

 10-AG      (9)  Amended and Restated Priority Charter Agreement between the Registrant and Burger
                 Management of South Bend #3 Inc., dated October 21, 1998...................................

 10-AO     (13)  *Employment Agreement between the Company and Daniel B. Fitzpatrick dated October
                 30, 2000...................................................................................

 10-AP     (10)  *Form of Agreement for Restricted Shares Granted under Quality Dining, Inc. 1997
                 Stock Option and Incentive Plan dated June 1, 1999 between the Company and certain
                 executive officers identified on the schedule attached thereto.............................

 10-AR     (13)  *Form of Agreement for Restricted Shares Granted under Quality Dining, Inc. 1997
                 Stock Option and Incentive Plan dated December 20, 2000, between the Company and
                 certain executive officers identified on the schedule attached thereto.....................

 10-AS     (13)  Early Successor Incentive Program (Fiscal 2000) Addendum to Successor Franchise
                 Agreement .................................................................................

 10-AY     (10)  *Form of Agreement for Restricted Shares Granted under Quality Dining, Inc. 1997
                 Stock Option and Incentive Plan dated December 15, 1999 between the Company and
                 certain executive officers identified on the schedule attached thereto.....................

 10-AZ     (13)  Franchisee Commitment dated January 27, 2000...............................................

  21             Subsidiaries of the Registrant.............................................................

  23             Written consent of PricewaterhouseCoopers LLP..............................................

 31.1            Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer......................

 31.2            Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer......................

 32.1            Section 1350 Certification of Chief Executive Officer......................................

 32.2            Section 1350 Certification of Executive Vice President and General Counsel
                 (Principal Financial Officer)..............................................................
</TABLE>

------------------
*    The indicated exhibit is a management contract, compensatory plan or
     arrangement required to be filed by Item 601 of Regulation S-K.

(1)  The copy of this exhibit filed as the same exhibit number to the Company's
     Registration Statement on Form 8-A filed on April 1, 1997 is incorporated
     herein by reference.

(2)  The copy of this exhibit filed as the same exhibit number to the Company's
     Quarterly Report on Form 10-Q for the quarterly period ended August 1,
     1999, is incorporated herein by reference.

(3)  The copy of this exhibit filed as Exhibit 10-AO to the Company's
     Registration Statement on Form 8-A filed on April 1, 1997 is incorporated
     herein by reference.

(4)  The copy of this exhibit filed as the same exhibit number to the Company's
     Registration Statement on Form S-1 (Registration No. 33-73826) is
     incorporated herein by reference.

                                       68
<PAGE>

(5)  The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10K for the year ended October 26, 1997 is incorporated
     herein by reference.

(6)  The copy of this exhibit filed as the same exhibit number to the Company's
     Quarterly Report on Form 10-Q for the quarterly period ended May 12, 1996
     is incorporated herein by reference.

(7)  The copy of this exhibit filed as the same exhibit number to the Company's
     Registration Statement on Form S-1 (Registration No. 33-96806) is
     incorporated herein by reference.

(8)  The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-K for the year ended October 27, 1996 is incorporated
     herein by reference.

(9)  The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-K for the year ended October 25, 1998 is incorporated
     herein by reference.

(10) The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-K for the year ended October 29, 1999 is incorporated
     herein by reference.

(11) The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-Q for the quarterly period ended May 14, 2000 is
     incorporated herein by reference.

(12) A copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-Q for the quarterly period ended August 6, 2000 is
     incorporated herein by reference.

(13) The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-K for the year ended October 29, 2000 is incorporated
     herein by reference.

(14) The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-Q for the quarterly period ended May 12, 2002 is
     incorporated herein by reference.

(15) The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-Q for the quarterly period ended August 4, 2002 is
     incorporated herein by reference.

(16) The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-Q for the quarterly period ended May 11, 2003, is
     incorporated herein by reference.

(17) The copy of this exhibit filed as exhibit number 4 to Amendment No. 8 of
     Schedule 13D filed by Daniel B. Fitzpatrick, dated June 30, 2003, is
     incorporated herein by reference.

(18) The copy of this exhibit filed as the same exhibit number to the Company's
     Report on Form 10-Q for the quarterly period ended February 16, 2003, is
     incorporated herein by reference.

                                       69