<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 27, 2002
                                       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. [X]

                                   $24,692,266

Aggregate market value of the voting stock held by nonaffiliates of the
Registrant based on the last sale price for such stock at November 27, 2002
(assuming solely for the purposes of this calculation that all Directors and
executive officers of the Registrant are "affiliates").

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

                                   $26,592,647

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 10, 2002
(assuming solely for the purposes of this calculation that all Directors and
executive officers of the Registrant are "affiliates").

                                   11,609,099

       Number of shares of Common Stock, without par value, outstanding at
                                January 14, 2003

                       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 11, 2003.          PART III



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                              QUALITY DINING, INC.
                               Mishawaka, Indiana
               Annual Report to Securities and Exchange Commission
                                October 27, 2002

                                     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 27, 2002, the Company operated 174 restaurants, including 115 Burger
King restaurants, 34 Chili's, 16 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 historically sought franchisors
with established reputations for leadership in their various segments of the
restaurant industry who have proven integrity and share the Company's focus on
value, customer service and quality.




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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 open one or two Burger King restaurants and
two or three full service restaurants in fiscal 2003. The Company also plans to
replace five existing Burger King buildings with new Burger King buildings at
the same locations. 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 continue to consider strategic
acquisitions in the Burger King system.

     During fiscal 2002, the Company built two new Burger King restaurants, one
new Chili's restaurant and one new Papa Vino's restaurant. The Company sold 15
and closed three Grady's American Grill restaurants in fiscal 2002. (See
"Grady's American Grill" and Note 11 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 Texas Pacific Group although the purchase
price had been reduced to $1.5 billion due in part to the current highly
competitive environment in which Burger King operates. Burger King Corporation
has been franchising Burger King restaurants since 1954 and has since expanded
to 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
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,



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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
of 0.375% of sales for the period beginning September 1, 1999 and ended August
30, 2000 and paid a similar fee of 1.0% of sales for the period beginning
September 1, 2000 and ended June 27, 2001 and 1.2% of sales for the period
beginning June 28, 2001 through June 26, 2002. From June 27, 2002 through June
25, 2003, the Company has and will pay an additional 2.0% of sales. The Company
is also required to spend 2.0% of sales from each restaurant on local
advertising which is considered to be met by the additional fees of 2.0% of
sales described in the preceding sentence. 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. These
units did not fit the Company's long-term strategic plan and were not meeting
the Company's performance expectations.

     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.

     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. During fiscal 2002, the Company continued to experience
declining sales and cash flow in its Grady's American Grill restaurants. While
the Company believes that the Grady's assets are reported at their estimated
fair values as of October 27, 2002, there can be no assurances that future asset
impairments may not occur.

     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.



                                       4
<PAGE>

ITALIAN DINING CONCEPT

     General. The Company's Italian Dining concept operates under the tradenames
Papa Vino's Italian Kitchen and Spageddies Italian Kitchen. The first Papa
Vino's restaurant was opened in 1996 and the first Spageddies restaurant was
opened in 1994. The Company had been a franchisee of Spageddies since 1994, and
became the owner of the concept in October 1995. 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.


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.




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     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 1999 and
early fiscal 2000, the Company replaced the point-of-sale equipment in all of
its full service restaurants. 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.

          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 managed by a dedicated purchasing function
and 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.





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FRANCHISE AND DEVELOPMENT AGREEMENTS

     Burger King. On November 3, 2000, the Company entered into a Non-Exclusive
Development Agreement with Burger King Corporation (the "BKC Agreement"). The
BKC Agreement granted the Company the non-exclusive right to develop 12 Burger
King restaurants in three specified counties in Michigan, two specified counties
in Ohio and 20 specified counties in Indiana. The BKC Agreement was scheduled to
expire on June 30, 2004.

     The Company paid a $60,000 franchise fee deposit to Burger King
Corporation. With each new restaurant that the Company opened pursuant to the
BKC Agreement, it received a credit of $5,000 against the applicable franchise
fee for such restaurant. Through December 31, 2002, the Company had received a
total of $35,000 in credits against applicable franchise fees for new
restaurants ($25,000) and Target Reservation Agreements ($10,000). In December,
2002 the Company and BKC mutually agreed to terminate the BKC Agreement
principally because many of the target locations reserved in the BKC Agreement
do not meet BKC's new development criteria. Accordingly, the Company will be
entitled to a credit of $5,000 against the applicable franchise fee for each of
the next five new restaurants it opens prior to December 31, 2005.

     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 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 will be from July 1, 2000 to
June 30, 2003. As of July 1, 2003, the royalty rate will become 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



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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.
The Company invested approximately $6.6 million to remodel the selected
restaurants to Burger King Corporation's current image of which approximately
$3.9 million was expended in fiscal 2002.

     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
expects to invest approximately $2.2 million in fiscal 2003 to remodel the
participating restaurants to Burger King Corporation's current image. The
deadline for completing the required improvements is June 30, 2003.

     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 has a development agreement with Brinker (the "Chili's
Agreement") to develop up to 41 Chili's restaurants in two regions encompassing
counties in Indiana, Michigan, Ohio, Kentucky ("Midwest Region"), and Delaware,
New Jersey and Pennsylvania ("Philadelphia Region"). 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. As part of a system-wide promotional effort,
the Company paid an additional advertising fee of 0.375% of sales for the period
beginning September 1, 1999 and ended August 30, 2000 and paid a similar fee of
1.0% of sales for the period beginning September 1, 2000 and ended June 27, 2001
and 1.2% for the period beginning June 28, 2001 through June 26, 2002. From June
27, 2002 through June 25, 2003, the Company has and will pay an additional 2.0%
of sales. The Company is also required to spend 2.0% of sales from each
restaurant on local advertising which is considered to be met by the additional
fee of 2% of sales described in the preceding sentence.





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     The Company may develop up to 41 Chili's without specific approval of
Brinker, but is obligated to satisfy the following development schedule:

<TABLE>
<CAPTION>
                      REQUIRED MINIMUM CUMULATIVE NO. OF
                                  RESTAURANTS                        ACTUAL CUMULATIVE NO. OF RESTAURANTS
                                  -----------                        ------------------------------------
                       MIDWEST   PHILADELPHIA                     MIDWEST         PHILADELPHIA
                        REGION      REGION          TOTAL          REGION            REGION            TOTAL
                        ------      ------          -----          ------            ------            -----
<S>                   <C>        <C>              <C>             <C>            <C>                  <C>
December 31, 2001         16          15            33(1)            18                15                33
December 31, 2002         15          15            34(1)            19                15                34
June 30, 2003             15          16            35(1)
December 31, 2003         15          16            37(1)
</TABLE>

-------------
(1)  The additional restaurants to be opened in these years may be located in
     either region at the Company's discretion.

     Failure to adhere to this schedule constitutes a default under the Chili's
Agreement and Brinker could terminate the Chili's Agreement. The Chili's
Agreement prohibits 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 expires on the earlier of the date upon which
the Company completes the development schedule or December 31, 2003. 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 such 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.

     Under the Chili's 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 may terminate the Chili's Agreement
if the Company defaults in its performance thereunder or under any franchise
agreement. 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.





                                       9
<PAGE>

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, J. Alexander'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.


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.





                                       10
<PAGE>

EMPLOYEES

     As of October 27, 2002, the Company employed approximately 8,300 persons.
Of those employees, approximately 110 held management or administrative
positions, approximately 670 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.











                                       11
<PAGE>


ITEM 2.  PROPERTIES.

     The following table sets forth, as of October 27, 2002, the 15 states in
which the Company operated restaurants and the number of restaurants in each
state. Of the 174 restaurants which the Company operated as of October 27, 2002,
the Company owned 45 and leased 129. 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
                   --------------------------------------
                                                GRADY'S
                         BURGER                 AMERICAN     ITALIAN
                          KING     CHILI'S       GRILL       DINING    TOTAL
                          ----     -------       -----       ------    -----
Alabama                                            1                     1
Arkansas                                           1                     1
Colorado                                           3                     3
Delaware                               2                                 2
Georgia                                            1                     1
Illinois                                           1                     1
Indiana                    43          5                        2       50
Michigan                   72         10           1            5       88
Mississippi                                        1                     1
New Jersey                             5           1                     6
North Carolina                                     2                     2
Ohio                                   4                        2        6
Oklahoma                                           1                     1
Pennsylvania                           8                                 8
Tennessee                                          3                     3
                      ------------------------------------------------------
     Total                115         34          16            9      174
                          ===         ==          ==            =      ===


     Burger King. As of October 27, 2002, 41 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 51 restaurants from unrelated third parties. The
Company owned 17 of its Burger King restaurants as of October 27, 2002.

     Chili's Grill & Bar. As of October 27, 2002, the Company owned 12 of its
Chili's restaurants and leased the 22 other restaurants from unrelated parties.

     Grady's American Grill. As of October 27, 2002, the Company owned 11 of its
Grady's American Grill restaurants and leased the other five Grady's American
Grill restaurants from unrelated parties.

     Italian Dining. As of October 27, 2002, 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 9
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 two, three and five years, respectively.





                                       12
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

     The Company is a party to one remaining legal proceeding relating to the
Company's previously owned bagel-related businesses.

     On or about April 15, 1997, Texas Commerce Bank National Association
("Texas Commerce") made a loan of $4,200,000 (the "Loan") to BFBC Ltd., a
Florida limited partnership ("BFBC"). At the time of the Loan, BFBC was a
franchisee under franchise agreements with Bruegger's Franchise Corporation (the
"Franchisor"). The Company at that time was an affiliate of the Franchisor. In
connection with the Loan and as an accommodation of BFBC, the Company executed
to Texas Commerce a "Guaranty". By the terms of the Guaranty the Company agreed
that upon maturity of the Loan by default or otherwise that it would either (1)
pay the Loan obligations or (2) buy the Loan and all of the related loan
documents (the "Loan Documents") from Texas Commerce or its successors. In
addition several principals of BFBC (the "Principal Guarantors") guaranteed
repayment of the Loan by each executing a "Principal Guaranty". On November 10,
1998, Texas Commerce (1) declared that the Loan was in default, (2) notified
BFBC, the Principal Guarantors and the Company that all of the Loan obligations
were due and payable, and (3) demanded payment.

     The Company elected to satisfy its obligations under the Guaranty by
purchasing the Loan from Texas Commerce. On November 24, 1998, the Company
bought the Loan for $4,294,000. Thereafter, the Company sold the Loan to its
Texas affiliate Grady's American Grill, L.P. ("Grady's"). On November 30, 1998,
Grady's commenced an action seeking to recover the amount of the Loan from one
of the Principal Guarantors, Michael K. Reilly ("Reilly"). As part of this
action Grady's also sought to enforce a Subordination Agreement that was one of
the Loan Documents against MKR Investments, L.P., a partnership ("MKR"). Reilly
is the general partner of MKR. This action is pending in the United States
District Court for the Southern District of Texas Houston Division as Case No.
H-98-4015. Reilly has denied liability and filed counterclaims against Grady's
alleging that Grady's engaged in unfair trade practices, violated Florida's
"Rico" statute, engaged in a civil conspiracy and violated state and federal
securities laws in connection with the Principal Guaranty (the "Counterclaims").
Reilly also filed a third party complaint ("Third Party Complaint") against
Quality Dining, Inc., Grady's American Grill Restaurant Corporation, David M.
Findlay, Daniel B. Fitzpatrick, Bruegger's Corporation, Bruegger's Franchise
Corporation, Champlain Management Services, Inc., Nordahl L. Brue, Michael J.
Dressell and Ed Davis ("Third Party Defendants") alleging that Reilly invested
in BFBC based upon false representations, that the Third Party Defendants
violated state franchise statutes, committed unfair trade practices, violated
covenants of good faith and fair dealing, violated the state "Rico" statute and
violated state and federal securities laws in connection with the Principal
Guaranty. In addition, BFBC and certain of its affiliates, including the
Principal Guarantors ("Intervenors") have intervened and asserted claims against
Grady's and the Third Party Defendants that are similar to those asserted in the
Counterclaims and the Third Party Complaint. Those Third Party Defendants who
are individuals were present or former officers and directors of the Company and
the Company had advanced defense costs on their behalf until they were dismissed
by the Court.

     On December 31, 2002, the District Court dismissed certain claims asserted
by Reilly and the Intervenors and declined to dismiss certain other claims. The
District Court also declined to enforce MKR's Subordination Agreement. The
District Court also determined that BFBC, Reilly and the Principal Guarantors
are obligated for the Loan. Based upon the currently available information, the
Company does not believe that the ultimate resolution of this matter will have a
materially adverse effect on the Company's financial position, however, there
can be no assurance thereof. Neither can there be any assurance that the Company
will be able to realize sufficient value from BFBC, Reilly or the Principal
Guarantors to satisfy the amount of the Loan. The ongoing expense of the BFBC
litigation may be significant to the Company's results of operations.

     Pursuant to the Share Exchange Agreement by and among Quality Dining, Inc.,
Bruegger's Corporation, Nordahl L. Brue and Michael J. Dressell ("Share Exchange
Agreement"), the Agreement and Plan of Merger by and among Quality Dining, Inc.,
Bagel Disposition Corporation and Lethe, LLC, and certain other related
agreements entered into as part of the disposition of the Company's
bagel-related businesses in 1997, the Company was responsible for 50% of the
first $14 million of franchise-related litigation expenses, inclusive of
attorney's fees, costs, expenses, settlements and judgments (collectively
"Franchise Damages"). Bruegger's Corporation and certain of its affiliates are
obligated to indemnify the Company from all other Franchise Damages. The Company
was originally obligated to pay the first $3 million of its share of Franchise
Damages in cash. The Company has satisfied this obligation. The remaining $4
million of the Company's share of Franchise Damages was originally payable by
crediting amounts owed to the Company pursuant to the $10 million Subordinated
Note ("Subordinated Note") issued to the Company by Bruegger's Corporation.
However, as a result of the Bruegger's Resolution (described below), the
remainder of the Company's share of Franchise Damages is payable in cash.




                                       13
<PAGE>
     On or about September 10, 1999, Bruegger's Corporation, Lethe LLC, Nordahl
L. Brue, and Michael J. Dressell commenced an action against the Company in the
United States District Court for the District of Vermont alleging that the
Company breached various provisions of the Share Exchange Agreement which arose
out of a dispute concerning a post-closing net working capital adjustment
contemplated by the Share Exchange Agreement. On February 1, 2000, the Company
filed counter-claims against Bruegger's Corporation for the working capital
adjustment to which it believed it was entitled.

     On February 28, 2001, the Company and Bruegger's Corporation reached a
settlement (the "Bruegger's Resolution") of their various disputes that
includes, among other things, the following provisions: (a) the principal amount
of the Subordinated Note was restated to $10.7 million; (b) the Company and
Bruegger's Corporation each released their claim against the other to receive a
net working capital adjustment; (c) the Subordinated Note was modified to, among
other things, provide for an extension of the period through which interest is
to be accrued and added to the principal amount of the Subordinated Note from
October, 2000 through January, 2002. From January, 2002 through June, 2002,
one-half of the interest was to be accrued and added to the principal amount of
the Subordinated Note and one-half of the interest was to be paid in cash.
Commencing in January, 2003, interest was to be paid in cash through the
maturity of the Subordinated Note in October 2004; (d) the Company and
Bruegger's Corporation are each responsible for 50% of the Franchise Damages
with respect to the claims asserted by BFBC Ltd., et al., (e) Bruegger's
Corporation was entitled to 25% of any net recovery made by the Company on the
BFBC, Ltd., Loan; provided, however, that any such entitlement was required to
be applied to the outstanding balance of the Subordinated Note; (f) Bruegger's
Corporation and its affiliates released their claims for breach of
representations and warranties under the Share Exchange Agreement; and (g)
Bruegger's Corporation is entitled to a credit of two dollars against the
Subordinated Note for every one dollar that Bruegger's Corporation prepays
against the Subordinated Note prior to October, 2003 up to a maximum credit of
$4 million.

     As of the fourth quarter of fiscal 2001, Bruegger's Corporation advised the
Company that it is unable to continue to pay its 50% share of Franchise Damages.
Since then the Company has and likely will continue to have to incur the full
expense of the BFBC litigation and that Bruegger's Corporation will not have the
ability to perform its indemnity obligations, if any.

     It is also likely that the Company may never receive any principal or
interest payments in respect of the Subordinated Note. The Company has never
recognized any interest income from the Subordinated Note and has previously
reserved for the full amount of the Subordinated Note.

     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.







                                       14
<PAGE>


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 2002 fiscal year.










                                       15


<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
         Name                   Age                               Position
----------------------------   -----  --------------------------------------------------------------
<S>                            <C>    <C>
Daniel B. Fitzpatrick           45    Chairman of the Board, President and Chief Executive Officer

John C. Firth                   45    Executive Vice President, General Counsel and Secretary

James K. Fitzpatrick            47    Senior Vice President, Chief Development Officer and Director

Patrick J. Barry                40    Senior Vice President - Administration and Information
                                      Technology

Lindley E. Burns                48    Senior Vice President - Full Service Dining

Gerald O. Fitzpatrick           42    Senior Vice President - Burger King Division

Christopher L. Collier          41    Vice President - Finance

Robert C. Hudson                46    Vice President - Grady's American Grill Division

Jeanne M. Yoder                 36    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.




                                       16
<PAGE>

     Robert C. Hudson joined the Company in December of 1995 when the Company
acquired Grady's American Grill. From 1992 until joining the Company, Mr. Hudson
held various operational positions at Brinker, most recently as an area director
in its Grady's American Grill division.

     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 2003 Annual
Meeting of Shareholders.)






                                       17
<PAGE>

                                     PART II

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

     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, 2002, there were 426 holders of
record and approximately 3,261 beneficial owners.

<TABLE>
<CAPTION>
                            Fiscal Year 2002                            Fiscal Year 2001
                           High            Low                         High            Low
                          ---------------------                       ---------------------
<S>                      <C>            <C>                           <C>           <C>
First Quarter             $ 2.48        $  1.80                       $ 2.94         $ 1.94
Second Quarter              3.98           2.06                         2.75           2.00
Third Quarter               5.00           3.05                         3.07           2.05
Fourth Quarter              3.98           2.93                         2.64           2.00
</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
2002.

     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.









                                       18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

  QUALITY DINING, INC.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                Fiscal Year Ended (1)
                                                         October 27,    October 28,   October 29,   October 31,   October 25,
                                                            2002           2001          2000          1999          1998
-----------------------------------------------------------------------------------------------------------------------------
                                                                   (In thousands, except unit and per share data)
<S>                                                     <C>           <C>            <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales:
   Burger King                                             $ 121,526      $  79,485      $ 81,724      $ 82,650      $ 80,391
   Chili's Grill & Bar                                        75,760         69,727        60,921        56,837        55,572
   Grady's American Grill                                     44,918         60,447        68,615        75,198        81,241
   Italian Dining Division                                    17,052         17,126        16,756        16,066        15,040
-----------------------------------------------------------------------------------------------------------------------------
Total revenues                                               259,256        226,785       228,016       230,751       232,244
-----------------------------------------------------------------------------------------------------------------------------
Operating expenses
   Restaurant operating expenses
      Food and beverage                                       73,656         64,196        64,607        67,732        69,102
      Payroll and benefits                                    77,182         67,238        66,782        67,073        66,404
      Depreciation and amortization                           10,722         11,784        11,312        11,002        11,475
      Other operating expenses                                65,374         56,811        54,832        55,890        55,644
-----------------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses:                         226,934        200,029       197,533       201,697       202,625
   General and administrative (2)(3)                          18,638         15,111        17,073        15,912        15,488
   Amortization of intangibles                                   431            892           910         1,032         1,085
   Impairment of assets and facility closing costs               355         15,385             -         2,501           250
-----------------------------------------------------------------------------------------------------------------------------
Total operating expenses                                     246,358        231,417       215,516       221,142       219,448
-----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (4) (5)                               12,898         (4,632)       12,500         9,609        12,796
-----------------------------------------------------------------------------------------------------------------------------
Other income (expense):
   Interest expense                                           (8,429)       (10,419)      (11,174)      (10,709)      (11,962)
   Provision for uncollectible note receivable (6)                 -              -       (10,000)            -             -
   Gain (loss) on sale of property and equipment               1,034           (310)         (878)         (188)         (345)
   Interest income                                                40             22            27           103           190
   Other income (expense), net                                   615          1,163           997            43           541
-----------------------------------------------------------------------------------------------------------------------------
Total other expense                                           (6,740)        (9,544)      (21,028)      (10,751)      (11,576)
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                              6,158        (14,176)       (8,528)       (1,142)        1,220
Income tax provision (benefit)                                 1,074          1,354         1,183           815         1,107
-----------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                          $   5,084      $ (15,530)     $ (9,711)     $ (1,957)     $    113
-----------------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share                          $    0.45      $   (1.37)     $  (0.79)     $  (0.15)     $   0.01
-----------------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share                        $    0.45      $   (1.37)     $  (0.79)     $  (0.15)     $   0.01

-----------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding
-----------------------------------------------------------------------------------------------------------------------------
Basic                                                         11,248         11,356        12,329        12,668        12,599
-----------------------------------------------------------------------------------------------------------------------------
Diluted                                                       11,306         11,356        12,329        12,668        12,654
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>







                                       19
<PAGE>

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------
                                                                   Fiscal Year Ended (1)
                                                October 27,  October 28, October 29,  October 31,  October 25,
                                                   2002         2001        2000         1999          1998
--------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>         <C>          <C>          <C>
RESTAURANT DATA:
Units open at end of period:
       Grady's American Grill                        16          34          35            36            39
       Italian Dining Division                        9           8           8             8             8
       Burger King (7)                              115         116          71            70            70
       Chili's Grill & Bar                           34          33          31            28            28
                                              ----------------------------------------------------------------
                                                    174         191         145           142           145
--------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
       Working capital (deficiency)               $(23,100)   $(23,405) $ (22,312)    $ (17,962)     $ (14,747)
       Total assets                                156,941     167,238    178,861       189,037        196,275
       Long-term debt, capitalized lease
         and non-competition obligations            99,031     113,194    106,815       112,815        118,605
       Total stockholders' equity                   25,753      20,380     37,984        49,002         50,926
</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 ongoing 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 loss 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 write down for under-performing Grady's American Grill
     restaurants and $860,000 for store closing expenses and lease guarantee
     obligations.

(6)  As of the fourth quarter of fiscal 2000 the Company recorded a $10,000,000
     non-cash charge to fully reserve for the Subordinated Note.

(7)  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.




                                       20
<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, management periodically 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. If these
assumptions change in the future, management may be required to record
impairment charges for these assets.

     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; if these estimates
and assumptions change in the future, the Company may be required to adjust its
valuation allowance. This could result in a charge to, or an 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.





                                       21
<PAGE>

     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. 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.

     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 27,  October 28,   October 29,
                                                                          2002          2001         2000
---------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>           <C>
Revenues:
Restaurant sales:
    Burger King                                                           46.9%         35.0%        35.9%
    Chili's Grill & Bar                                                   29.2          30.7         26.7
    Grady's American Grill                                                17.3          26.7         30.1
    Italian Dining Division                                                6.6           7.6          7.3
---------------------------------------------------------------------------------------------------------------
Total revenues                                                           100.0         100.0        100.0
---------------------------------------------------------------------------------------------------------------
Operating expenses:
    Restaurant operating expenses:
       Food and beverage                                                  28.4          28.3         28.3
       Payroll and benefits                                               29.8          29.6         29.3
       Depreciation and amortization                                       4.1           5.2          5.0
       Other operating expenses                                           25.2          25.1         24.0
---------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses:                                      87.5          88.2         86.6
---------------------------------------------------------------------------------------------------------------
Income from restaurant operations                                         12.5          11.8         13.4
---------------------------------------------------------------------------------------------------------------
    General and administrative                                             7.2           6.7          7.5
    Amortization of intangibles                                            0.2           0.4          0.4
    Impairment of assets and facility closing costs                        0.1           6.8            -
---------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                    5.0          (2.1)         5.5
---------------------------------------------------------------------------------------------------------------
Other income (expense):
    Interest expense                                                      (3.3)         (4.6)        (4.9)
    Provision for uncollectible note receivable                              -             -         (4.4)
    Gain (loss) on sale of property and equipment                          0.4          (0.1)        (0.4)
    Other income and expense, net                                          0.3           0.5          0.4
---------------------------------------------------------------------------------------------------------------
Total other expense, net                                                  (2.6)         (4.2)        (9.3)
---------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                          2.4          (6.3)        (3.8)
Income tax provision                                                       0.4           0.5          0.5
----------------------------------------------------------------------------------------------------------------
Net income (loss)                                                          2.0%         (6.8)%       (4.3)%
----------------------------------------------------------------------------------------------------------------
</TABLE>



                                       22
<PAGE>
FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001

         Restaurant sales in fiscal 2002 were $259,256,000, an increase of 14.3%
or $32,471,000, compared to restaurant sales of $226,785,000 in fiscal 2001. The
increase was due to a $42,041,000 increase in restaurant sales in the Company's
quick service segment that was partially offset by a $9,570,000 decrease in
restaurant sales in the Company's full service segment.

         The Company's Burger King restaurant sales were $121,526,000 in fiscal
2002 compared to sales of $79,485,000 in fiscal 2001, an increase of
$42,041,000. The Company had increased revenues of $38,857,000 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
$2,518,000 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 $20,289 in fiscal 2002 versus $21,329 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 $44,918,000
in fiscal 2002 compared to sales of $60,447,000 in fiscal 2001, a decrease of
$15,529,000. 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 Company's Grady's American Grill restaurants had average weekly sales of
$31,922 in fiscal 2002 versus $34,036 in the same period in fiscal 2001. Sales
at restaurants open for more than one year decreased 12.0% in fiscal 2002 when
compared to the same period in fiscal 2001.

         The Company continues to experience a significant decrease in sales and
cash flow at its Grady's American Grill division. The Company continues to
pursue 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.

         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.

         While the Company believes that the Grady's American Grill assets are
reported at their estimated fair values as of October 27, 2002, there can be no
assurances thereof.

         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.





                                       23
<PAGE>

         Total restaurant operating expenses were $226,934,000 in fiscal 2002,
compared to $200,029,000 in fiscal 2001. As a percentage of restaurant sales,
total restaurant operating expenses decreased to 87.5% 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 have 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 $73,656,000 in fiscal 2002, compared to
$64,196,000 in fiscal 2001. As a percentage of total restaurant sales, food and
beverage costs increased 0.1% to 28.4% in fiscal 2002 from 28.3% in 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 $77,182,000 in fiscal 2002, compared to
$67,238,000 in fiscal 2001. As a percentage of total restaurant sales, payroll
and benefits increased 0.2% to 29.8% in fiscal 2002 from 29.6% in fiscal 2001.
The Company experienced an increase in payroll, as a percentage of sales, in
both the full service and the quick service segments. The increase as a
percentage of sales in the full service segment was mainly due to the decreased
average weekly sales in the Company's Grady's American Grill restaurants. 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.

         Depreciation and amortization decreased $1,062,000 to $10,722,000 in
fiscal 2002 compared to $11,784,000 in fiscal 2001. As a percentage of total
restaurant sales, depreciation and amortization decreased to 4.1% in fiscal 2002
compared to 5.2% in fiscal 2001. The decrease was mainly due to a $1,935,000
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.

         Other restaurant operating expenses include rent and utilities,
royalties, promotional expense, repairs and maintenance, property taxes and
insurance. Other restaurant operating expenses increased $8,563,000 to
$65,374,000 in fiscal 2002 compared to $56,811,000 in 2001. Other restaurant
operating expenses as a percentage of total restaurant sales remained relatively
consistent at 25.2% in fiscal 2002 versus 25.1% in fiscal 2001. The negative
effect of the addition of Burger King restaurants in Grand Rapids, Michigan was
offset by the positive effect of the disposal of 18 Grady's American Grill
restaurants.

         The Company recorded a $355,000 impairment of asset and facility
closing charge in fiscal 2002 consisting primarily of contractual lease costs
for certain closed Grady's American Grill restaurants. The Company recorded a
$15,385,000 impairment of asset and facility closing charge in fiscal 2001. The
charge consisted of a $14,525,000 charge for the impairment of assets in the
Company's Grady's American Grill restaurant division, as discussed above, and
$860,000 in charges for the cost of closing certain restaurant locations and
certain lease guarantee obligations.





                                       24
<PAGE>

         Income from restaurant operations increased $5,566,000 to $32,322,000,
or 12.5% of revenues, in fiscal 2002 compared to $26,756,000, 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 $878,000 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 7.2% in fiscal 2002 compared to 6.7% 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.

         The Company had operating income of $12,898,000 in fiscal 2002 compared
to an operating loss of $4,632,000 in fiscal 2001.

         Total other expenses, as a percentage of total revenues, decreased to
 2.6% in fiscal 2002 compared to 4.2% 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 $1,074,000 was recorded in fiscal 2002 compared
to $1,354,000 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.

         The Company has net operating loss carryforwards of approximately $44.5
million as well as FICA tip credits and alternative minimum tax credits of $4.6
million. Net operating loss carryforwards of $39.9 million expire in 2012, $3.0
million expire in 2018 and $1.6 million expire in 2021. 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 and 702,000 expire in 2017. The
alternative minimum tax credits of $191,000 carryforward indefinitely. At the
end of fiscal 2002 the Company had a valuation reserve against its deferred tax
asset of $24.0 million resulting in a net deferred tax asset of $10.0 million.
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. Based on this assessment, the Company
believes it is more likely than not that the net deferred tax asset of
$10,000,000 will be realized. Such evidence is reviewed periodically and could
result in the recognition of additional tax benefit or expense related to its
net deferred tax asset position in the future.

         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.


FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000

         Restaurant sales in fiscal 2001 were $226,785,000, a decrease of 0.5%
or $1,231,000, compared to restaurant sales of $228,016,000 in fiscal 2000. The
decrease was due to a $2,239,000 decrease in restaurant sales in the Company's
quick service segment which was partly offset by a $1,008,000 increase in
restaurant sales in the Company's full service segment.

         The Company's Burger King restaurant sales were $79,485,000 in fiscal
2001 compared to restaurant sales of $81,724,000 in fiscal 2000, a decrease of
$2,239,000. The Company believes that the reduction in sales was due




                                       25
<PAGE>

to less successful promotional programs in fiscal 2001 versus fiscal 2000. The
Company's Burger King restaurants average weekly sales decreased to $21,329 in
fiscal 2001 versus $22,286 in fiscal 2000. The Company had increased revenue of
$1,007,000 due to additional sales weeks from three new restaurants opened
during fiscal 2001 and two restaurants opened in fiscal 2000 which were open for
their first full year in fiscal 2001. The Company also had increased revenue of
$1,651,000 from 42 Burger King restaurants in the Grand Rapids, Michigan
metropolitan area which were purchased on October 15, 2001 (See Note 13).

         The Company's Chili's Grill & Bar restaurant sales increased $8,806,000
to $69,727,000 in fiscal 2001 compared to restaurant sales of $60,921,000 in
fiscal 2000. The Company had increased revenue of $5,702,000 due to additional
sales weeks from two new restaurants opened in fiscal 2001 and three restaurants
opened in fiscal 2000 which were open for their first full year in fiscal 2001.
The Company's Chili's Grill & Bar restaurants average weekly sales increased to
$42,650 in fiscal 2001 versus $40,533 in fiscal 2000. The Company believes that
the increase in average weekly sales was due to the continued success of
operational and marketing initiatives by the Company and the franchisor.

         The Company's Grady's American Grill restaurant sales were $60,447,000
in fiscal 2001 compared to restaurant sales of $68,615,000 in fiscal 2000, a
decrease of $8,168,000. The Company closed one unit during the first quarter of
fiscal 2001 and one unit during fiscal 2000. These units did not fit the
Company's long-term strategic plan as they were located in geographically remote
markets and were not meeting the Company's performance expectations. These units
contributed $1,807,000 to fiscal 2000 sales. The Company's Grady's American
Grill restaurants had average weekly sales of $34,036 in fiscal 2001 versus
$36,949 in the same period in fiscal 2000.

         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 (which were sold
during the second quarter of fiscal 2002). 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 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. While the Company believes that the Grady's assets are recorded
at their estimated fair values as of October 27, 2002, there can be no
assurances that future asset impairments may not occur.

         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.

         The Company's Italian Dining Division's restaurant sales increased
$370,000 to $17,126,000 in fiscal 2001 when compared to restaurant sales of
$16,756,000 in fiscal 2000. The increase was due in part to the continued
success of operational and marketing initiatives which increased average weekly
sales to $41,169 in fiscal 2001 from $40,280 in fiscal 2000.

         Total restaurant operating expenses were $200,029,000 in fiscal 2001,
compared to $197,533,000 in fiscal 2000. As a percentage of restaurant sales,
total restaurant operating expenses increased to 88.2% in fiscal 2001 from 86.6%
in fiscal 2000. The following factors influenced the operating margins:

         Food and beverage costs were $64,196,000 in fiscal 2001, compared to
$64,607,000 in fiscal 2000. As a percentage of total restaurant sales, food and
beverage costs remained consistent at 28.3% in fiscal 2001 and fiscal




                                       26
<PAGE>

2000. The Company was able to offset increased food and beverage costs with
modest menu price increases in both its full service and quick service segments.

         Payroll and benefits were $67,238,000 in fiscal 2001, compared to
$66,782,000 in fiscal 2000. As a percentage of total restaurant sales, payroll
and benefits increased 0.3% to 29.6% in fiscal 2001 from 29.3% in fiscal 2000.
Payroll and benefits increased as a percentage of total revenues in the quick
service segment but remained consistent in the full service segment. The
increase in the quick service segment was mainly due to a decrease in average
weekly sales at the Company's Burger King divisions. The Company experienced a
significant increase in the cost of its health insurance program for both its
full service and quick service segments. During fiscal 2001, the Company
incurred approximately $667,000 more expense for health insurance than in fiscal
2000.

         Depreciation and amortization increased $472,000 to $11,784,000 in
fiscal 2001 compared to $11,312,000 in fiscal 2000. As a percentage of total
restaurant sales, depreciation and amortization increased to 5.2% in fiscal 2001
compared to 5.0% in fiscal 2000.

         Other restaurant operating expenses include rent and utilities,
royalties, promotional expense, repairs and maintenance, property taxes and
insurance. Other restaurant operating expenses increased $1,979,000 to
$56,811,000 in fiscal 2001 compared to $54,832,000 in 2000. Other restaurant
operating expenses as a percentage of total restaurant sales increased in fiscal
2001 to 25.1% from 24.0% in fiscal 2000. The increase was mainly due to an
increase in utility costs of $958,000 in fiscal 2001 compared to fiscal 2000 and
a $607,000 increase in repairs and maintenance expense. The increases were
mainly due to the harsh winter weather in the Company's markets and the spike in
utility rates during fiscal 2001.

         The Company recorded a $15,385,000 impairment of asset and facility
closing charge in fiscal 2001. The charge consisted of a $14,525,000 charge for
the impairment of assets in the Company's Grady's American Grill restaurant
division, as discussed above, and $860,000 in charges for the cost of closing
certain restaurant locations and certain lease guarantee obligations. The
Company closed one Grady's American Grill restaurant during fiscal 2001.

         General and administrative expenses, which include corporate and
district management costs, were $15,111,000 in fiscal 2001, compared to
$17,073,000 in fiscal 2000. As a percentage of total revenues, general and
administrative expenses decreased to 6.7% in fiscal 2001 compared to 7.5% in
fiscal 2000. In fiscal 2000 the Company incurred approximately $1,250,000 in
expenses related to the litigation, proxy contest and tender offer initiated by
NBO, LLC. The Company did not incur similar expenses during fiscal 2001.

         Amortization of intangibles was $892,000 in fiscal 2001, compared to
$910,000 in fiscal 2000. As a percentage of total revenues, amortization of
intangibles remained consistent at 0.4% in fiscal 2001 compared to 0.4% in
fiscal 2000.

         The Company had an operating loss of $4,632,000 in fiscal 2001 compared
to operating income of $12,500,000 in fiscal 2000.

         Total other expenses, as a percentage of total revenues, decreased to
4.2% in fiscal 2001 compared to 9.3% in fiscal 2000. The decrease is primarily
due to the fiscal 2000 $10.0 million non-cash charge to reserve for the
Subordinated Note. The Company had an increase in other income from
Transformational Payments made by Burger King to the Company. See ITEM 1 -
Franchise and Development Agreements.

         Income tax expense of $1,354,000 was recorded in fiscal 2001 compared
to $1,183,000 in fiscal 2000. The increase in income tax was due to increased
state income taxes. The Company has a large portion of state taxes based on
criteria other than income. The Company did not have a tax benefit for fiscal
2001 since an increase in the valuation reserve for its net operating loss
carryforwards offset the benefit created by the fiscal 2001 net loss.

         The net loss in fiscal 2001 was $15,530,000, or $1.37 per share,
compared to net loss of $9,711,000, or $0.79 per share, in fiscal 2000.




                                       27
<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 2002, fierce price competition in the quick service segment negatively
affected the Company's Burger King results. To date in fiscal 2003, the price
competition that prevailed in the latter part of fiscal 2002 has continued. If
quick service restaurants continue to rely on price discounting to increase
customer traffic, the Company will either have to continue competing on price or
concede market share. Either circumstance would adversely affect the Company's
results.

         The Company should benefit from capital improvements made in fiscal
2001 and fiscal 2002. Specifically, the Transformational Initiatives and the
Early Renewal Program remodeling should enhance the image of the Company's
restaurants and therefore have a positive impact on sales. Additionally, the
Company believes that its acquisition of Burger King restaurants in the Grand
Rapids, Michigan, market should continue to bolster the performance of its
Burger King division in fiscal 2003 through the improvement of the Grand Rapids
profit margins.


         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 2002, 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 2003, the Company intends to continue to emphasize the operational
and marketing initiatives that contributed to the success of its Chili's
division in fiscal 2002 and therefore expects steady financial results in fiscal
2003.

         During fiscal 2002, the Company experienced a slight deterioration in
its Italian Dining division's profitability. During the fourth quarter of fiscal
2002, the Company opened an additional restaurant that should increase the
profitability of the Italian Dining division during fiscal 2003. The Company
expects sales at restaurants open for a year to be flat or slightly negative in
fiscal 2003 when compared to fiscal 2002.

         During fiscal 2002, the results of the Company's Grady's American Grill
division did not meet 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 2002, the Company sold or
closed 18 restaurants. The Company will continue to consider opportunities to
divest under-performing or non-strategic restaurants in fiscal 2003. The Company
expects the Grady's American Grill division's operating performance to continue
to decline during fiscal 2003.




                                       28
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

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

<TABLE>
<CAPTION>
(Dollars in thousands)
---------------------------------------------------------------------------------------------------
                                                                   Fiscal Year Ended
                                                         October 27,   October 28,   October 29,
                                                            2002          2001          2000
---------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>           <C>
Net cash provided by operating activities                 $ 15,425      $ 11,305      $ 20,384

Cash flows from investing activities:
     Acquisition of business, net of cash                        -        (4,212)            -
     Purchase of property and equipment                    (16,102)      (11,821)      (11,055)
     Purchase of other assets                               (1,013)         (858)       (1,501)
     Proceeds from the sale of assets                       15,517           142         1,105
     Other, net                                                  -             -           (57)

 Cash flow from financing activities:
     Borrowings (repayment) of long-term debt, net         (13,523)        6,982        (5,118)
     Purchase of common stock                                 (264)       (1,925)       (1,448)
     Loan financing fees                                      (619)            -             -
     Repayment of capitalized lease                           (470)         (455)         (417)
</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 27, 2002, the Company financed these activities
principally using cash flows from operations 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 2002, net cash provided by operating activities was
$15,425,000 compared to $11,305,000 in fiscal 2001. The increase in fiscal 2002
compared to fiscal 2001 was mainly due to increased profitability of the
Company.

         During fiscal 2002, the Company had $16,102,000 in capital expenditures
in connection with the opening of new restaurants and the refurbishing of
existing restaurants. During fiscal 2002 the Company opened two new full service
restaurants and two quick service restaurants. The Company also replaced three
existing quick service restaurant buildings with new buildings at the same
locations.

         The Company purchased and retired 96,064 shares of its common stock
during fiscal 2002 for $264,000. The Company repurchased 736,073 shares of its
common stock in the open market in fiscal 2001 for $1,925,000. The Company does
not presently intend to repurchase shares due to the Company's significant
capital expenditure budget for fiscal 2003.

         During fiscal 2002, the Company received $15,517,000 in net proceeds
from the sale of assets, mainly from the sale of 15 Grady's American Grill
restaurants.

         The Company had a net repayment of $12,185,000 under its revolving
credit agreement during fiscal 2002. As of October 27, 2002, the Company's
revolving credit agreement had an additional $7,174,000 available for future
borrowings. The Company's average borrowing rate on October 27, 2002 was 5.06%.
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 could not exceed 4.00 and its fixed charge coverage
ratio could not be less than 1.50 on October 27, 2002. The Company was in
compliance with these requirements with a funded debt to consolidated cash flow
ratio of 3.75 and a fixed charge coverage ratio of 1.74.



                                       29
<PAGE>

         The Company's primary cash requirements in fiscal 2003 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 2003, the Company anticipates
opening one or two new quick service restaurants and two or three full service
restaurants. The Company also plans to replace five existing quick service
buildings with new buildings at the same locations. 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 2003 are expected to range
from $12,000,000 to $14,000,000, if the Company has alternative uses or needs
for its cash, the Company believes it could reduce such planned expenditures
without affecting its business plan. The Company has debt service requirements
of approximately $1,474,000 in fiscal 2003, consisting primarily of the
principal payments required under the mortgage facility.

         The Company anticipates that its cash flow from operations, together
with the $7,174,000 available under its revolving credit agreement as of October
27, 2002, will provide sufficient funds for its operating, capital expenditure,
debt service and other requirements through the end of fiscal 2003.

         As of October 27, 2002, 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, certain restrictive covenants
including maintenance of a consolidated fixed charge coverage ratio for the
financed properties.

         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.

         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>



                                       30




<PAGE>
         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                                                4.00
Q3                                                4.00
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 is required
to be 3.75 by the end of fiscal 2003. The Company's funded debt to consolidated
cash flow ratio on October 27, 2002 was 3.75. To maintain at least the required
ratio of 3.75 the Company plans to continue to dispose of under performing
restaurants and use the proceeds to reduce debt. Should the Company not be able
to sell under performing restaurants the Company believes it could reduce its
capital spending. Its principal opportunities to reduce capital spending would
be to scale back its new unit development and/or its planned remodel budget. The
Company could also increase consolidated cash flow through reductions in general
and administrative expenses. If the Company were not successful in meeting the
required funded debt to consolidated cash flow ratio it would experience an
event of default. The Company would then need to seek waivers from its lenders
or amendments to the covenants.

                  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
27, 2002:

<TABLE>
<CAPTION>
                                                             Payment Due by Fiscal Year
                                --------------------------------------------------------------------------------------
                                                                                                  2008 and
Contractual Obligations               2003          2004        2005         2006        2007   thereafter      Total
----------------------------------------------------------------------------------------------------------------------

<S>                                <C>           <C>         <C>          <C>         <C>         <C>        <C>
Mortgage debt-principal              1,474         1,625       1,792        1,985       2,175       36,778     45,829
Mortgage debt-interest               4,699         4,548       4,383        4,199       3,998       23,278     45,105
Revolver debt                            -             -           -       50,950           -            -     50,950
Capital leases                       1,026         1,026       1,026          977         707        1,634      6,396
Operating leases                    10,993        10,259       8,021        7,125       6,362       27,893     70,653
                                --------------------------------------------------------------------------------------
    Total contractual cash
    obligations                     18,192        17,458      15,222       65,236      13,242       89,583    218,933
                                --------------------------------------------------------------------------------------
</TABLE>



                                       31
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS

         In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement provides updated
guidance concerning the recognition and measurement of an impairment loss for
certain types of long-lived assets, expands the scope of a discontinued
operation to include a component of an entity and eliminates the current
exemption to consolidation when control over a subsidiary is likely to be
temporary. The Company does not believe that the adoption of this statement will
have a material affect on future results.

         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 plans on early adopting the
provisions of SFAS 146 in the first quarter of fiscal 2003. The Company does not
believe that the adoption of this statement will have a material affect on
future 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 has early-adopted the
disclosure provisions for the current fiscal year and included this information
in Note 8 to the Company's financial statements.


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.





                                       32
<PAGE>
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 $50,950,000 at October 27, 2002.
The impact on the Company's annual results of operations of a one-point interest
rate change would be approximately $509,500.



































                                       33
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

QUALITY DINING, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
(Dollars in thousands)
--------------------------------------------------------------------------------------------------------------------
                                                                                      October 27,       October 28,
                                                                                         2002              2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>               <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                          $  1,021          $  2,070
     Accounts receivable                                                                   1,615             1,842
     Inventories                                                                           1,843             2,042
     Deferred income taxes                                                                 2,356             1,999
     Other current assets                                                                  2,222             2,042
--------------------------------------------------------------------------------------------------------------------
Total current assets                                                                       9,057             9,995
--------------------------------------------------------------------------------------------------------------------
Property and equipment, net                                                              111,259           119,433
--------------------------------------------------------------------------------------------------------------------
Other assets:
     Deferred income taxes                                                                 7,644             8,001
     Trademarks, net                                                                       5,317             6,405
     Franchise fees and development fees, net                                              9,379            10,029
     Goodwill, net                                                                         7,960             8,068
     Liquor licenses, net                                                                  2,653             2,757
     Other                                                                                 3,672             2,550
--------------------------------------------------------------------------------------------------------------------
Total other assets                                                                        36,625            37,810
--------------------------------------------------------------------------------------------------------------------
Total assets                                                                           $ 156,941         $ 167,238
--------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current portion of capitalized leases and long-term debt                           $  1,978          $  1,808
     Accounts payable                                                                      9,884            10,735
     Accrued liabilities                                                                  20,295            20,857
--------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                 32,157            33,400
Long-term debt                                                                            95,305           108,964
Capitalized leases principally to related  parties, less current portion                   3,726             4,230
--------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                        131,188           146,594
--------------------------------------------------------------------------------------------------------------------

Common stock subject to redemption                                                             -               264
--------------------------------------------------------------------------------------------------------------------

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;
     12,969,672 and 12,940,736 shares issued, respectively                                    28                28
     Additional paid-in capital                                                          237,434           237,002
     Accumulated deficit                                                                (207,386)         (212,470)
     Unearned compensation                                                                  (700)             (557)
--------------------------------------------------------------------------------------------------------------------
                                                                                          29,376            24,003
     Less treasury stock, at cost, 1,360,573 and 1,360,573 shares, respectively            3,623             3,623
--------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                                25,753            20,380
--------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                             $ 156,941         $ 167,238
--------------------------------------------------------------------------------------------------------------------
</TABLE>


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


                                       34
<PAGE>
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF  OPERATIONS

<TABLE>
<CAPTION>
(In thousands, except per share data)
----------------------------------------------------------------------------------------------------------------------
                                                                                     Fiscal Year Ended
                                                                        October 27,     October 28,     October 29,
                                                                            2002           2001            2000
----------------------------------------------------------------------------------------------------------------------
Revenues:
Restaurant sales:
<S>                                                                     <C>             <C>             <C>
     Burger King                                                          $ 121,526        $ 79,485        $ 81,724
     Chili's Grill & Bar                                                     75,760          69,727          60,921
     Grady's American Grill                                                  44,918          60,447          68,615
     Italian Dining Division                                                 17,052          17,126          16,756
----------------------------------------------------------------------------------------------------------------------
Total revenues                                                              259,256         226,785         228,016
----------------------------------------------------------------------------------------------------------------------
Operating expenses:
     Restaurant operating expenses:
        Food and beverage                                                    73,656          64,196          64,607
        Payroll and benefits                                                 77,182          67,238          66,782
        Depreciation and amortization                                        10,722          11,784          11,312
        Other operating expenses                                             65,374          56,811          54,832
----------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses:                                        226,934         200,029         197,533
----------------------------------------------------------------------------------------------------------------------
Income from restaurant operations                                            32,322          26,756          30,483
----------------------------------------------------------------------------------------------------------------------
     General and administrative                                              18,638          15,111          17,073
     Amortization of intangibles                                                431             892             910
     Impairment of assets and facility closing costs                            355          15,385               -
----------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                      12,898          (4,632)         12,500
----------------------------------------------------------------------------------------------------------------------
Other income (expense):
        Interest expense                                                     (8,429)        (10,419)        (11,174)
        Provision for uncollectible note receivable                               -               -         (10,000)
        Gain (loss) on sale of property and equipment                         1,034            (310)           (878)
        Interest income                                                          40              22              27
        Other income, net                                                       615           1,163             997
----------------------------------------------------------------------------------------------------------------------
Total other expense                                                          (6,740)         (9,544)        (21,028)
----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                             6,158         (14,176)         (8,528)
Income tax provision                                                          1,074           1,354           1,183
----------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                         $   5,084        $(15,530)       $ (9,711)
----------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share                                         $    0.45        $  (1.37)       $  (0.79)
----------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share                                       $    0.45        $  (1.37)       $  (0.79)
----------------------------------------------------------------------------------------------------------------------

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


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





                                       35
<PAGE>
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
(Dollars and shares in thousands)
--------------------------------------------------------------------------------------------------------------------------------

                                        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 31, 1999               12,774      $   28   $236,881      $(187,229)     $       (428)   $   (250)    $ 49,002
      Purchase of treasury stock             -           -          -              -                 -      (1,448)      (1,448)
      Restricted stock grants              104           -        209              -              (209)          -            -
      Amortization of unearned
         compensation                        -           -          -              -               141           -          141
      Restricted stock forfeited           (23)          -        (59)             -                59           -            -
      Net loss, fiscal 2000                  -           -          -         (9,711)                -           -       (9,711)
--------------------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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



                                       36
<PAGE>
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(Dollars in thousands)
-------------------------------------------------------------------------------------------------------------------------------
                                                                                             Fiscal Year Ended
                                                                                  October 27,     October 28,     October 29,
                                                                                      2002           2001            2000
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>             <C>             <C>
Cash flows from operating activities:
    Net income (loss)                                                                 $ 5,084      $ (15,530)       $  (9,711)
    Adjustments to reconcile net income (loss) to net cash provided by
       operating activities:
        Depreciation and amortization of property and equipment                        10,460         11,811           11,605
        Amortization of other assets                                                    1,606          1,880            1,943
        Impairment of assets and facility closing costs                                   355         15,385                -
        Provision for uncollectible note receivable                                         -              -           10,000
        Loss (gain) on sale of property and equipment                                  (1,034)           310              878
        Amortization of unearned compensation                                             289             96              141
        Changes in operating assets and liabilities, excluding effects
           of acquisitions and dispositions:
           Accounts receivable                                                            227            374             (270)
           Inventories                                                                    199            391             (366)
           Other current assets                                                          (180)            82              136
           Accounts payable                                                              (851)          (835)           2,143
           Accrued liabilities                                                           (730)        (2,659)           3,885
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                              15,425         11,305           20,384
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Acquisition of business, net of cash                                                    -         (4,212)               -
    Proceeds from sales of property and equipment                                      15,517            142            1,105
    Purchase of property and equipment                                                (16,102)       (11,821)         (11,055)
    Purchase of other assets                                                           (1,013)          (858)          (1,501)
    Other, net                                                                              -              -              (57)
-------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities                                                 (1,598)       (16,749)         (11,508)
-------------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
    Purchase of treasury stock                                                              -         (1,925)          (1,448)
    Borrowings of long-term debt                                                       95,790         70,150           53,677
    Repayment of long-term debt                                                      (109,313)       (63,168)         (58,795)
    Repayment of capitalized lease obligations                                           (470)          (455)            (417)
    Loan financing fees                                                                  (619)             -                -
    Purchase of common stock subject to redemption                                       (264)             -                -
-------------------------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by financing activities                                  (14,876)         4,602           (6,983)
-------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                   (1,049)          (842)           1,893
Cash and cash equivalents, beginning of year                                            2,070          2,912            1,019
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                              $   1,021       $  2,070         $  2,912
-------------------------------------------------------------------------------------------------------------------------------


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid for interest, net of amounts capitalized                              $   8,597       $  9,993        $ 10,941
    Cash paid for income taxes                                                          1,131          1,284             928
</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,  DISPOSITION OF BUSINESS AND  PUBLIC OFFERINGS

NATURE OF BUSINESS - Quality Dining, Inc. and its subsidiaries (the "Company")
develop and operate both quick service and full service restaurants in 15
states. The Company owns and operates 16 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, 115 Burger King restaurants and 34 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 27, 2002
(fiscal 2002) contained 52 weeks. The fiscal years ended October 28, 2001
(fiscal 2001) and October 29, 2000 (fiscal 2000) 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.

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        15-31 1/2
              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 income. 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 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



                                       38
<PAGE>
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.



<TABLE>
<CAPTION>
       (Dollars in thousands)                                  As of October 27, 2002
       ------------------------------------------------------------------------------------------
                                                   Gross Carrying    Accumulated         Net
       Amortized intangible assets                     Amount       Amortization     Book Value
       ------------------------------------------------------------------------------------------
<S>                                               <C>               <C>             <C>
       Trademarks                                        $  6,674   $     (1,357)      $  5,317
       Franchise fees and development fees                 14,618         (5,239)         9,379
                                                  -----------------------------------------------
                Total                                    $ 21,292   $     (6,596)      $ 14,696
                                                  -----------------------------------------------
</TABLE>



The Company's intangible asset amortization expense for fiscal 2002 was
$1,150,000. The estimated intangible amortization expense for each of the next
five years is $1,153,000.

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 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 27, 2002. 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.






                                       39
<PAGE>
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 27,     October 28,
                                                      2002             2001
                                                   -----------     -----------
(Dollars in thousands, except for earnings-per-share amounts)

<S>                                                <C>             <C>
Reported net income (loss)                         $     5,084     $   (15,530)
  Add back: Goodwill amortization                            -             541
                                                   -----------     -----------
  Adjusted net income                              $     5,084     $   (14,989)
                                                   ===========     ===========

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

Diluted earnings (loss) per share:
  Reported net income (loss)                       $      0.45     $     (1.37)
  Goodwill amortization                                      -            0.05
                                                   -----------     -----------
  Adjusted net income (loss)                       $      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 27, 2002 and October 28, 2001 was $5,239,000 and $4,510,000,
respectively.

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 $8,523,000, $7,630,000 and $7,967,000 for fiscal
years 2002, 2001 and 2000, 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 27, 2002 and October
28, 2001 was $1,316,000 and $1,122,000, 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 27, 2002 and
October 28, 2001, capitalized computer software costs, net of related
accumulated amortization, aggregated $1,188,000 and $748,000, respectively.
Amortization of computer software costs was $259,000, $391,000 and $536,000 for
fiscal years 2002, 2001 and 2000 respectively.

CAPITALIZED INTEREST - Interest costs capitalized during the construction period
of new restaurants and major capital projects were $28,000, $18,000 and $104,000
for fiscal years 2002, 2001 and 2000 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




                                       40
<PAGE>
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. The Company has elected to continue to
apply APB Opinion No. 25 and has provided the new disclosure requirements of
SFAS NO. 148 as if the new method had been applied, in Note 8.

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.

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 27, 2002 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 likely.


RECENTLY ISSUED ACCOUNTING STANDARDS

         In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement provides updated
guidance concerning the recognition and measurement of an impairment loss for
certain types of long-lived assets, expands the scope of a discontinued
operation to include a component of an entity and eliminates the current
exemption to consolidation when control over a subsidiary is likely to be
temporary. The Company does not believe that the adoption of this statement will
have a material affect on future results.

         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 plans on early adopting the
provisions of SFAS 146 in the first quarter of fiscal 2003. The Company does not
believe that the adoption of this statement will have a material affect on
future 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 has early-adopted the
disclosure provisions for the current fiscal year and included this information
in Note 8 to the Company's financial statements.



                                       41
<PAGE>
{3} OTHER CURRENT ASSETS AND ACCRUED LIABILITIES

<TABLE>
<CAPTION>
Other current assets and accrued liabilities consist of the following:
----------------------------------------------------------------------------------------------------------

(Dollars in thousands)                                                         October 27,    October 28,
                                                                                  2002           2001
----------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>
Other current assets:
        Prepaid real estate taxes                                                 $   652        $   599
        Prepaid insurance                                                             611             42
        Deposits                                                                      428            922
        Prepaid expenses and other current assets                                     531            479
----------------------------------------------------------------------------------------------------------
                                                                                  $ 2,222        $ 2,042
----------------------------------------------------------------------------------------------------------
Accrued liabilities:
        Accrued salaries, wages and severance                                     $ 4,601        $ 4,542
        Accrued insurance costs                                                     3,286          2,057
        Unearned income                                                             2,269          3,350
        Accrued advertising and royalties                                           1,214          1,412
        Accrued property taxes                                                      1,106          1,344
        Accrued sales taxes                                                           908            925
        Other accrued liabilities                                                   6,911          7,227
----------------------------------------------------------------------------------------------------------
                                                                                  $20,295        $20,857
----------------------------------------------------------------------------------------------------------
</TABLE>


{4} PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
Property and equipment consist of the following:
---------------------------------------------------------------------------------------------------------
                                                                             October 27,     October 28,
(Dollars in thousands)                                                           2002           2001
---------------------------------------------------------------------------------------------------------
<S>                                                                             <C>            <C>
Land and land improvements                                                      $ 31,219       $ 37,259
Capitalized lease property                                                         7,297          7,297
Buildings and leasehold improvements                                              81,602         84,115
Furniture and equipment                                                           63,718         64,095
Construction in progress                                                           2,060          1,155
---------------------------------------------------------------------------------------------------------
                                                                                 185,896        193,921
---------------------------------------------------------------------------------------------------------
Less, accumulated depreciation and capitalized lease amortization                 74,637         74,488
---------------------------------------------------------------------------------------------------------
Property and equipment, net                                                    $ 111,259      $ 119,433
---------------------------------------------------------------------------------------------------------
</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 of 0.375% of
sales for the period beginning September 1, 1999 and ended August 30, 2000 and
paid a similar fee of 1.0% of sales for the period beginning September 1, 2000
and ended June 27, 2001 and 1.2% for the period beginning June 28, 2001 through
June 26, 2002. From June 27, 2002 through June 25, 2003, the Company has and
will pay an additional 2.0% of sales.



                                       42
<PAGE>
     The Company has entered into development agreements to develop additional
restaurants in each of the two concepts. Should the Company fail to comply with
the required development schedules or with the requirements of the agreements
for restaurants within areas covered by the development agreements, the
franchisors have the right to terminate the Company's development agreements and
the exclusivity provided by the development agreements.

         Chili's. The Company's development agreement with Brinker entitles 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.

     Burger King. On November 3, 2000, the Company entered into a Non-Exclusive
Development Agreement with Burger King Corporation (the "BKC Agreement"). The
BKC Agreement granted the Company the non-exclusive right to develop 12 Burger
King restaurants in three specified counties in Michigan, two specified counties
in Ohio and 20 specified counties in Indiana. The BKC Agreement was scheduled to
expire on June 30, 2004.

     The Company paid a $60,000 franchise fee deposit to Burger King
Corporation. With each new restaurant that the Company opened pursuant to the
BKC Agreement, it received a credit of $5,000 against the applicable franchise
fee for such restaurant. Through December 31, 2002, the Company had received a
total of $35,000 in credits against applicable franchise fees for new
restaurants ($25,000) and Target Reservation Agreements ($10,000). In December,
2002 the Company and BKC mutually agreed to terminate the BKC Agreement
principally because many of the target locations reserved in the BKC Agreement
do not meet BKC's new development criteria. Accordingly, the Company will be
entitled to a credit of $5,000 against the applicable franchise fee for each of
the next five new restaurants it opens prior to December 31, 2005.

     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 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.





                                       43
<PAGE>
     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 will be from July 1, 2000 to
June 30, 2003. As of July 1, 2003, the royalty rate will become 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.
The Company invested approximately $6.6 million to remodel the selected
restaurants to Burger King Corporation's current image of which approximately
$3.9 million was expended in fiscal 2002.

     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
expects to invest approximately $2.2 million in fiscal 2003 to remodel the
participating restaurants to Burger King Corporation's current image. The
deadline for completing the required improvements is June 30, 2003.

     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.




                                       44
<PAGE>
{6}  INCOME TAXES

The provision for income taxes for the fiscal years ended October 27, 2002,
October 28, 2001 and October 29, 2000 is summarized as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                            Fiscal Year Ended
                                               October 27,      October 28,    October 29,
(Dollars in thousands)                            2002              2001          2000

----------------------------------------------------------------------------------------------
<S>                                            <C>              <C>            <C>
Current:
    Federal                                       $ 1,417           $     -       $   102
    State                                           1,404             1,354         1,081
----------------------------------------------------------------------------------------------
                                                    2,821             1,354         1,183
----------------------------------------------------------------------------------------------
Deferred:
    Provision (benefit) for the period             (1,747)                -             -
----------------------------------------------------------------------------------------------
    Total                                         $ 1,074           $ 1,354       $ 1,183
----------------------------------------------------------------------------------------------
</TABLE>


The components of the deferred tax asset and liability are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                                October 27,      October 28,
(Dollars in thousands)                                             2002              2001
----------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>
Deferred tax asset:

     Net operating loss carryforwards                            $ 15,589          $ 19,031
     Note receivable allowance                                      6,991             6,173
     FICA tip credit and minimum tax credit                         4,580             4,208
     Accrued liabilities                                            2,290             2,394
     Property and equipment                                         2,401             2,200
     Capitalized lease obligations                                    686               723
     Trademarks                                                       666               594
     Franchise Fees                                                   737               155
     Other                                                            790               701
----------------------------------------------------------------------------------------------
     Deferred tax asset                                            34,730            36,179
     Less: Valuation allowance                                    (23,958)          (25,705)
----------------------------------------------------------------------------------------------
                                                                   10,772            10,474
----------------------------------------------------------------------------------------------
 Deferred tax liability:
     Property and equipment                                             -                 -
     Goodwill                                                        (686)             (414)
     Other                                                            (86)              (60)
----------------------------------------------------------------------------------------------
     Deferred tax liability                                          (772)             (474)
----------------------------------------------------------------------------------------------
     Net deferred tax asset                                      $ 10,000          $ 10,000
----------------------------------------------------------------------------------------------
</TABLE>


         The Company has net operating loss carryforwards of approximately $44.5
million as well as FICA tip credits and alternative minimum tax credits of $4.6
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
--------------------------------------------------------------------------
Total net operating loss carryforwards                   $ 44,540,000
--------------------------------------------------------------------------
</TABLE>





                                       45
<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
--------------------------------------------------------------------------
Total FICA tip credits                                    $ 4,389,000
--------------------------------------------------------------------------
</TABLE>


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

         The Company utilized $8.5 million of net operating loss carryforwards
to offset current year taxable income. During fiscal 2002, the Company decreased
its valuation reserve against its deferred tax assets to $24.0 million leaving a
net deferred tax asset of $10.0 million. 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. Based on this assessment, the Company's management
believes it is more likely than not that the net deferred tax benefit recorded
will be realized. Such evidence will be reviewed prospectively and should the
Company's expected operating performance change, the Company may recognize
additional tax benefit or expense related to its net deferred tax asset position
in the future.

         The Company's federal income tax returns for fiscal years 1994-1997
were examined by the Internal Revenue Service ("IRS"). The IRS completed its
audit during fiscal 2000 resulting in an increase to the net operating loss
carryover of $8.6 million. The increase to the net operating loss was the result
of additional tax losses identified as a result of the disposition of various
assets of the bagel businesses sold during fiscal 1997. The schedule of deferred
tax assets and valuation allowance have been adjusted accordingly to reflect the
results of this audit.

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                                            Fiscal Year Ended
                                                                October 27,    October 28,    October 29,
(Percent of pretax income)                                         2002           2001           2000
----------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>            <C>
Statutory tax rate                                                  34.0%         (34.0)%        (34.0)%
State income taxes, net of federal income tax benefit               15.0            6.3            8.2
FICA tax credit                                                    (11.4)          (5.1)          (4.4)
Change in valuation allowance                                      (26.9)          40.5           44.0
Other, net                                                           6.7            1.9            0.1
----------------------------------------------------------------------------------------------------------
Effective tax rate                                                  17.4%           9.6%          13.9%
----------------------------------------------------------------------------------------------------------
</TABLE>





                                       46
<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 Bank Facility on October
27, 2002 was 5.06%. The revolving credit agreement will mature on November 1,
2005, at which time all amounts outstanding thereunder are due. The Company had
$7,174,000 available under its revolving credit agreement as of October 27,
2002. 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 4.00 and its fixed charge coverage ratio could not be less than 1.50 on
October 27, 2002. The Company was in compliance with these requirements with a
funded debt to consolidated cash flow ratio of 3.75 and a fixed charge coverage
ratio of 1.74.

         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 amount to $1,876,000 and $1,390,000 as of October 27,
2002 and October 28, 2001, 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,
certain restrictive covenants including maintenance of a consolidated fixed
charge coverage ratio for the financed properties.


         The aggregate maturities of long-term debt subsequent to October 27,
2002 are as follows:

<TABLE>
<CAPTION>
         (Dollars in thousands)
         -------------------------------------------------------------
         FISCAL YEAR
         -------------------------------------------------------------
<S>                                                          <C>
         2003                                                $  1,474
         2004                                                   1,625
         2005                                                   1,792
         2006                                                  52,935
         2007                                                   2,175
         2008 and thereafter                                   36,778
         -------------------------------------------------------------
         Total                                               $ 96,779
         -------------------------------------------------------------
</TABLE>







                                       47
<PAGE>
{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 27, 2002, there were 106,735 and 490,764 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. As of October 27,
2002, there were 38,000 and 36,000 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 no shares of restricted stock forfeited in
fiscal 2002, 17,415 shares of restricted stock forfeited in fiscal 2001 and
22,615 shares of restricted stock forfeited in fiscal 2000.

         During fiscal 2002, the Company issued 125,000 restricted shares and
75,000 options on similar terms as those which were issue under the Long Term
Plan.

         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.

         The Company accounts for all of its stock-based compensation awards in
accordance with 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 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.

         Had compensation cost for the Company's stock-based compensation plans
been determined based on the fair value method as prescribed by SFAS 123 (see
Note 2), the Company's net earnings (loss) and net earnings (loss) per share
would have been the pro forma amounts indicated below:





                                       48
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                                      October 27,   October 28,  October 29,
         (in thousands, except per share amounts)                        2002          2001         2000
--------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>          <C>
Net income (loss), as reported                                           $  5,084    $ (15,530)   $  (9,711)
Deduct: Total stock option based employee compensation expense
determined by using the Black-Scholes option pricing model, net of
related tax effects                                                          (48)          (61)        (103)
                                                                      ----------------------------------------
Net income (loss), pro forma                                             $  5,036    $ (15,591)    $ (9,814)
                                                                      ----------------------------------------

Basic net income (loss) per common share, as reported                    $   0.45     $  (1.37)    $   (.79)
Basic net income (loss) per common share, pro forma                      $   0.45     $  (1.37)    $   (.80)

--------------------------------------------------------------------------------------------------------------
</TABLE>

         The weighted average fair value at the date of grant for options
granted during fiscal 2002, 2001 and 2000 was $1.76, $1.12 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 2002, 2001 and 2000:
dividend yield of 0% for all years; expected volatility of 55.0%, 54.1% and
48.8%, respectively; risk-free interest rate of 3.5%, 4.6% and 6.2%,
respectively; and expected lives of 5 years for all fiscal years.

         Activity with respect to the Company's stock option plans for fiscal
years 2002, 2001 and 2000 was as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                                             Weighted Average
                                                        Number of Shares      Exercise Price
----------------------------------------------------------------------------------------------
<S>                                                     <C>                  <C>
Outstanding, October 31, 1999                                    771,990                $7.55
  Granted                                                         72,179                 2.20
  Canceled                                                      (209,344)               11.05
  Exercised                                                            -                    -
----------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------
Exercisable, October 27, 2002                                    568,038
-------------------------------------------------------------------------
Available for future grants at October 27, 2002                  208,944
-------------------------------------------------------------------------
</TABLE>


         The following table summarizes information relating to fixed-priced
stock options outstanding for all plans as of October 27, 2002.

<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 - $3.00                214,479        7.20 years            $ 2.69               181,018             $ 2.80
       $3.01 - $8.50               328,100        6.16 years            $ 3.59               258,100             $ 3.61
      $8.51 - $32.875              128,920        2.31 years            $14.56               128,921             $14.56
</TABLE>




                                       49
<PAGE>
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 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
$197,000, $184,000 and $226,000 for fiscal years 2002, 2001 and 2000,
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 $927,000, $810,000 and $961,000 for fiscal years 2002, 2001 and 2000,
respectively.

As of October 27, 2002, future minimum lease payments related to these leases
were as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)
------------------------------------------------------------------------------------------------------
Fiscal Year                                                         Capital  Operating         Total
                                                                     Leases    Leases
------------------------------------------------------------------------------------------------------
<C>                                                                  <C>       <C>            <C>
2003                                                                 $1,026    $10,993        $12,019
2004                                                                  1,026     10,259         11,285
2005                                                                  1,026      8,021          9,047
2006                                                                    977      7,125          8,102
2007                                                                    707      6,362          7,069
------------------------------------------------------------------------------------------------------
2008 and thereafter                                                   1,634     27,893         29,527
------------------------------------------------------------------------------------------------------
                                                                      6,396    $70,653        $77,049
                                                                            --------------------------

Less: Amount representing interest                                    2,166
----------------------------------------------------------------------------
Present value of future minimum lease payments of which
     $504 is included in current liabilities at October 27, 2002     $4,230
----------------------------------------------------------------------------
</TABLE>





                                       50
<PAGE>
         Rent expense, including percentage rentals based on sales, was
$12,519,000, $9,079,000 and $9,077,000 for fiscal years 2002, 2001 and 2000,
respectively.

         The Company has six subleases at restaurants and three subleases at its
corporate headquarters building. As of October 27, 2002, future minimum lease
payments related to these subleases were $4,478,000. Sublease income was
$656,000, $460,000, and $419,000 for fiscal years 2002, 2001 and 2000,
respectively.


{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 $100,000 per eligible
employee annually, and aggregate annual claims up to approximately $2,500,000.
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 $1,950,000 for the
twelve-month period beginning September 1, 2002 and ending August 31, 2003.

     The Company is self-insured with respect to any general liability claims
below the Company's self-insured retention of $150,000 per occurrence.

     The Company has accrued $3,286,000 (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 27, 2002, the Company had commitments aggregating $1,253,000 for
the construction of restaurants.

     The Company is a party to one remaining legal proceeding relating to the
Company's previously owned bagel-related businesses.

     On or about April 15, 1997, Texas Commerce Bank National Association
("Texas Commerce") made a loan of $4,200,000 (the "Loan") to BFBC Ltd., a
Florida limited partnership ("BFBC"). At the time of the Loan, BFBC was a
franchisee under franchise agreements with Bruegger's Franchise Corporation (the
"Franchisor"). The Company at that time was an affiliate of the Franchisor. In
connection with the Loan and as an accommodation of BFBC, the Company executed
to Texas Commerce a "Guaranty". By the terms of the Guaranty the Company agreed
that upon maturity of the Loan by default or otherwise that it would either (1)
pay the Loan obligations or (2) buy the Loan and all of the related loan
documents (the "Loan Documents") from Texas Commerce or its successors. In
addition several principals of BFBC (the "Principal Guarantors") guaranteed
repayment of the Loan by each executing a "Principal Guaranty". On November 10,
1998, Texas Commerce (1) declared that the Loan was in default, (2) notified
BFBC, the Principal Guarantors and the Company that all of the Loan obligations
were due and payable, and (3) demanded payment.

     The Company elected to satisfy its obligations under the Guaranty by
purchasing the Loan from Texas Commerce. On November 24, 1998, the Company
bought the Loan for $4,294,000. Thereafter, the Company sold the Loan to its
Texas affiliate Grady's American Grill, L.P. ("Grady's"). On November 30, 1998,
Grady's commenced an action seeking to recover the amount of the Loan from one
of the Principal Guarantors, Michael K. Reilly ("Reilly"). As part of this
action Grady's also sought to enforce a Subordination Agreement that was one of
the Loan Documents against MKR Investments, L.P., a partnership ("MKR"). Reilly
is the general partner of MKR. This action is pending in the United States
District Court for the Southern District of Texas Houston Division as Case No.
H-98-4015. Reilly has denied liability and filed counterclaims against Grady's
alleging that Grady's engaged in unfair trade practices, violated Florida's
"Rico" statute, engaged in a civil conspiracy and violated state and federal
securities laws in connection with the Principal Guaranty (the "Counterclaims").
Reilly also filed a third party complaint ("Third Party Complaint") against
Quality Dining, Inc., Grady's American Grill Restaurant Corporation, David M.
Findlay, Daniel B. Fitzpatrick, Bruegger's Corporation, Bruegger's Franchise
Corporation, Champlain Management Services, Inc., Nordahl L. Brue,




                                       51
<PAGE>
Michael J. Dressell and Ed Davis ("Third Party Defendants") alleging that Reilly
invested in BFBC based upon false representations, that the Third Party
Defendants violated state franchise statutes, committed unfair trade practices,
violated covenants of good faith and fair dealing, violated the state "Rico"
statute and violated state and federal securities laws in connection with the
Principal Guaranty. In addition, BFBC and certain of its affiliates, including
the Principal Guarantors ("Intervenors") have intervened and asserted claims
against Grady's and the Third Party Defendants that are similar to those
asserted in the Counterclaims and the Third Party Complaint. Those Third Party
Defendants who are individuals were present or former officers and directors of
the Company and the Company had advanced defense costs on their behalf until
they were dismissed by the Court.

     On December 31, 2002, the District Court dismissed certain claims asserted
by Reilly and the Intervenors and declined to dismiss certain other claims. The
District Court also declined to enforce MKR's Subordination Agreement. The
District Court also determined that BFBC, Reilly and the Principal Guarantors
are obligated for the Loan. Based upon the currently available information, the
Company does not believe that the ultimate resolution of this matter will have a
materially adverse effect on the Company's financial position, however, there
can be no assurance thereof. Neither can there be any assurance that the Company
will be able to realize sufficient value from BFBC, Reilly or the Principal
Guarantors to satisfy the amount of the Loan. The ongoing expense of the BFBC
litigation may be significant to the Company's results of operations.

     Pursuant to the Share Exchange Agreement by and among Quality Dining, Inc.,
Bruegger's Corporation, Nordahl L. Brue and Michael J. Dressell ("Share Exchange
Agreement"), the Agreement and Plan of Merger by and among Quality Dining, Inc.,
Bagel Disposition Corporation and Lethe, LLC, and certain other related
agreements entered into as part of the disposition of the Company's
bagel-related businesses in 1997, the Company was responsible for 50% of the
first $14 million of franchise-related litigation expenses, inclusive of
attorney's fees, costs, expenses, settlements and judgments (collectively
"Franchise Damages"). Bruegger's Corporation and certain of its affiliates are
obligated to indemnify the Company from all other Franchise Damages. The Company
was originally obligated to pay the first $3 million of its share of Franchise
Damages in cash. The Company has satisfied this obligation. The remaining $4
million of the Company's share of Franchise Damages was originally payable by
crediting amounts owed to the Company pursuant to the $10 million Subordinated
Note ("Subordinated Note") issued to the Company by Bruegger's Corporation.
However, as a result of the Bruegger's Resolution (described below), the
remainder of the Company's share of Franchise Damages is payable in cash.

     On or about September 10, 1999, Bruegger's Corporation, Lethe LLC, Nordahl
L. Brue, and Michael J. Dressell commenced an action against the Company in the
United States District Court for the District of Vermont alleging that the
Company breached various provisions of the Share Exchange Agreement which arose
out of a dispute concerning a post-closing net working capital adjustment
contemplated by the Share Exchange Agreement. On February 1, 2000, the Company
filed counter-claims against Bruegger's Corporation for the working capital
adjustment to which it believed it was entitled.

     On February 28, 2001, the Company and Bruegger's Corporation reached a
settlement (the "Bruegger's Resolution") of their various disputes that
includes, among other things, the following provisions: (a) the principal amount
of the Subordinated Note was restated to $10.7 million; (b) the Company and
Bruegger's Corporation each released their claim against the other to receive a
net working capital adjustment; (c) the Subordinated Note was modified to, among
other things, provide for an extension of the period through which interest is
to be accrued and added to the principal amount of the Subordinated Note from
October, 2000 through January, 2002. From January, 2002 through June, 2002,
one-half of the interest was to be accrued and added to the principal amount of
the Subordinated Note and one-half of the interest was to be paid in cash.
Commencing in January, 2003, interest was to be paid in cash through the
maturity of the Subordinated Note in October 2004; (d) the Company and
Bruegger's Corporation are each responsible for 50% of the Franchise Damages
with respect to the claims asserted by BFBC Ltd., et al., (e) Bruegger's
Corporation was entitled to 25% of any net recovery made by the Company on the
BFBC, Ltd., Loan; provided, however, that any such entitlement was required to
be applied to the outstanding balance of the Subordinated Note; (f) Bruegger's
Corporation and its affiliates released their claims for breach of
representations and warranties under the Share Exchange Agreement; and (g)
Bruegger's Corporation is entitled to a credit of two dollars against the
Subordinated Note for every one dollar that Bruegger's Corporation prepays
against the Subordinated Note prior to October, 2003 up to a maximum credit of
$4 million.




                                       52
<PAGE>
As of the fourth quarter of fiscal 2001, Bruegger's Corporation advised the
Company that it is unable to continue to pay its 50% share of Franchise Damages.
Since then the Company has and likely will continue to have to incur the full
expense of the BFBC litigation and that Bruegger's Corporation will not have the
ability to perform its indemnity obligations, if any.

     It is also likely that the Company may never receive any principal or
interest payments in respect of the Subordinated Note. The Company has never
recognized any interest income from the Subordinated Note and has previously
reserved for the full amount of the Subordinated Note.

     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

     The Company recorded non-cash charges totaling $14,525,000 during the
fourth quarter of fiscal 2001, consisting of $10,453,000 for the write down of
certain Grady's American Grill restaurants to their estimated fair market value
and $4,072,000 for the Grady's American Grill restaurants that the Company
expected to sell during the second quarter of its 2002 fiscal year.

     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 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 27, 2002, there can be no assurances that
future asset impairments may not occur.







                                       53
<PAGE>
{12} RELATED PARTY TRANSACTIONS

The Company leases a substantial number 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 27,      October 28,     October 29,
(Dollars in thousands)                                     2002            2001             2000
----------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>             <C>
Operating leases:
           Base rentals                                    $ 2,187          $ 2,393         $ 2,378
           Percentage rentals                                  376              362             450
----------------------------------------------------------------------------------------------------
                                                             2,563            2,755           2,828
----------------------------------------------------------------------------------------------------
Capitalized leases:
           Interest                                            583              636             684
           Reduction of lease obligations                      443              389             342
           Percentage rentals                                  150              144             192
----------------------------------------------------------------------------------------------------
                                                             1,176            1,169           1,218
----------------------------------------------------------------------------------------------------
           Total                                           $ 3,739          $ 3,924         $ 4,046
----------------------------------------------------------------------------------------------------
</TABLE>

         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 2002, 2001
and 2000 were $14,000 each year.

         During the fiscal years 2002, 2001 and 2000, the Company made payments
to companies owned by certain directors, stockholders and officers of the
Company of $303,000, $393,000 and $237,000, respectively, for air transportation
services.


{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>





                                       54
<PAGE>
         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 years ended
October 28, 2001 and October 29, 2000 were developed assuming the Grand Rapids
Burger Kings had been acquired as of the beginning of the periods 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. For the fiscal 2000 unaudited pro forma results, the Company used BBD
Business Consultants' fiscal 2000 results. For both years, 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,      October 29,
                                                      2001            2000
                                                  -----------      -----------
<S>                                               <C>              <C>
                                                        (Unaudited)
Total revenues                                    $   268,144      $  272,918
Pro forma net loss                                    (14,538)         (7,871)
Pro forma net loss per share                            (1.28)          (0.64)
</TABLE>



                  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 periods, nor
 are they necessarily indicative of results that may occur in the future.

         During the year, 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.


{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.






                                       55
<PAGE>
<TABLE>
<CAPTION>


                                                   FULL                 QUICK
         (Dollars in thousands)                  SERVICE               SERVICE           OTHER             TOTAL
-------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                   <C>               <C>              <C>
FISCAL 2002
---------------
Revenues                                        $ 137,730             $ 121,526         $      -         $ 259,256
Income from restaurant operations (1)              16,282                16,036                4            32,322

Operating income                                    9,021                 5,314           (1,437)        $  12,898
Interest expense                                                                                             8,429
Other income                                                                                                 1,689
                                                                                                         ---------
Income before income taxes                                                                               $   6,158
                                                                                                         =========

Total assets                                       91,630                51,210           14,101         $ 156,941
Depreciation and amortization                       6,154                 4,672            1,240            12,066

FISCAL 2001
---------------
Revenues                                        $ 147,300              $ 79,485         $      -         $ 226,785
Income from restaurant operations (1)              15,404                11,217              135            26,756

Operating income (loss)                            (7,200)(2)             4,538           (1,970)        $  (4,632)
Interest expense                                                                                            10,419
Other income                                                                                                   875
                                                                                                         ---------
Loss before income taxes                                                                                 $ (14,176)
                                                                                                         =========

Total assets                                      104,425                45,268           17,545         $ 167,238
Depreciation and amortization                       9,035                 3,312            1,344            13,691

FISCAL 2000
---------------
Revenues                                        $ 146,292              $ 81,724         $      -         $ 228,016
Income from restaurant operations (1)              16,220                14,158              105            30,483

Operating income                                    7,905                 6,408           (1,813)        $  12,500
Interest expense                                                                                            11,174
Provision for uncollectible note
receivable (3)                                                                                              10,000
Other income                                                                                                   146
                                                                                                         ---------
Loss before income taxes                                                                                 $  (8,528)
                                                                                                         =========

Total assets                                      123,151                36,222           19,488         $ 178,861
Depreciation and amortization                       8,812                 3,094            1,642            13,548
</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 $15,385,000.
(3) Non-cash charge for the $10,000,000 reserve for the Bruegger's Subordinated
    Note.






                                       56
<PAGE>
{15} SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
     (in thousands, except per share amounts)

<TABLE>
<CAPTION>
        Year ended October 27, 2002
        -----------------------------------------

                                                                  First         Second         Third           Fourth
                                                                 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>


<TABLE>
<CAPTION>
        Year ended October 28, 2001
        -----------------------------------------

                                                                   First          Second       Third            Fourth
                                                                  Quarter         Quarter     Quarter         Quarter (1)
                                                             -------------------------------------------------------------
<S>                                                               <C>             <C>         <C>             <C>
Total revenues                                                    $ 68,270        $ 52,214    $ 52,135        $   54,166
Operating income (loss)                                              3,571           3,022       2,738           (13,963)
Income (loss) before income taxes                                      492             929         460           (16,057)
Net income (loss)                                                 $    125        $    439    $    213        $  (16,307)
                                                                  ========        ========    ========        ==========
Basic net income (loss) per share                                 $   0.01        $   0.04    $   0.02        $    (1.44)
                                                                  ========        ========    ========        ==========
Diluted net income (loss) per share                               $   0.01        $   0.04    $   0.02        $    (1.44)
                                                                  ========        ========    ========        ==========

Weighted average shares:
Basic                                                               11,782          11,590      11,590            11,298
Diluted                                                             11,791          11,625      11,610            11,298
</TABLE>

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



                                       57
<PAGE>
QUALITY DINING, INC.
REPORT OF INDEPENDENT ACCOUNTANTS

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 27, 2002 and October 28, 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended October 27, 2002 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 aspects, the information set forth
therein when read in conjunction with the related consolidated financial
statements and financial statement. 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
adopted Statement of Financial Accounting Standards No. 142,"Goodwill and Other
Intangible Assets."

PricewaterhouseCoopers LLP

Chicago, Illinois
December 13, 2002, except for Note 10, as to
which the date is December 31, 2002









                                       58
<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 29, 2000

     Income tax valuation allowance            $ 11,510        8,852           -               -              $ 20,362

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
</TABLE>


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








                                       59
<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.














































                                       60
<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 is
incorporated herein by reference to the Company's definitive Proxy Statement for
its 2003 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.

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 2003 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 2003 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 27, 2002:

<TABLE>
<CAPTION>
                               Number of                     Weighted average      Number of securities
                               securities to be              average               remaining available for
                               issued upon exercise          exercise price        future  issuance under equity
                               of outstanding                of outstanding        compensation plans
                               options, warrants and         options,              (excluding securities
                               rights                        warrants and          reflected in column (a)
                                                             rights
Plan Category                  (a)                           (b)                   (c)
---------------------------   ----------------------       ------------------     -------------------------------
<S>                           <C>                          <C>                    <C>
Equity compensation plans                   635,499  (1)               $5.55                             164,944  (2)
approved by security
holders

Equity compensation plans                    36,000                    $2.96                              44,000
not approved by security
holders (3)

                              ----------------------       ------------------     -------------------------------
Total                                       671,499                    $5.41                             208,944
                              ----------------------       ------------------     -------------------------------
</TABLE>

(1)      Includes 106,735 options issued under the Company's 1993 Stock Option
         and Incentive Plan (the "1993 Plan"), 490,764 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").



                                       61
<PAGE>
(2)      Includes 162,944 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 2003 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.





                                       62
<PAGE>
ITEM 14. 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. Within the 90 days prior to the filing date of
this report, 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 have been no significant changes in our internal controls or other
factors that could significantly affect those controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

                                     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 27, 2002 and October 28,
         2001.

         Consolidated Statements of Operations for the fiscal years ended
         October 27, 2002, October 28, 2001 and October 29, 2000.

         Consolidated Statements of Stockholders' Equity for the fiscal years
         ended October 27, 2002, October 28, 2001 and October 29, 2000.

         Consolidated Statements of Cash Flows for the fiscal years ended
         October 27, 2002, October 28, 2001 and October 29, 2000.

         Notes to Consolidated Financial Statements

         Report of Independent Accountants

     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 27, 2002.

         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.



                                       63
<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 24, 2003

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 24, 2003
---------------------------------        Officer and Director (Principal Executive Officer)
Daniel B. Fitzpatrick

   /s/ John C. Firth                     Executive Vice President and General Counsel             January 24, 2003
---------------------------------        (Principal Financial Officer)
John C. Firth

   /s/ Jeanne M. Yoder                   Vice President, Controller                               January 24, 2003
---------------------------------        (Principal Accounting Officer)
Jeanne M. Yoder

    /s/ James K. Fitzpatrick             Senior Vice President, Chief Development Officer and     January 24, 2003
---------------------------------        Director
James K. Fitzpatrick

    /s/ Philip J. Faccenda               Director                                                 January 24, 2003
---------------------------------
Philip J. Faccenda

    /s/ Ezra H. Friedlander              Director                                                 January 24, 2003
---------------------------------
Ezra H. Friedlander

    /s/ Bruce M. Jacobson                Director                                                 January 24, 2003
---------------------------------
Bruce M. Jacobson

    /s/ Steven M. Lewis                  Director                                                 January 24, 2003
---------------------------------
Steven M. Lewis

    /s/ Christopher J. Murphy III        Director                                                 January 24, 2003
---------------------------------
Christopher J. Murphy III
</TABLE>






                                       64
<PAGE>
                                 CERTIFICATIONS

I, Daniel B. Fitzpatrick, certify that:

    1.   I have reviewed this annual report on Form 10-K of Quality Dining,
         Inc.;

    2.   Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

    3.   Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

    4.   The registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

             a.   Designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

             b.   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

             c.   Presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

    5.   The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

             a.   All significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

             b.   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

    6.   The registrant's other certifying officer and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in the other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:    January 24, 2003

                                           /s/ DANIEL B. FITZPATRICK
                                           -------------------------------------
                                           Daniel B. Fitzpatrick
                                           President and Chief Executive Officer


I, John C. Firth, certify that:

    1.   I have reviewed this annual report on Form 10-K of Quality Dining,
         Inc.;

    2.   Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

    3.   Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

    4.   The registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

             a.   Designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

             b.   Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

             c.   Presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;




                                       65
<PAGE>
    5.   The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

             a.   All significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

             b.   Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

    6.   The registrant's other certifying officer and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in the other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:    January 24, 2003


                                    /s/ JOHN C. FIRTH
                                    --------------------------------------------
                                    John C. Firth
                                    Executive Vice President and General Counsel























                                       66
<PAGE>
                                INDEX TO EXHIBITS


<TABLE>
<CAPTION>
         Exhibit
           No.                                                 Description
           ---                                                 -----------
<S>                  <C>
           2-F        (1)  Share Exchange Agreement, by and among Quality Dining, Inc., Bruegger's
                           Corporation, Nordahl L. Brue and Michael J. Dressell, dated as of September 3,
                           1997 .............................................................................

           2-G        (2)  Agreement and Plan of Merger, by and among Quality Dining, Inc., Bagel Disposition
                           Corporation and Lethe, LLC, dated as of September 3, 1997.........................

           3-A        (3)  (i) Restated Articles of Incorporation of Registrant..............................

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

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

           3-B       (12)  By-Laws of the Registrant, as amended to date.....................................

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

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

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

           4-D        (4)  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        (4)  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        (4)  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        (4)  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        (4)  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        (5)  Rights Agreement, dated as of March 27, 1997, by and between Quality Dining, Inc.
                           and KeyCorp Shareholder Services, Inc., with exhibits ............................

           4-N       (14)  Reaffirmation of Subsidiary Guaranty..............................................
</TABLE>





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<PAGE>

<TABLE>
<S>                  <C>
           4-O       (16)  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       (16)  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................................................................

          10-A        (6)  Form of Burger King Franchise Agreement............................................

          10-B        (6)  Form of Chili's Franchise Agreement................................................

          10-C       (15)  Non-Exclusive Development Agreement between Burger King Corporation and Bravokilo,
                           Inc. dated November 3, 2000........................................................

          10-D        (4)  Second Amendment to Development Agreement by and between Southwest Dining, Inc.
                           and Brinker International, Inc. dated July 26, 1999 ...............................

          10-G        (4)  *Employment Agreement between the Company and John C. Firth dated August 24, 1999
                           ...................................................................................

          10-H        (7)  *1997 Stock Option and Incentive Plan of the Registrant............................

          10-I        (8)  *1993 Stock Option and Incentive Plan, as amended of the Registrant ...............

          10-J        (6)  *Outside Directors Stock Option Plan of the Registrant adopted December 17, 1993...

          10-K        (6)  Lease Agreement between B.K. Main  Street Properties and the Registrant dated
                           January 1, 1994....................................................................

          10-L        (7)  Schedule of Related Party Leases...................................................

          10-M        (6)  Form of Related Party Lease........................................................

          10-O       (12)  *1999 Outside Directors Stock Option Plan..........................................

          10-Q        (4)  *Non Compete Agreement between the Company and James K. Fitzpatrick dated June 1,
                           1999...............................................................................

          10-R        (4)  *Non Compete Agreement between the Company and Gerald O. Fitzpatrick dated June 1,
                           1999...............................................................................

          10-S       (17)  * Amendment, dated September 9, 2002 to Employment Agreement between the Company
                           and John C. Firth..................................................................
          10-T        (9)  First Amendment dated May 2, 1995 to Development Agreement between Chili's, Inc.
                           and the Registrant dated June 27, 1990 ............................................

          10-U        (4)  *Non Compete Agreement between the Company and Robert C. Hudson dated June 1,
                           1999...............................................................................

          10-Z        (9)  Purchase and Sale Agreement between the Registrant and John D. Fitzpatrick dated
                           July 10, 1995......................................................................

          10-AD      (10)  Priority Charter Agreement between the Registrant and Burger Management of South
                           Bend #3 Inc., dated September 1, 1994 .............................................
</TABLE>




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<PAGE>
<TABLE>
<S>                  <C>
          10-AE      (17)  Aircraft Hourly Rental Agreement by and between BMSB, Inc. and Quality Dining,
                           Inc., dated as of August 22, 2002..................................................
          10-AF      (10)  Lease Agreement between the Registrant and Six Edison Lakes, L.L.C. dated
                           September 19, 1996.................................................................

          10-AG      (11)  Amended and Restated Priority Charter Agreement between the Registrant and Burger
                           Management of South Bend #3 Inc., dated October 21, 1998 ..........................

          10-AO      (15)  *Employment Agreement between the Company and Daniel B. Fitzpatrick dated October
                           30, 2000...........................................................................

          10-AP      (12)  *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-AQ      (12)  * Severance Agreement and General Release between the Company and Marti'n Miranda
                           dated January 14, 2000 ............................................................

          10-AR      (15)  *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      (15)  Early Successor Incentive Program (Fiscal 2000) Addendum to Successor Franchise
                           Agreement..........................................................................

          10-AV      (14)  * Severance Agreement and General Release between the Company and David M. Findlay
                           dated September 1, 2000............................................................

          10-AY      (12)  *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      (15)  Franchisee Commitment dated January 27, 2000.......................................

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

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

          99.1             Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
                           Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

          99.2             Certification of Executive Vice President and General Counsel (Principal Financial
                           Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
                           the Sarbanes-Oxley Act of 2002.
</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 exhibit number 1 to Amendment No. 5 of
     Schedule 13D filed by Nordahl L. Brue, Michael J. Dressell, Steven P.
     Schonberg and David T. Austin, dated September 4, 1997, is incorporated
     herein by reference.

(2)  The copy of this exhibit filed as exhibit number 2 to Amendment No. 5 of
     Schedule 13D filed by Nordahl L. Brue, Michael J. Dressell, Steven P.
     Schonberg and David T. Austin, dated September 4, 1997, is incorporated
     herein by reference.

(3)  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.



                                       69
<PAGE>
(4)  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.

(5)  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.

(6)  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.

(7)  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.

(8)  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.

(9)  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.

(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 27, 1996 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-K for the year ended October 25, 1998 is incorporated
     herein by reference.

(12) 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.

(13) 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.

(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 August 6, 2000 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-K for the year ended October 29, 2000 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 12, 2002 is
     incorporated herein by reference.

(17) 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.




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