CONSOLIDATED PRODUCTS INC /IN/, 10-K, 1998-12-21

CONSOLIDATED PRODUCTS INC /IN/
10-K, 1998-12-21
EATING PLACES

Previous: CONSOLIDATED PRODUCTS INC /IN/, DEF 14A, 1998-12-21

Next: MERIDIAN MEDICAL TECHNOLOGIES INC, SC 13D, 1998-12-21

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1998

[ ] 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 0-8445

CONSOLIDATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)

INDIANA 37-0684070
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)

500 Century Building, 36 S. Pennsylvania Street
Indianapolis, Indiana 46204
(317) 633-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Securities registered pursuant to Sec. 12(b) of the Act:
Name of Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $.50 per share New York Stock Exchange

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

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

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

The aggregate market value of Common Stock held by persons not "affiliated" with
the registrant, based on the closing price of the Common Stock as of December
10, 1998, was approximately $316,796,384.

The number of shares of Common Stock outstanding at December 10, 1998 was
21,086,099 (not adjusted for the five for four stock split declared in December
1998).

DOCUMENTS INCORPORATED BY REFERENCE

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

Registrant's Annual Report to Shareholders for Parts II and IV
fiscal year ended September 30, 1998

The definitive Proxy Statement to be filed with
respect to the 1999 Annual Meeting of
Shareholders of Registrant Part III

<PAGE>

PART I.

ITEM 1. BUSINESS

GENERAL

The Company is engaged primarily in the ownership, operation and franchising of
Steak n Shake restaurants through its wholly-owned subsidiary, Steak n Shake,
Inc. Founded in 1934 in Normal, Illinois, Steak n Shake is one of the oldest
restaurant chains in the country. As of September 30, 1998, Steak n Shake had
233 Company-operated restaurants and 51 franchised restaurants, located in 14
midwestern and southeastern states. Steak n Shake restaurants are generally open
24 hours a day, seven days a week, and in addition to the core menu, offer a
breakfast menu during breakfast hours. During fiscal 1998, lunch and dinner
sales accounted for approximately 36% and 44% of sales, respectively, while
breakfast and late night sales accounted for 7% and 13% of sales, respectively.

THE STEAK N SHAKE CONCEPT

Management's key concept strategies are to:

CAPITALIZE ON DISTINCT MARKET NICHE. Steak n Shake occupies a distinct niche
in the restaurant industry. The restaurants offer full-service dining with
counter and dining room seating, as well as drive-thru and carry-out service.
Counter and dining room sales represent approximately two-thirds of the sales
mix while sales for off-premises dining represent approximately one-third of
the sales mix. Unlike most fast-food restaurants, all food is freshly
prepared, made-to-order in view of the customer and is served promptly on china
with flatware and glassware by friendly wait staff. Steak n Shake's prices are
considerably less than most casual dining concepts with an average check of
approximately $5.25 per person in fiscal 1998, although the average check
during the peak lunch and dinner hours was approximately $5.50 and $5.75,
respectively. The Company believes that Steak n Shake offers a much more
compelling value and higher quality level of core menu items than competitive
fast-food and casual dining chains.

FOCUS ON CORE MENU ITEMS WHILE OFFERING VARIETY. For over 60 years, Steak n
Shake's menu has featured core items which include Steakburgers, thin and
crispy French fries and hand-dipped Milk Shakes. The Company believes that its
focus on certain menu items has allowed it to serve consistent, high quality
food which, in turn, has built brand loyalty with its customers. Menu items
are prepared in accordance with the Company's strict specifications using high
quality ingredients such as 100% pure U.S. beef, including cuts of T-bone,
strip and sirloin steaks, in its steakburgers. Over the years, Steak n Shake
has responded to changing customer tastes with greater menu variety without
losing its focus or customer appeal, by making carefully planned menu additions
such as a grilled chicken breast sandwich, beef and chicken taco salads,
desserts and various homestyle soups and salads.

EMPHASIZE CUSTOMER SATISFACTION. Steak n Shake's reputation and long-standing
customer loyalty have been earned over many years by the consistent quality of
the dining experience. The success of Steak n Shake depends on its employees'
commitment to consistently exceed the customer's expectations. All restaurant
employees participate in a formal training program that focuses on enhancing
customer satisfaction and includes classroom and on-the-job instruction.
Restaurant managers are required to complete a comprehensive eight-week
training program on restaurant operating procedures, employee relations, and
customer service. In order to ensure consistent execution of the Company's
standards for service, self-stamped and addressed comment cards are placed in
every restaurant, and management performs periodic on-site visits and formal
inspections.

2
<PAGE>

RESTAURANT DESIGN

Steak n Shake restaurants have a distinctive exterior appearance and interior
decor. The exterior design of a Steak n Shake restaurant has the individual
character of a branded logo, embracing building shape, awning detail, building
graphics and pylon signage. The interior decor is reminiscent of the nostalgic
diner era using chrome, glass, neon and tile in a contemporary manner. Food
preparation takes place in view of the customer, as reflected by Steak n
Shake's slogan, "In Sight It Must Be Right-Registered Trademark-". The kitchen
area is designed to allow for efficiency of work flow, thereby minimizing the
amount of space required.

All of the Steak n Shake restaurants are free-standing structures except for
eight units, of which four are part of travel centers. Restaurants constructed
prior to 1973 are similar in architectural style but differ in size resulting
in seating capacities varying from 39 to 138 customers. Restaurants built
since 1973 are generally 3,800 square feet in area and seat approximately 100
customers. The travel center units are located in complexes that typically
include a fuel service area and a convenience store. These units are located
on interstate highways and serve both the general traveler and truck traffic.
The travel center unit exteriors and interiors are the same as those of the
free-standing units.

EXPANSION STRATEGY

In fiscal 1992, the Company embarked upon a five-year Steak n Shake expansion
program that contemplated the addition of 39 new Company-operated units by the
end of fiscal 1997. By September 24, 1997, the Company had opened 100 new
Company-operated restaurants. For fiscal year 1998, 33 Company-operated units
were opened. In addition to the 33 new units, the Company purchased eight
units in southern Georgia and northwest Florida from a franchisee.

The Company's five-year growth plan for fiscal 1999 through 2003 calls for
increasing the numbers of new Company-operated Steak n Shake units by 290. In
addition to the 290 Company-operated units planned in the five-year window, the
Company will also very selectively expand its franchise system. The goal would
be over 600 systemwide Steak n Shake restaurants by the end of fiscal 2003 of
which over 500 would be Company-operated.

The Company's controlled expansion program is based upon a market penetration
plan focused on clustering restaurants in existing or contiguous geographic
areas to capitalize on name recognition, increase customer convenience and
achieve media efficiency. The addition of Company-operated restaurants in
markets where the Company's television marketing effort has been implemented
allows the Company to leverage its advertising costs over more units and to
benefit from management efficiencies. In existing media markets, the Company's
advertising expenditures create higher levels of customer recognition and
greater market acceptance for new units. The Company's new restaurants opened
in existing media markets have typically experienced higher than average sales
volumes.

During fiscal 1998, the Company continued its market intensification efforts in
core markets while Tampa, Florida; Chicago, Illinois; Jacksonville, Florida;
Nashville, Tennessee; and Kansas City, Missouri saw increased penetration. New
markets included Lexington, Kentucky; Columbus, Ohio; West Palm Beach, Florida;
and Lansing, Michigan. In fiscal 1999, the Company will begin development in
Madison, Wisconsin; Detroit, Michigan; Cleveland, Ohio; and the Broward-Dade
County, Florida markets.

Another strategy is to link existing major Steak n Shake markets by developing
Steak n Shake units along the connecting interstate highways. Since the
beginning of fiscal 1995, 58 Company-operated and 20 franchised restaurants
have been opened at locations along interstate highways.

The Company's franchising program is designed to extend brand name recognition
of Steak n Shake and derive additional revenues without substantial investment
by the Company. As part of its continuing planning process, management reviews
the relationship of the number of Company-operated to franchised restaurants
and the selection of areas for development by the Company and by franchisees.
The Company's expansion plan contemplates the controlled addition of franchised
restaurants with the current franchisees. See "Franchising."

3
<PAGE>

SITE SELECTION

Management believes that the site selection process is critical to the success
of its restaurants, and senior management devotes significant time and
resources in analyzing each prospective site. A variety of factors are
considered in the site selection process, including local market demographics,
site visibility and accessibility, highway interchanges and proximity to
significant generators of potential customers such as major retailers, regional
malls, shopping centers, office complexes, and hotel and entertainment centers
including stadiums, arenas and multi-screen theaters.

The Company's Vice President of Real Estate and the real estate managers
identify and research sites for review by the Company's senior management prior
to final authorization for purchase or lease. Upon identification of a site,
its success including the potential return on investment is assessed by
utilization of financial models which evaluate the unit's projected sales and
earnings. Management believes this detailed process, along with a critical
approval path, ensures the management discipline and scrutiny necessary to
acquire sites that have the most potential to meet the Company's required
performance criteria.

4
<PAGE>

RESTAURANT LOCATIONS

The following table lists, as of September 30, 1998, the locations of the 284
Steak n Shake restaurants and the number of units in each state and the number
of units in each city if more than one unit:

<TABLE>
<S> <C> <C> <C>
FLORIDA (48) ILLINOIS (53) INDIANA (56) MISSOURI (52)
Bradenton Alton Anderson Arnold
Clearwater - 2 Aurora Avon *Branson
Daytona Beach Belleville Bloomington - 3 *Cape Girardeau
Gainesville -2 Bloomington - 2 Carmel - 2 *Columbia - 2
Jacksonville - 2 Bradley *Clarksville Eureka
Kissimmee Carbondale Columbus *Farmington
Lakeland - 3 Champaign Elkhart Fenton
Lake Buena Vista Collinsville *Evansville - 2 Festus
Lake Mary Danville - 2 Ft. Wayne - 3 Independence
Largo Decatur - 2 Goshen *Jefferson City
Merritt Island DeKalb Greenwood - 2 *Joplin
Ocala Downers Grove Indianapolis - 20 *Poplar Bluff
Orange City East Peoria Kokomo - 2 *Rolla
Orlando - 9 Edwardsville Lafayette - 2 St. Louis - 33
Ormond Beach Effingham Lebanon *Springfield - 4
Oviedo Elgin Marion Sullivan
Palm Coast Fairview Heights Merrillville
Port Charlotte Forsythe Michigan City GEORGIA (19)
Port Richey Galesburg Mishawaka Albany
Sanford Glendale Heights Muncie *Atlanta - 11
Sarasota Gurnee Noblesville *Brunswick
Spring Hill Hoffman Estates Plainfield Columbus
St. Petersburg -2 *Jacksonville Richmond *Dalton
Stuart Joliet - 2 Schererville Macon
Tallahassee - 2 Lake In the Hills Seymour Tifton
Tampa - 5 *Lincoln South Bend Valdosta
West Melbourne Marion Terre Haute Warner Robins
Wildwood Mattoon Valparaiso
Winterhaven McHenry TENNESSEE (11)
Moline MICHIGAN (10) *Chattanooga - 2
KENTUCKY (12) Mt. Vernon Battle Creek Clarksville
*Bowling Green Naperville Benton Harbor Cleveland
*Elizabethtown Normal - 2 Grand Rapids - 3 Franklin
Florence O'Fallon Holland *Knoxville -2
Frankfort Pekin Kalamazoo Murfreesboro
Lexington Peoria - 4 Lansing - 2 Nashville -3
*Louisville - 4 Peru Portage
*Owensboro *Quincy KANSAS (2)
Paducah Rockford NORTH CAROLINA (1) Overland Park
Richmond *Springfield - 3 *Greensboro Lawrence
Tinley Park
OHIO (15) Urbana 2 MISSISSIPPI (1)
Cincinnati - 6 *Southaven
Columbus - 2 IOWA (2)
Dayton - 5 Davenport - 2
Middletown
Troy

ARKANSAS(2)
*Jonesboro
*Little Rock

</TABLE>
- ---------------------
* Franchised units.

5
<PAGE>

RESTAURANT MANAGEMENT

The operations of the restaurants are the responsibility of the Senior Vice
President of Operations and National General Manager, Vice President of
Operations and Deputy National General Manager, eight division managers, forty
district managers and the unit-level restaurant management teams.

The divisions and the number of units in each are as follows:

NUMBER OF
DIVISION UNITS
-------- ---------
Missouri 47
Indiana 49
Illinois 48
Florida 46
Michigan 9
Ohio 17
Tennessee 9
Southeast 8
---
233
---

Division managers are responsible for the operations of the restaurants in the
division as well as supervision of the division support team, which includes
district managers, training and recruiting managers, division training
supervisors and maintenance and administration staff. District managers
generally have responsibility for the operating performance of six to eight
restaurants. The management team of a typical Steak n Shake restaurant
consists of a general manager, a restaurant manager and three assistant
managers. The number of assistant managers varies depending upon the volume of
the unit.

The general manager of each restaurant has primary responsibility for the
day-to-day operations of the restaurant and is responsible for maintaining
Company-established operating standards and procedures. The general manager is
the key person in the success of a Steak n Shake restaurant. An experienced,
well-trained general manager promotes compliance with the Company's high
standards for food quality and customer service. Steak n Shake seeks to employ
restaurant managers who are customer service oriented and who manage the
restaurant from the dining room. Steak n Shake recognizes the important role
of a seasoned, well-trained and properly motivated restaurant team. The
Company has initiated innovative programs that involve hiring, training and
career development, and a wide variety of benefits to reward and recognize
adherence to Steak n Shake's high standards.

Recruiting and hiring programs have been intensified to seek the qualified
people required to support the Company's aggressive growth plan. In order to
develop the talented bench strength for continued internal promotions, people
development is one of the highest priorities of the Company. Regular
organization-wide evaluations of individual development progress are routinely
conducted. As part of the Company's commitment to improving its standards of
execution, emphasis is placed upon strengthening the skills and capabilities of
each restaurant team through innovative selection, development, evaluation, and
reward systems. Employees are encouraged to learn new skills to foster their
professional growth and to create greater opportunities for advancement.

The college recruitment of talented young people to deliver the brand promise
and to provide the future leadership to support our growth programs is also a
major management priority. Initiatives are in place at selected Colleges,
Universities and Technical Schools in Steak n Shake's markets to recruit,
select and retain people who will lead our company into the next century. A
cadre of recruiting professionals is in place to insure that the Steak n Shake
opportunity is communicated to prospective candidates with the competitively
desired inducements to join the Company.

The Company believes that offering competitive compensation, including
incentive bonus plans tied to performance goals for all levels of restaurant
management personnel, is important to attracting and retaining competent and
highly motivated managers. Awards under the incentive bonus plan are based
upon attainment

6
<PAGE>

of defined operating performance standards. Accelerated growth continues as
one of the Company's attractions by providing many new opportunities for
qualified employees to grow within the organization. The Employee Stock
Purchase Plan also provides an attractive opportunity for employees to purchase
shares of the Company's stock at a discounted price and without the cost of any
brokerage fees. This provides an enhanced opportunity for employees to become
shareholders of the Company, invest in its future and share in the growth
through their own efforts.

TRAINING

Each restaurant team member participates in a formal training program that
utilizes work station video presentations, training manuals, a scheduled
evaluation process and recognition awards which signify proficiency in specific
areas. This training process, which takes place within the restaurant, is
continuously reinforced and monitored.

Steak n Shake's goal is to continue to develop strong restaurant management
teams by providing carefully designed leadership training programs. Each
geographic division designates specific restaurants where intensified
on-the-job management training occurs under careful supervision by experienced
restaurant managers. Restaurant managers are required to complete a
comprehensive eight-week training program during which time they are instructed
in subjects such as the standards of food quality and preparation, customer
service and employee relations. Restaurant managers also are provided with
video training presentations and operations manuals relating to food
preparation, customer service standards, restaurant operation practices and
Company procedures. During fiscal 1998, 693 individuals entered this training
program, approximately 27% of whom were promoted from within the Company.

The general managers, together with division personnel, are responsible for
hiring the hourly employees for each restaurant. Each restaurant employs
approximately 40 to 80 hourly employees, many of whom work part-time. Prior to
the opening of a restaurant, the Company's Division Recruiting and Training
Manager assembles a team of experienced employees to train and educate the new
employees. The training period for new employees lasts approximately two weeks
and includes one week of general training prior to opening and one week of
on-the-job supervision at the restaurant. Ongoing employee training remains
the responsibility of the restaurant general manager under the supervision of a
division training manager.

CUSTOMER SATISFACTION AND QUALITY CONTROL

Management believes that employee commitment to consistently exceed customer
expectations is critical to the success of Steak n Shake. The Company intends
to continue to develop and implement standards of execution that will result in
the efficient delivery of high quality, great-tasting food served by friendly,
competent wait staff.

Restaurant management is responsible for ensuring that the restaurants are
operated in accordance with strict operational procedures and quality
requirements. Compliance for Company-operated units is monitored through the
use of customer comment cards, periodic on-site visits and formal inspections
by the division and district managers as well as division training personnel,
and for franchised units through periodic inspections by the Company's
franchise field operations personnel. Unfavorable comment cards are responded
to by division management.

PURCHASING AND DISTRIBUTION CENTER OPERATIONS

Steak n Shake operates a distribution center in Bloomington, Illinois from
which food products (except for items purchased by the restaurants locally such
as bakery goods, produce and dairy products) and restaurant supplies are
delivered to 94 Company-operated and 15 franchised restaurants located in parts
of the Midwest. The Company's semi-trailers have the capability to handle
refrigerated and frozen products along with dry goods in the same delivery
trip. The remaining Steak n Shake restaurants, located primarily in the
Southeast and parts of the Midwest, obtain food products and supplies which
meet the Company's quality standards and specifications from an independent
distributor with locations in Tampa, Florida and Bloomington, Indiana.

7
<PAGE>

Purchases are negotiated centrally for most food and beverage products and
supplies to insure uniform quality, adequate quantities and competitive prices.
Forward buying contracts are utilized to insure availability of products
pursuant to the Company's specifications as well as to even out exposure to
fluctuating prices. Food and supply items undergo ongoing research,
development and testing in an effort to maintain the highest quality products
and to be responsive to changing customer tastes. The Company has not
experienced any significant delays in receiving food and beverage products,
restaurant supplies or equipment.

RESTAURANT REPORTING

Systems and technology are essential for the management oversight needed to
monitor Steak n Shake's high standards for quality and to achieve proper
operating margins. Operational and financial controls are maintained through
the use of point of sale systems in each restaurant, personal computers in the
division offices and an automated data processing system at the corporate
office. The management accounting system polls data from the point of sale
system by way of local and wide area networks and generates daily reports of
sales, sales mix, customer counts, check average, cash, labor and food cost.
Inventories are taken of key products daily and of all products at the end of
each four-week accounting period. Management utilizes this data to monitor the
effectiveness of controls and to prepare periodic financial and management
reports. The system is also utilized for financial and budget analysis,
planning and analysis of sales by revenue center and product mix and labor
utilization. New technology developments during 1998 included the roll out of
a touch screen point-of-sale system connected to a personal computer located in
the restaurant. Planned system developments include an upgrade of the
Corporate office financial systems and additional enhancements, such as sales
forecasting and labor scheduling systems. Cash is controlled through frequent
deposits in local bank operating accounts followed by transfers to the
principal corporate operating account.

MARKETING

Management believes that Steak n Shake's commitment to customer service and
value is the most effective approach to attracting and retaining customers, and
that the strategy of locating multiple restaurants within a defined geographic
area has enabled newer restaurants to benefit from the name recognition and
reputation for quality and value developed by existing operations.
Accordingly, Steak n Shake's marketing thrust is directed toward building brand
loyalty.

Steak n Shake's media program, particularly television advertising, plays a
significant role in its marketing strategy of explaining why Steak n Shake is
different. Using humor with a "tongue in cheek" approach, the advertising
messages focus on specific products and benefits that are inherent in the Steak
n Shake concept: better food with a unique taste, better service and more
ambiance. In addition to its media program, Steak n Shake relies upon word of
mouth and point of purchase advertising to attract customers and generate
additional sales. Steak n Shake's strategy does not involve low price deal
marketing.

Additional marketing activities designed to build brand awareness and loyalty,
create new customer trials and introduce new products include quarterly
free-standing newspaper inserts and seasonal in-store offerings centered around
short-term, special promotions or product introductions. The fully integrated
marketing program also utilizes menu clip-ons, table cards, ceiling danglers
and signage. During fiscal 1998, the Company expended 3.1% of revenues on
media and marketing materials.

FRANCHISING

GENERAL. The Company's franchising program is designed to extend its brand
name recognition of Steak n Shake in areas where the Company has no current
development plan, but yet serves the same general regions, and derives
additional revenues without substantial investment by the Company. The Company
contemplates the controlled addition of franchised restaurants over the next
five years with a very selective screening standard.

As of September 30, 1998, the Company had 51 franchised Steak n Shake
restaurants operated by 17 franchisees, located in Arkansas, Georgia, Illinois,
Indiana, Kentucky, Mississippi, Missouri, North Carolina and Tennessee. These
restaurants are located in areas contiguous to markets in which there are
Company-operated restaurants. Thirty-eight of the franchised units have been
added since fiscal 1995. The Company

8
<PAGE>

currently has commitments from existing franchisees for the development of
additional franchised restaurants. During fiscal 1998, the Company purchased
eight franchised units in southern Georgia and northwest Florida previously
operated by SNS Southern, Inc. of Tifton, Georgia. Subsequent to the end of
fiscal 1998, the Company has purchased two additional franchised units in
Arkansas and one franchised unit in Missouri.

PRINCIPAL FRANCHISEES. Steak n Shake's principal franchise relationship
includes an agreement with Kelley Restaurants, Inc., for the development of a
total of 5 additional Steak n Shake restaurants in the Charlotte, North
Carolina market over the next three years. Kelley Restaurants, Inc. is
controlled by E. W. Kelley, the Chairman of the Company.

APPROVAL. Franchisees undergo a selection process supervised by the Senior
Vice President in charge of franchising, and requires final approval by senior
management. Steak n Shake seeks franchisees with significant experience in the
restaurant business who have demonstrated the financial and management
capabilities required to develop and operate a franchised restaurant. The
Company initially enters into an agreement with the franchisee for the
development of one unit. After the franchisee has demonstrated the ability to
operate that unit in accordance with Company standards, the Company will
consider entering into a broader franchise relationship.

TRAINING AND DEVELOPMENT. Steak n Shake assists franchisees with both the
development and the ongoing operation of their restaurants. Steak n Shake
management personnel assist with site selection, approve all franchise sites
and provide franchisees with prototype plans and specifications for
construction of their restaurants. The Company's training staff provides both
on-site and off-site instruction to franchised restaurant management employees.
Managers of franchised restaurants are required to obtain the same training as
managers of Company-operated units. Steak n Shake's support continues after a
restaurant opening with periodic training programs, the provision of manuals
and updates relating to product specifications, customer service and quality
control procedures, advertising and marketing materials and assistance with
particular advertising and marketing needs. Steak n Shake also makes available
to franchisees certain accounting services and management information reports
prepared at the corporate office for a monthly fee based on Steak n Shake's
actual costs. Steak n Shake has three franchise field representatives who
monitor franchise operations.

OPERATIONS. All franchised restaurants are required, pursuant to their
respective franchise agreements, to serve Steak n Shake approved menu items.
In addition, although not required to do so, several franchisees purchase food,
supplies and smallwares through Steak n Shake's distribution center, at Steak n
Shake's cost, plus a markup to cover its cost of operation, including freight
for delivery. Steak n Shake's point of sale systems are also available for
purchase by franchisees. Access to these services enables franchisees to
benefit from Steak n Shake's purchasing power and assists Steak n Shake in
monitoring compliance with its standards and specifications for uniform
quality. See "Purchasing and Distribution Center Operations".

FRANCHISE AGREEMENT. The standard Steak n Shake franchise agreement currently
has an initial term of 20 years. Among other obligations, the agreement
generally requires franchisees to pay an initial franchise fee of $30,000 for
the first unit in a market, $25,000 for each subsequent unit and a continuing
royalty of 4% of monthly gross sales. The franchise agreement also requires
the franchisee to pay 5% of monthly gross sales to the Company for advertising,
of which 80% is to be spent on local, regional or national marketing and 20% is
to be used by Steak n Shake for creative and promotional development, outside
independent marketing agency fees and technical and professional marketing
advice.

FRANCHISING ASSISTANCE. In certain circumstances, the Company's financing
subsidiary, SNS Investment Company, Inc., will assist qualified franchisees in
financing the development of one or more franchised units by purchasing or
leasing approved sites from third parties, constructing the restaurant and
leasing or subleasing the finished facility to the franchisee. The lease terms
and rentals, including a surcharge by the Company for administrative services,
are negotiated based on prevailing real estate and construction rates in effect
in the franchised area. Through September 30, 1998, seven restaurants had been
financed through this subsidiary.

9
<PAGE>

CONSOLIDATED SPECIALTY RESTAURANTS, INC. ("CSR")

CONCEPTS

CSR, a wholly-owned subsidiary of the Company, operates eleven theme
restaurants located in Illinois and Indiana. Eight of these restaurants are
steakhouses operated under the name of Colorado Steakhouse. The restaurant's
design theme is reminiscent of a Colorado log cabin and gives the ambiance and
atmosphere of a Rocky Mountain Lodge. The Colorado Steakhouse menu features
steak and prime rib with limited non-beef alternatives, such as salmon, chicken
and pork. The narrow menu offering was designed to permit greater attention to
quality and consistency in both food and service. The average dinner check
approximates $15. All of the CSR restaurants also offer alcoholic beverages,
which represent approximately 13% of CSR's sales.

The Company has substantially completed the capital investment required to
develop this concept, and is in the process of refining and evaluating the
operations of these restaurants. The Company does not intend to expand
operations of CSR unless the existing restaurants demonstrate satisfactory
levels of profitability and return on investment.

The Company does not maintain a franchise program for its specialty restaurants.

COMPETITION

The restaurant business is one of the most intensely competitive industries in
the United States, with price, menu offerings, location and service all being
significant competitive factors. The Company's competitors include national,
regional and local chains as well as local owner-operated establishments. There
are established competitors with financial and other resources greater than
those of the Company in all of the Company's current and proposed future market
areas. The Company faces competition for sites on which to locate new
restaurants and for personnel, as well as for customers.

SEASONAL ASPECTS

The Company has substantial fixed costs which do not decline as a result of a
decline in sales. The Company's second fiscal quarter, which falls during the
winter months, usually reflects lower average weekly unit volumes, and sales
can be adversely affected by severe winter weather.

EMPLOYEES

As of September 30, 1998, the Company had approximately 14,000 employees, of
which 13,325 were employed by Steak n Shake and 675 by CSR. None of the
employees is represented by a collective bargaining agreement. Approximately
two-thirds of the Company's hourly employees are part-time.

TRADEMARKS

"Steak n Shake-Registered Trademark-", "Takhomasak-Registered Trademark-",
"Famous For Steakburgers-Registered Trademark-", "FAXASAK-Registered
Trademark-", "In Sight It Must Be Right-Registered Trademark-", "Its a
Meal-Registered Trademark-" and the "Wing and Circle-Registered Trademark-"
logo are federally registered trademarks and servicemarks. CSR holds federal
registrations for "The Charley Horse-Registered Trademark-" and "Colorado
Steakhouse-Registered Trademark-" as well as other federal and state trademarks
and servicemarks applicable to its restaurant businesses in addition to state
registrations. The Company is not aware of any infringing uses that could
materially affect its business. The Company will protect its trademark rights
by appropriate legal action whenever necessary.

GOVERNMENT REGULATION

The Company is subject to various federal, state and local laws affecting its
business. Each of the Company's restaurants is subject to licensing and
regulation by a number of governmental authorities, including health and safety
and fire agencies in the state and municipality in which the restaurant is
located, and alcoholic beverage control in the case of CSR. The development
and construction of additional restaurants will be subject to compliance with
applicable zoning, land use and environmental regulations. Difficulties in
obtaining or failure to obtain the required licenses or approvals could delay
or prevent the development of a new restaurant in a particular area.

The Company's restaurant operations are also subject to federal and state
minimum wage laws and laws governing such matters as working conditions,
overtime and tip credits. Many of the Company's restaurant

10
<PAGE>

employees are paid at rates related to the federal minimum wage and,
accordingly, further increases in the minimum wage would increase the Company's
labor costs.

Steak n Shake currently has franchise operations in eight states -- Georgia,
Illinois, Indiana, Kentucky, Mississippi, Missouri, North Carolina and
Tennessee -- and is subject to certain federal and state laws controlling the
offering and conduct of its franchise business in those states. In addition,
the Company is subject to franchise registration requirements in several states
in which it is now conducting or will in the future conduct its franchise
business.

The federal Americans with Disabilities Act prohibits discrimination in public
accommodations and employment on the basis of disability. The Company builds
all new restaurants to standards which comply with the Act and has reviewed its
employment policies and practices for compliance with the Act.

GEOGRAPHIC CONCENTRATION

During fiscal 1998, approximately 65% of the Company's net sales were derived
from four markets: St. Louis, Missouri (21%); Indianapolis, Indiana (17%);
central Florida (17%) and Chicago, Illinois (10%), respectively. As a result,
the Company's results of operations may be materially affected by weather,
economic or business conditions within these markets. Also, given the
Company's present geographic concentration, adverse publicity relating to Steak
n Shake restaurants could have a more pronounced adverse effect on the
Company's overall sales than might be the case if the Company's restaurants
were more broadly dispersed.

THE RESTAURANT INDUSTRY

Historically, the restaurant industry has been affected by changes in consumer
tastes and by national, regional and local economic conditions and demographic
trends. The performance of individual restaurants may be affected by factors
such as traffic patterns, demographic factors and the type, number and location
of competing restaurants. Although management believes that the Company has
successfully responded to changes in the restaurant industry, in the future,
factors such as inflation, increased food, labor and employee benefit costs and
the lack of availability of experienced management personnel and hourly
employees could adversely affect the restaurant industry in general and the
Company's restaurants in particular.

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS

This Report contains certain statements that are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Those
statements include, but may not be limited to, the discussions of the Company's
expansion strategy, expectations concerning its future profitability, capital
sources and needs, Year 2000 remedial efforts, marketing plans and franchising
programs. Investors in the Common Stock are cautioned that reliance on any
forward-looking statement involves risks and uncertainties, and that although
the Company believes that the assumptions on which the forward-looking
statements contained herein are reasonable, any of those assumptions could
prove to be inaccurate, and as a result, the forward-looking statements based
on those assumptions also could be incorrect. The uncertainties in this regard
include, but are not limited to, those identified above. In light of these and
other uncertainties, the inclusion of a forward-looking statement herein should
not be regarded as a representation by the Company that the Company's plans and
objectives will be achieved.

11
<PAGE>

ITEM 2. PROPERTIES

The Company currently leases 30,700 square feet of executive office space in
Indianapolis, Indiana, under a lease expiring December 31, 2005.

STEAK N SHAKE, INC.

As of September 30, 1998, Steak n Shake operated 145 leased and 88 owned
restaurants in Indiana, Illinois, Michigan, Missouri, Florida, Georgia, Iowa,
Ohio, Kansas, Kentucky and Tennessee. Steak n Shake restaurant leases for land
and building typically are noncancelable, have an initial term of 18 to 25
years and renewal terms aggregating twenty years or more and require Steak n
Shake to pay real estate taxes, insurance and maintenance costs. Of these
leases, 89 contain percentage of sales rental clauses in addition to base rent
requirements.

Steak n Shake restaurants constructed prior to 1973 have a similar
architectural style, seat 39 to 138 customers and occupy between 1,010 and
6,000 square feet. Restaurants built since 1973 are generally 3,800 square feet
and seat approximately 100 customers.

Steak n Shake has lease obligations on 16 former restaurant locations in
Georgia, Ohio, Illinois, and Kentucky, all of which have been subleased to
others as of September 30, 1998. These obligations primarily relate to
restaurant locations disposed of in the late 1970's, and the sublease rentals
cover substantially all of the Company's obligations under the primary leases.

Steak n Shake also has a complex of three buildings located in Bloomington,
Illinois, where it owns 38,900 square feet of warehouse space in two separate
buildings, one of which has cold storage facilities, and leases a 26,300 square
foot distribution center and division office facility. Steak n Shake also
leases division offices in Orlando, Florida, St. Louis, Missouri, Franklin,
Ohio, and Tallahasee, Florida and a division office and administrative facility
in Indianapolis, Indiana. At September 30, 1998, Steak n Shake owns one
restaurant location that has been leased to a third party. In addition, there
were five restaurants under construction and the Company owned two parcels of
land which are being held for future development.

CONSOLIDATED SPECIALTY RESTAURANTS, INC.

As of September 30, 1998, CSR operated eleven facilities in Illinois and
Indiana, of which eight are leased facilities and three are owned. The leases
for land and building are typically noncancelable agreements with initial terms
of 10 to 15 years and three five-year renewal terms. All of the leases except
two have percentage of sales rental clauses in addition to base rent
requirements. The leases require CSR to pay real estate taxes, insurance and
maintenance costs. These units have approximately 6,000 to 8,000 square feet
and seat 150 to 225 customers. In addition, CSR has lease obligations on two
former restaurants in Illinois and Indiana which have been, or will be,
subleased to third parties.

SNS INVESTMENT COMPANY, INC.

SNS Investment Company, Inc. ("SIC"), a wholly-owned subsidiary of the Company,
assists qualified franchisees with financing by purchasing or leasing land,
constructing the restaurant and then leasing or subleasing the land and
building to the franchisee. Where SIC leases the land and building as the
primary lessee, the leases typically have an initial term of 18 years and
renewal options aggregating 20 years or more and require SIC to pay real estate
taxes, insurance and maintenance costs. As of September 30, 1998, SIC had
seven land and building leases for properties located in Louisville and
Elizabethtown, Kentucky; Chattanooga, Tennessee; Clarksville, Indiana;
Columbia, Missouri and Little Rock, Arkansas upon which Steak n Shake
restaurants are being operated by franchisees pursuant to sublease agreements.
All lease and sublease agreements between SIC and its franchisees specifically
include triple net lease provisions whereby the franchisee is responsible for
all real estate taxes, insurance and maintenance costs. Subsequent to the end
of fiscal 1998, the Company purchased the franchised unit in Little Rock,
Arkansas and is now operating it.

12
<PAGE>

RESTAURANT LEASE EXPIRATIONS

Restaurant leases are scheduled to expire as follows, assuming the exercise of
all renewal options:

NUMBER OF LEASES EXPIRING
-------------------------
PERIOD SNS CSR SIC
------ --- --- ---
1999 - 2003 4 0 0
2004 - 2008 14 4 0
2009 - 2013 4 2 0
2014 - 2018 8 1 0
2019 - 2023 16 0 0
Beyond 99 1 7
--- - -
145 8 7
--- - -
--- - -

ITEM 3. LEGAL PROCEEDINGS

On May 31, 1995, Pepsi-Cola Company ("Pepsi") filed suit against Steak n Shake,
Inc. in the United States District Court for the Southern District of Indiana
alleging that Steak n Shake had breached a ten-year contract with Pepsi. Under
the contract in question, Steak n Shake agreed to serve certain Pepsi products
in return for cash payments aggregating in excess of $1,000,000, to be made by
Pepsi to Steak n Shake over the term of the contract, and the provision by
Pepsi of a joint marketing program. When Pepsi failed to provide the promised
marketing program, Steak n Shake terminated the contract for cause.

Pepsi claims that it was not legally required to provide the marketing program
in question, and it seeks damages in the amount of the profits it would have
made had the contract not been terminated. Pepsi originally estimated its
damages at approximately $2,800,000 but has since claimed that those damages
are increasing in relation to Steak n Shake's increased cola sales. Steak n
Shake denies it breached the contract, denies that Pepsi would have made any
profit on the contract had it been completed and intends to vigorously defend
this matter. Steak n Shake also has filed a counterclaim against Pepsi seeking
$360,000 in liquidated damages as a result of Pepsi's breach of the contract.

There are no other legal proceedings against the Company, which, if adversely
resolved, would have a material effect upon the Company.

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

No matters were submitted to a vote of shareholders during the fourth quarter
of the fiscal year covered by this Report.

13
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the names, ages, positions held with the Company
and its subsidiaries and the date on which service in such capacities began, of
the executive officers of the Company and its subsidiaries:

Name Age Position with Company Since
---- --- --------------------- -----
E.W. Kelley(1)(2) 81 Chairman -
Consolidated Products, Inc. 1984
Steak n Shake, Inc. 1984
Consolidated Specialty Restaurants, Inc. 1990
S. Sue Aramian(1)(3) 66 Vice Chairwoman -
Consolidated Products, Inc. 1990
Steak n Shake, Inc. 1990
Consolidated Specialty Restaurants, Inc. 1990
Secretary -
Consolidated Products, Inc. 1995
Steak n Shake, Inc. 1995
Consolidated Specialty Restaurants, Inc. 1995
Alan B. Gilman(1)(2) 68 President and Chief Executive Officer -
Consolidated Products, Inc. 1992
Steak n Shake, Inc. 1992
Vice Chairman -
Consolidated Specialty Restaurants, Inc. 1992
James W. Bear(3) 53 Senior Vice President, Administration and
Finance and Treasurer -
Consolidated Products, Inc. 1991
Steak n Shake, Inc. 1991
Consolidated Specialty Restaurants, Inc. 1993
Kevin F. Beauchamp 41 Vice President -
Consolidated Products, Inc. 1993
Vice President and Deputy National
General Manager -
Steak n Shake, Inc. 1997
B. Charlene Boog 66 Associate Vice President
Consolidated Products, Inc. 1997
Kevin E. Dooley 55 Vice President -
Steak n Shake, Inc. 1993
Consolidated Specialty Restaurants, Inc. 1993
Gregory G. Fehr 36 Vice President and Controller -
Consolidated Products, Inc. 1997
Steak n Shake, Inc. 1997
Consolidated Specialty Restaurants, Inc. 1997
Duane E. Geiger 36 Vice President and Assistant Treasurer -
Consolidated Products, Inc. 1995
Robert L. Grimm(3) 46 Vice President -
Consolidated Products, Inc. 1997

William H. Hart 49 Vice President -
Steak n Shake, Inc. 1991
Consolidated Specialty Restaurants, Inc. 1990
Mary H. Ham 50 Vice President, General Counsel and
Associate Secretary -
Consolidated Products, Inc. 1995
Steak n Shake, Inc. 1995
Consolidated Specialty Restaurants, Inc. 1995

14
<PAGE>

Gary T. Reinwald 50 Senior Vice President -
Consolidated Products, Inc. 1991
Senior Vice President and National
General Manager -
Steak n Shake, Inc. 1983
James E. Richmond 60 Vice President -
Consolidated Products, Inc. 1986
Steak n Shake, Inc. 1986
Consolidated Specialty Restaurants, Inc. 1996
Gary S. Walker 38 Senior Vice President -
Consolidated Products, Inc. 1998
Steak n Shake, Inc. 1998
Consolidated Specialty Restaurants, Inc. 1998
Victor F. Yeandel 42 Vice President -
Consolidated Products, Inc. 1995

(1) Member of the Board of Directors of the Company
(2) Member of the Executive Committee of the Company
(3) Member of the Personnel/Benefits Committee of the Company

Mr. Kelley has been a Director of the Company since 1981 and Chairman since
1984. From 1981 to 1984 he served as Vice Chairman and Chief Executive
Officer. He served as President and Chief Executive Officer from January 1,
1992 until July 13, 1992, and continued to serve as Chief Executive Officer
until October 1, 1992. Since 1974, he has been a Managing General Partner of
Kelley & Partners, Ltd., a Florida limited partnership which holds investments
in companies engaged in snack food distribution and restaurant operations, and
is a principal shareholder of the Company. Prior to 1981, Mr. Kelley was the
Chief Executive Officer of Fairmont Foods Company, a large consumer goods
company listed on the New York Stock Exchange.

Ms. Aramian has been Vice Chairwoman since 1990, a Director since 1981 and was
named Secretary in 1995. She served as Vice President from 1984 to 1990. Ms.
Aramian has been a Managing General Partner of Kelley & Partners, Ltd. since
1974.

Mr. Gilman was elected President and a Director on July 13, 1992 after serving
as a consultant to the Company on special projects since February 3, 1992 and
assumed the additional position of Chief Executive Officer effective October 1,
1992. From 1985 to 1992, Mr. Gilman was a private investor, and from 1980 to
1985, he served as President of Murjani International, Ltd., an international
marketing firm. From 1968 to 1980, Mr. Gilman served as a principal executive
of various divisions of Federated Department Stores, Inc., concluding as
Chairman and Chief Executive Officer of the Abraham & Straus Division in New
York.

Mr. Bear was elected Senior Vice President, Administration and Finance and
Treasurer in 1991. Prior thereto, he served as Vice President and Treasurer of
the Company from 1980 to 1991.

Mr. Beauchamp was appointed Vice President, Operations and Deputy National
General Manager of Steak n Shake, Inc. effective March 1, 1997. Mr. Beauchamp
joined the Company as Vice President and Controller in 1993. From 1990 to
1993, Mr. Beauchamp was Director of Accounting for a division of The Limited,
Inc.

Ms. Boog was elected Associate Vice President in 1997. Prior thereto, she
served as Assistant Vice President and Assistant Secretary from 1991 to 1997.

Mr. Dooley joined Steak n Shake and CSR as Vice President in 1993 and is
responsible for engineering and construction. Prior thereto and since 1991,
Mr. Dooley was a Director of Engineering with Wendys, Inc.

Mr. Fehr joined the Company as Vice President and Controller in April 1997.
From 1993 to 1997, Mr. Fehr served in various controllership functions for
Fruehauf Trailer Corporation, lastly as Vice President - Corporate Controller.

Mr. Geiger was appointed Vice President, Information Systems, Financial
Planning and Audit in 1995. From 1993 to 1995, Mr. Geiger served as Director
of Financial Planning and Audit and Assistant Treasurer for the

15
<PAGE>

Company. Prior to such time, Mr. Geiger served in various capacities at Ernst
& Young LLP, over a period of eight years, and ultimately served as a Manager.

Mr. Grimm joined the Company as Vice President - Human Resources in November
1997. For the previous twelve years, Mr. Grimm was an executive with May
Department Stores Company. Lastly, he served as Corporate Vice President,
Executive Development and Training.

Mr. Hart has been Vice President, Purchasing of Steak n Shake and CSR since
1991 and was Vice President of Operations of CSR from 1990 to 1991

Ms. Ham was appointed Vice President in December 1996, General Counsel in 1995
and Associate Secretary in 1994. From 1994 to 1995, Ms. Ham served as the
Company's Associate General Counsel for Real Estate and Franchising. From 1992
to 1994, Ms. Ham served as Associate City Attorney for the city of South Bend,
Indiana

Mr. Reinwald was appointed Senior Vice President, Operations and National
General Manager of Steak n Shake, Inc. in December 1996. Prior thereto, Mr.
Reinwald was Vice President, Operations and National General Manager of Steak n
Shake since 1983, and served in various capacities in the Company for 19 years
prior to that date.

Mr. Richmond joined the Company as Vice President in 1986 and is responsible
primarily for real estate.

Mr. Walker joined the Company as Senior Vice President in 1998 and is
responsible for franchising, purchasing and distribution and legal matters and
the general management of Consolidated Specialty Restaurants, Inc. From 1994
to 1998, Mr. Walker was Vice President of Marketing - Home Care Division for
DowBrands L.P. Prior thereto, Mr. Walker served in various brand management
positions with The Proctor & Gamble Company.

Mr. Yeandel joined the Company as Vice President in 1995. From 1992 to 1995,
Mr. Yeandel served as Vice President, Franchise Development for Long John
Silver's, Inc. Prior thereto and since 1987, Mr. Yeandel held various
marketing positions with Long John Silver's, Inc.

Officers are elected annually at the annual meeting of the Board of Directors.

16
<PAGE>

PART II.

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

MARKET PRICE RANGE/STOCK TRADING

The Common Stock of Consolidated Products, Inc. is traded on the New York Stock
Exchange (NYSE) under the symbol COP. Stock price quotations can be found in
major daily newspapers and in The Wall Street Journal. Consolidated Products,
Inc. moved from the Nasdaq National Market System to the New York Stock Exchange
on November 19, 1996. The high and low closing sales prices for the Company's
Common Stock, as reported on Nasdaq (prior to November 19, 1996) or the New York
Stock Exchange for each quarter of the Company's past two fiscal years, are
shown below:

<TABLE>
<CAPTION>
1998(1) 1997(1)(2)
------------------------------------------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 16 1/2(2) $ 15 1/16(2) $ 13 11/16 $ 11 5/16

Second Quarter $ 19 3/4 $ 15 3/4 $ 14 7/8 $ 12 1/8

Third Quarter $ 21 7/16 $ 18 9/16 $ 14 7/8 $ 11 3/8

Fourth Quarter $ 21 1/4 $ 15 1/2 $ 15 5/8 $ 13 3/8

</TABLE>

(1) THE SALES PRICES HAVE NOT BEEN ADJUSTED TO REFLECT THE FIVE FOR FOUR STOCK
SPLIT DECLARED IN DECEMBER 1998.

(2) THE SALES PRICES HAVE BEEN ADJUSTED TO REFLECT THE FIVE FOR FOUR STOCK
SPLIT DECLARED IN DECEMBER 1997.

Subsequent to the fiscal year end, a five for four stock split was declared on
December 1, 1998, distributable on December 28, 1998 to shareholders of record
on December 14, 1998. This information has not been restated to reflect this
stock split.

During fiscal 1998, the Company issued an aggregate of 23,794 shares of Common
Stock (not adjusted for the five for four stock split declared in December
1998) pursuant to the exercise of options under its Non-Employee Director Stock
Option Plans. The shares were issued in exchange for the payment of the option
price specified in the Plans, which in each case was the fair market value of
the Common Stock on the date of the grant of the options. The sale of these
shares was exempt from the registration requirements of the Securities Act of
1933, as amended, by reason of Section 4(2) thereof, as the offering was made
only to those persons serving on the Board of Directors of the Company who were
not employees of the Company.

17
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data for each of the Company's five most recent fiscal
years, set forth in the Company's 1998 Annual Report under "Selected Financial
and Operating Data," at page 12 (page 30 in Exhibit 13), are incorporated
herein by reference.

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

The portions of the Company's 1998 Annual Report, at pages 13-17, (pages 31-35
in Exhibit 13), constitute management's discussion and analysis of results of
operations and financial condition and are incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risk exposure with regard to financial instruments
is to changes in interest rates. Pursuant to the terms of the Senior Note
Agreement, the Company may from time to time issue notes in increments of at
least $5,000,000. The interest rate on the notes is based upon market rates at
the time of the borrowing. Once the interest rate is established at the time
of the initial borrowing, the interest rate remains fixed over the term of the
underlying note. The Revolving Credit Agreement bears interest at a rate based
upon LIBOR plus 75 basis points or the prime rate, at the election of the
Company. Historically, the Company has not used derivative financial
instruments to manage exposure to interest rate changes. At September 30,
1998, a hypothetical 100 basis point increase in short-term interest rates
would have an immaterial impact on the Company's earnings.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company and its subsidiaries,
listed in Item 14 (a) 1 and included in the Company's 1998 Annual Report at
pages 18-21 (Consolidated Statements of Earnings, Consolidated Statements of
Financial Position, Consolidated Statements of Cash Flows and Consolidated
Statements of Shareholders' Equity) and pages 22-28 (Notes to Consolidated
Financial Statements) (together, pages 36-46 in Exhibit 13), and the Report of
Independent Auditors set forth in the Company's 1998 Annual Report at page 29
(page 48 in Exhibit 13), are incorporated herein by reference.

Information on quarterly results of operations, set forth in the Company's 1998
Annual Report under "Quarterly Financial Data (Unaudited)," at page 28 (page 47
in Exhibit 13), is incorporated herein by reference.

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

Not applicable.

18
<PAGE>

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information included under the caption "Election of Directors" in the
Company's definitive Proxy Statement relating to its 1999 Annual Meeting of
Shareholders to be filed pursuant to Rule 14a-6(c) is incorporated herein by
reference. Information relating to the Company's executive officers is set
forth at pages 14-16 of this Form 10-K under "Executive Officers of the
Registrant."

ITEM 11. EXECUTIVE COMPENSATION

The information included under the captions "Compensation of Directors",
"Compensation of Executive Officers", "Summary Compensation Table", "Stock
Option Grants in Fiscal 1998", "Aggregated Stock Option Exercises in Fiscal
1998 and Fiscal Year End Option Values", "Long Term Incentive Plan - Awards in
Last Fiscal Year", "Report of the Executive Committee" and "Company
Performance" in the Company's definitive Proxy Statement relating to its 1999
Annual Meeting of Shareholders to be filed pursuant to Rule 14a-6(c) is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained under the caption "Ownership of Common Stock" in the
Company's definitive Proxy Statement relating to its 1999 Annual Meeting of
Shareholders to be filed pursuant to Rule 14a-6(c) is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained under the caption "Management Relationships and
Related Transactions" in the Company's definitive Proxy Statement relating to
its 1999 Annual Meeting of Shareholders to be filed pursuant to Rule 14a-6(c)
is incorporated herein by reference.

19
<PAGE>

PART IV.

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

(a) DOCUMENTS FILED AS A PART OF THIS REPORT:

1. FINANCIAL STATEMENTS. The following table sets forth the financial
statements filed as a part of this report:

Consolidated Statements of Financial Position at September 30, 1998
and September 24, 1997

For the years ended September 30, 1998, September 24, 1997 and
September 25, 1996:
- Consolidated Statements of Earnings
- Consolidated Statements of Cash Flows
- Consolidated Statements of Shareholders' Equity

Notes to Consolidated Financial Statements

Report of Independent Auditors

2. FINANCIAL STATEMENT SCHEDULES.

All schedules for the years ended September 30, 1998, September 24,
1997 and September 25, 1996 have been omitted for the reason that they
are not required or are not applicable, or the required information is
set forth in the financial statements or notes thereto.

3. EXHIBITS. The following exhibits are filed as a part of this Annual
Report on Form 10-K.

(2) No exhibit.

(3) 3.01 Articles of Incorporation of Consolidated Products, Inc.
(formerly Steak n Shake, Inc.), as amended through November 1,
1981. (Incorporated by reference to the Exhibits to
Registration Statement No. 2-75094).

3.02 Attachment to Joint Agreement of Merger dated October 31,
1983, between Franklin Corporation and Steak n Shake, Inc.
(Incorporated by reference to the Exhibits to the Registrant's
Form 10-K Annual Report for the year ended September 28,
1983).

3.03 Bylaws of Consolidated Products, Inc. (formerly Steak n Shake,
Inc.) in effect at December 26, 1990. (Incorporated by
reference to the Exhibits to Registration Statement on
Form S-2 filed with the Commission on August 6, 1992, file
no. 33-50568).

3.04 Articles of Amendment to Articles of Incorporation of Steak n
Shake, Inc. dated May 15, 1984. (Incorporated by reference to
the Exhibits to the Registrant's Form 10-K Annual Report for
the year ended September 26, 1984).

3.05 Articles of Amendment to the Articles of Incorporation of
Consolidated Products, Inc. dated May 8, 1998. (Incorporated
by reference to the Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 8,
1998.)

20
<PAGE>

(4) 4.01 Specimen certificate representing Common Stock of Consolidated
Products, Inc. (formerly Steak n Shake, Inc.). (Incorporated
by reference to the Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 9,
1997).

4.02 Amended and Restated Credit Agreement by and Between
Consolidated Products, Inc. and Bank One, Indianapolis, N.A.
dated December 30, 1994 (amending that earlier credit
agreement between parties dated as of March 10, 1994 and
effective as of February 23, 1994, relating to a $5,000,000
revolving line of credit which was not filed pursuant to Rule
601 of the Securities and Exchange Commission), relating to a
$30,000,000 revolving line of credit. (Incorporated by
reference to the Exhibits to the Registrant's Report on Form
10-Q for the fiscal quarter ended December 21, 1994).

4.03 Note Purchase Agreement by and Between Consolidated Products,
Inc. and The Prudential Insurance Company of America dated as
of September 27 1995 related to $39,250,000 senior note
agreement and private shelf facility. (Incorporated by
reference to the Exhibits to the Registrant's Report on Form
8-K dated September 26, 1995).

4.04 First Amendment to Amended and Restated Credit Agreement by
and between Consolidated Products, Inc. and Bank One,
Indianapolis, N.A. dated September 26, 1995. (Incorporated by
reference to the Exhibits to the Registrant's Report on Form
8-K dated September 26 1995).

4.05 Second Amendment to Amended and Restated Credit Agreement by
and between Consolidated Products, Inc. and Bank One,
Indianapolis N.A. effective January 31, 1997. (Incorporated
by reference to the Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended April 9,
1997).

4.06 Amendment No. 1 to Note Purchase and Private Shelf Agreement
by and between Consolidated Products, Inc. and The Prudential
Insurance Company of America dated as of April 28, 1997
related to senior note and private shelf facility.
(Incorporated by reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
April 9, 1997).

4.07 Third Amendment to Amended and Restated Credit Agreement by
and between Consolidated Products, Inc. and Bank One,
Indianapolis N.A. effective September 18, 1997. (Incorporated
by reference to the Exhibits to the Registrant's Annual Report
on Form 10-K for the fiscal year ended September 24, 1997.)

4.08 Fourth Amendment to Amended and Restated Credit Agreement by
and between Consolidated Products, Inc. and Bank One,
Indianapolis, N.A. dated February 9, 1998. (Incorporated by
reference to the Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended April 8, 1998.)

(9) No exhibit.

21
<PAGE>

(10) 10.01 Consolidated Products, Inc. Executive Incentive Bonus Plan.
(Incorporated by reference to the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 1992).

10.02 Steak n Shake, Inc. Executive Incentive Bonus Plan.
(Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 1,
1992).

10.03 Consultant Agreement by and between James Williamson, Jr. and
the Registrant dated November 20, 1990. (Incorporated by
reference to the Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter July 1, 1992).

10.04 Memorandum agreement between Neal Gilliatt and the Registrant
dated July 30, 1991. (Incorporated by reference to the
Exhibits to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 1, 1992).

10.05 Area Development Agreement by and between Steak n Shake, Inc.
and Consolidated Restaurants Southeast, Inc. (currently Kelley
Restaurants, Inc.) dated June 12, 1991 for Charlotte, North
Carolina area. (Incorporated by reference to the Exhibits to
the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 1, 1992).

10.06 Area Development Agreement by and between Steak n Shake, Inc.
and Consolidated Restaurants Southeast, Inc. (currently Kelley
Restaurants, Inc.) dated June 12, 1991 for Atlanta, Georgia
area. (Incorporated by reference to the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 1, 1992).

10.07 Letter from the Registrant to Alan B. Gilman dated June 27,
1992. (Incorporated by reference to the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 1, 1992).

10.08 Consolidated Products, Inc. 1992 Employee Stock Purchase Plan.
(Incorporated by reference in to the Appendix to the
Registrant's definitive Proxy Statement dated January 13, 1993
related to its 1993 Annual Meeting of Shareholders).

10.09 Consolidated Products, Inc. 1992 Employee Stock Option Plan.
(Incorporated by reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 12, 1993 related to
its 1993 Annual Meeting of Shareholders).

10.10 Consolidated Products, Inc. 1994 Capital Appreciation Plan.
(Incorporated by reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 13, 1994 related to
the 1994 Annual Meeting of Shareholders).

10.11 Consolidated Products, Inc. 1994 Nonemployee Director Stock
Option Plan. (Incorporated by reference in to the Appendix to
the Registrant's definitive Proxy Statement dated January 13,
1994 related to its 1994 Annual Meeting of Shareholders).

22
<PAGE>

10.12 Consolidated Products, Inc. 1995 Employee Stock Option Plan.
(Incorporated by reference to the Appendix to the Registrant's
definitive Proxy Statement dated January 12, 1995 related to
the 1995 Annual Meeting of Shareholders).

10.13 Consolidated Products, Inc. 1995 Nonemployee Director Stock
Option Plan. (Incorporated by reference to the Appendix to the
Registrant's definitive Proxy Statement dated January 12, 1995
related to the 1995 Annual Meeting of Shareholders).

10.14 Consolidated Products, Inc. 1996 Nonemployee Director Stock
Option Plan. (Incorporated by reference to the Appendix to
the Registrant's definitive Proxy Statement dated January 15,
1996 related to the 1996 Annual Meeting of Shareholders).

10.15 Consolidated Products, Inc. 1997 Employee Stock Option Plan.
(Incorporated by reference to the Appendix to the Registrant's
definitive Proxy Statement dated December 24, 1996 related to
the 1997 Annual Meeting of Shareholders).

10.16 Consolidated Products, Inc. 1997 Capital Appreciation Plan.
(Incorporated by reference to the Appendix to the Registrant's
definitive Proxy Statement dated December 24, 1996 related to
the 1997 Annual Meeting of Shareholders).

10.17 Amendment to Consolidated Products, Inc. 1992 Employee Stock
Purchase Plan. (Incorporated by reference to the Appendix to
the Registrant's definitive Proxy Statement dated December 24,
1996 related to the 1997 Annual Meeting of Shareholders).

10.18 Consolidated Products, Inc. 1997 Nonemployee Director Stock
Option Plan. (Incorporated by reference to the Appendix to
the Registrant's definitive Proxy Statement dated December 24,
1996 related to the 1997 Annual Meeting of Shareholders).

10.19 Amendment to Consolidated Products, Inc. 1992 Employee Stock
Purchase Plan. (Incorporated by reference to the Appendix to
the Registrant's definitive Proxy Statement dated December 22,
1997 related to the 1998 Annual Meeting of Shareholders).

10.20 Consolidated Products, Inc. 1998 Nonemployee Director Stock
Option Plan. (Incorporated by reference to the Appendix to
the Registrant's definitive Proxy Statement dated December 22,
1997 related to the 1998 Annual Meeting of Shareholders).

(11) No exhibit.

(12) No exhibit.

(13) Annual Report to Shareholders for the Year Ended September 30,
1998 (portions incorporated by reference into this Form 10-K.)

(16) No exhibit.

(18) No exhibit.

23
<PAGE>

(19) No exhibit.

(21) 21.01 Subsidiaries of the Registrant.

(22) No exhibit.

(23) 23.01 Consent of Ernst & Young LLP.

(24) No exhibit.

(27) 27.01 Financial Data Schedule.

(99) No exhibit.

(b) REPORTS ON FORM 8-K:

No reports on Form 8-K were filed during the last quarter of the period
covered by this report.

24
<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, on December 18, 1998.

CONSOLIDATED PRODUCTS, INC.

By: /s/ James W. Bear
---------------------------
James W. Bear
Senior Vice President and Treasurer

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 indicated, on December 18, 1998.

/s/ E. W. Kelley Director
- -------------------------
E. W. Kelley

/s/ S. Sue Aramian Director
- -------------------------
S. Sue Aramian

/s/ Alan B. Gilman President, Chief Executive Officer and Director
- ------------------------- (Principal Executive Officer)
Alan B. Gilman

/s/ James W. Bear Senior Vice President and Treasurer
- ------------------------- (Principal Financial Officer)
James W. Bear

/s/ Gregory G. Fehr Vice President and Controller
- ------------------------- (Principal Accounting Officer)
Gregory G. Fehr

/s/ Alva T. Bonda Director
- -------------------------
Alva T. Bonda

/s/ Neal Gilliatt Director
- -------------------------
Neal Gilliatt

/s/ Charles E. Lanham Director
- -------------------------
Charles E. Lanham

/s/ J. Fred Risk Director
- -------------------------
J. Fred Risk

/s/ Dr. John W. Ryan Director
- -------------------------
Dr. John W. Ryan

/s/ James Williamson, Jr. Director
- -------------------------
James Williamson, Jr.

25
<PAGE>

CONSOLIDATED PRODUCTS INC. AND SUBIDIARIES

Index to Exhibits

NUMBER DESCRIPTION
------ -----------
(2) No Exhibit.

26
<PAGE>

(9) No exhibit.

10.02 Steak n Shake, Inc. Executive Incentive Bonus Plan.
(Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 1,
1992).

27
<PAGE>

28
<PAGE>

(11) No exhibit.

(12) No exhibit.

(13) Annual Report to Shareholders for the Year Ended September 30,
1998 (portions incorporated by reference into this Form 10-K.)

(16) No exhibit.

(18) No exhibit.

(19) No exhibit.

(21) 21.01 Subsidiaries of the Registrant.

(22) No exhibit.

(23) 23.01 Consent of Ernst & Young LLP.

(24) No exhibit.

(27) 27.01 Financial Data Schedule.

(99) No exhibit.

<PAGE>

EXHIBIT 13 - ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED SEPTEMBER 30, 1998
SELECTED FINANCIAL AND OPERATING DATA
Consolidated Products, Inc.
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
(53 weeks)
<S> <C> <C> <C> <C> <C>
Systemwide Sales:
Company $306,943 $262,669 $224,147 $186,740 $158,637
Franchise 79,960 72,642 62,600 39,521 27,139
------------------------------------------------------------
$386,903 $335,311 $286,747 $226,261 $185,776
------------------------------------------------------------
Statement of Earnings Data:
Revenues $312,552 $268,184 $229,421 $190,133 $161,173
Net earnings $ 19,703 $ 16,149 $ 13,009 $ 10,026 $ 7,174

Per Share Data:(1)(2)
Basic $ .75 $ .66 $ .55(3) $ .52(3) $ .49
Diluted $ .74 $ .65 $ .54 $ .44 $ .34

Diluted Weighted Average
Shares and Equivalents (in thousands):(1)(2) 26,571 24,852 24,250 23,816 23,439

Statement of Financial Position Data:
Total assets $190,181 $168,294 $131,416 $ 99,834 $ 80,328
Long-term debt:
Obligations under capital leases $ 4,000 $ 5,376 $ 6,957 $ 8,263 $ 9,886
Revolving line of credit -- -- $ 4,000 -- --
Senior note $ 27,216 $ 29,261 $ 25,000 $ 20,000 $ 14,250
Subordinated convertible debentures -- -- -- -- $ 11,988
Shareholders' equity $115,350 $ 92,950 $ 57,829 $ 42,615 $ 19,715

Number of Restaurants:
Steak n Shake:
Company-operated 233 194 161 137 118
Franchised 51 55 47 34 23
------------------------------------------------------------
284 249 208 171 141
Specialty Restaurants 11 11 11 10 11
------------------------------------------------------------
295 260 219 181 152
------------------------------------------------------------
Number of Employees 14,000 12,000 10,500 9,543 7,712

Number of Shareholders 7,922 6,292 4,655 3,882 2,262

</TABLE>

(1) ALL FINANCIAL DATA REGARDING WEIGHTED AVERAGE SHARES AND EQUIVALENTS AND PER
SHARE AMOUNTS HAVE BEEN RESTATED TO CONFORM TO THE REQUIREMENTS OF STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128 "EARNINGS PER SHARE."

(2) ALL FINANCIAL DATA REGARDING WEIGHTED AVERAGE SHARES AND EQUIVALENTS AND PER
SHARE AMOUNTS HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT THE FIVE FOR FOUR
STOCK SPLIT DECLARED IN DECEMBER 1998.

(3) THE PERCENT INCREASE IN BASIC EARNINGS PER SHARE WAS LESS THAN THE INCREASE
IN DILUTED EARNINGS PER SHARE DUE TO AN INCREASE HE NUMBER OF SHARES OUTSTANDING
ARISING FROM THE CONVERSION OF THE COMPANY'S 10% SUBORDINATED CONVERTIBLE
DEBENTURES INTO THE COMPANY'S COMMON STOCK EFFECTIVE APRIL 3, 1995.

30
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 30, 1998, SEPTEMBER 24, 1997 AND SEPTEMBER 25, 1996)

In the following discussion, the term "same store sales" refers to the sales
of only those units open for at least six months prior to the beginning of the
periods being compared and which remained open through the end of the fiscal
period.

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship to total revenues,
unless otherwise indicated, of items included in the Company's consolidated
statements of earnings for the periods indicated:

<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------
(53 weeks)
<S> <C> <C> <C>
Revenues
Net sales 98.2% 97.9% 97.7%
Franchise fees 1.1 1.2 1.2
Other, net .7 .9 1.1
--------------------------------
100.0 100.0 100.0
--------------------------------
Costs and Expenses
Cost of sales 25.5(1) 26.4(1) 26.7(1)
Restaurant operating costs 46.3(1) 44.9(1) 45.1(1)
General and administrative 7.6 7.9 7.9
Depreciation and amortization 4.0 4.0 3.7
Rent 3.2 3.1 3.2
Marketing 3.1 3.0 3.2
Amortization of pre-opening costs 1.0 1.3 1.4
Interest .8 1.3 1.4
--------------------------------
90.1 90.5 90.9
--------------------------------
Earnings Before Income Taxes 9.9 9.5 9.1

Income Taxes 3.6 3.5 3.4
--------------------------------
Net Earnings 6.3% 6.0% 5.7%
--------------------------------
</TABLE>

- ----------------
(1) Cost of sales and restaurant operating costs are expressed as a percentage
of net sales.

31
<PAGE>

COMPARISON OF YEAR ENDED SEPTEMBER 30, 1998 (53 WEEKS) TO YEAR ENDED
SEPTEMBER 24, 1997

REVENUES

Net sales increased $44,274,000 to $306,943,000, or 16.9%, due to an
increase in Steak n Shake net sales. The $44,461,000 increase, or 18.1%, in net
sales of Steak n Shake was due to the opening of new units (non-same stores)
and a .3% increase in same store sales, in addition to an extra week of sales
in 1998. The number of Company-operated Steak n Shake restaurants increased 20%
to 233 at September 30, 1998 as compared to 194 at September 24, 1997. The
increase in same store sales was attributable to a 2.5% increase in check
average partially offset by a 2.2% decrease in customer counts. Steak n Shake
initiated price increases of approximately 1.0% in March 1997, October 1997 and
March 1998. Steak n Shake same store sales improved each quarter during fiscal
1998 with the fourth quarter same store sales being up 2.7%. After excluding
units in close proximity (generally three miles) to the new units opened, Steak
n Shake same store sales increased 1.9% for fiscal 1998.

Franchise fees increased $196,000 to $3,355,000 as a result of higher
franchised unit sales volumes partially offset by a decrease in initial and
renewal franchise fees. Six franchised units opened in fiscal 1998 compared to
eight franchised units in fiscal 1997 and two franchised units were closed
during fiscal 1998. On December 22, 1997, the Company completed the purchase of
eight franchised Steak n Shake restaurants in southern Georgia and northwest
Florida.

COSTS AND EXPENSES

Cost of sales increased $8,953,000, or 12.9%, as a result of sales
increases. As a percentage of net sales, cost of sales decreased to 25.5% from
26.4%, primarily as a result of the higher level of Company-operated restaurant
sales in relation to product sales to franchisees and menu price increases.

Restaurant operating costs increased $24,168,000, or 20.5%, due to
increased labor costs and other operating costs resulting primarily from the
higher sales volume. Restaurant operating costs, as a percentage of sales,
increased to 46.3% from 44.9%. The higher labor costs were the result of an
increase in the average hourly employee rate, due in part to increases in
minimum wage on September 1, 1997, increases in management labor and higher
costs associated with recruiting and training unit level restaurant management
arising from new restaurant development and management turnover. The higher
other operating costs were the result of an increase in repair and maintenance,
utility and supply costs.

General and administrative expenses increased $2,364,000, or 11.1%. The
increase in expenses was primarily attributable to personnel related costs,
which included costs related to additional staffing in connection with the
development of new restaurants. As a percentage of revenues, general and
administrative expenses decreased to 7.6% from 7.9%.

The $1,857,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1997.

Rent expense increased $1,552,000, or 18.4%, as a result of an increased
use of sale/leaseback financing involving 37 properties since the beginning of
fiscal 1997 and a net increase in the number of other leased properties,
including eight franchised Steak n Shake units purchased in fiscal 1998.

Marketing expense increased $1,478,000, or 18.2%. As a percentage of
revenues, marketing expense increased slightly to 3.1% from 3.0%.

The $245,000 decrease in the amortization of pre-opening costs was
attributable to the timing of the number of new Company-operated units opened
in fiscal 1998 as compared to fiscal 1997.

Interest expense decreased $1,113,000 as a result of decreased borrowings
during fiscal 1998 under the Company's revolving line of credit facility as a
result of the paydown of this credit facility with the proceeds of an equity
offering in the fourth quarter of fiscal 1997 and the increased use of
sale/leaseback financing.

INCOME TAXES

The Company's effective income tax rate decreased to 36.3% from 36.9%
principally as a result of lower state income taxes and higher federal tax
credits. A valuation allowance against gross deferred tax assets has not been
provided based upon the expectation of future taxable income.

NET EARNINGS

Net earnings increased $3,554,000, or 22.0%, primarily as a result of the
increase in Steak n Shake's operating earnings and lower interest expense and
income taxes. Diluted earnings per share increased from $.65 to $.74.

32
<PAGE>

COMPARISON OF YEAR ENDED SEPTEMBER 24, 1997 TO YEAR ENDED SEPTEMBER 25, 1996

REVENUES

Net sales increased $38,522,000 to $262,669,000, or 17.2%, due primarily to
an increase in Steak n Shake net sales of $39,390,000. The 19.1% increase in
net sales of Steak n Shake was due to the opening of new units (non-same
stores), partially offset by a 1.0% decrease in same store sales and the
closure of three low-volume restaurants. The number of Company-operated Steak n
Shake restaurants increased 20% to 194 at September 24, 1997 as compared to 161
at September 25, 1996. The decrease in same store sales was attributable to a
decrease of 2.5% in customer counts partially offset by a 1.5% increase in
check average. Steak n Shake initiated price increases of 1.4%, 1.3% and 1.0%
in January 1996, October 1996, and March 1997, respectively. After excluding
units in close proximity (generally three miles) to the new units opened during
the periods, Steak n Shake same store sales increased 1.9%.

Franchise fees increased $371,000 to $3,159,000, as a result of an increase
in franchise royalties of $444,000 due to the opening of 21 Steak n Shake
franchised restaurants since the beginning of fiscal 1996 partially offset by a
decrease in initial and renewal franchise fees of $73,000. Eight franchised
units opened in fiscal 1997 compared to thirteen franchised units in fiscal
1996.

Other revenues decreased $130,000 to $2,357,000 due to lease buyout costs
of approximately $487,000 during fiscal 1997 associated with the disposition of
two leased properties, partially offset by losses of approximately $290,000 on
the disposal of property during fiscal 1996, and an increase in the number of
properties leased to franchisees by the Company's franchise financing
subsidiary.

COSTS AND EXPENSES

Cost of sales increased $9,476,000, or 15.9%, as a result of sales
increases. As a percentage of net sales, cost of sales decreased to 26.4% from
26.7%, primarily as a result of the higher mix of Company-operated restaurant
sales as compared to product sales to franchisees, menu price increases and
tight management controls over food cost partially offset by inflationary
pressure on food costs, in particular, beef costs.

Restaurant operating costs increased $16,805,000, or 16.6% due to higher
sales volume and the effect of the minimum wage increases partially offset by a
decrease in fringe benefit costs. Restaurant operating costs, as a percentage
of sales, decreased to 44.9% from 45.1%.

General and administrative expenses increased $3,103,000, or 17.1%. As a
percentage of revenues, general and administrative expenses remained constant
at 7.9%. The increase in expenses was primarily attributable to personnel
related costs, which included costs related to (1) recruiting and training of
restaurant management arising from management turnover and the development of
new restaurants and (2) additional operating management due to the increased
number of restaurants.

The $2,065,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1996.

Rent expense increased $1,108,000, or 15.1%, as a result of sale and
leaseback transactions since the beginning of fiscal 1996 involving 16
properties and a net increase in the number of other leased properties.

Marketing expense increased $897,000. As a percentage of revenues,
marketing expense decreased to 3.0% from 3.2% primarily as a result of the
Company's market intensification strategy.

The $260,000 increase in the amortization of pre-opening costs was
attributable to the increase in the number of new Company-operated restaurants
opened.

Interest expense increased $410,000 as a result of an increase in the
average net borrowings during fiscal 1997 under the Company's revolving line of
credit facility and senior note agreement to fund the Company's expansion plan
offset by lower average costs of borrowing and the reduction in capital lease
obligations.

INCOME TAXES

The Company's effective income tax rate decreased to 36.9% from 37.8%
principally as a result of lower state income taxes. A valuation allowance
against gross deferred tax assets has not been provided based upon the
expectation of future taxable income.

NET EARNINGS

Net earnings increased $3,140,000, or 24.1%, primarily as a result of the
increase in Steak n Shake's operating earnings. Diluted earnings per share
increased from $.54 to $.65.

33
<PAGE>

EFFECTS OF GOVERNMENTAL REGULATIONS AND INFLATION

Since most of the Company's employees are paid hourly rates related to
federal and state minimum wage laws, increases in the legal minimum wage
directly increase the Company's operating costs. Inflation in food, labor and
other operating costs directly affects the Company's operations.

YEAR 2000

The Company has established a Company-wide program to prepare its
information technology and non-information technology systems for Year 2000,
including modification of the Company's computer systems and applications where
necessary. The Company is utilizing both internal and external resources to
identify, modify and test the systems for Year 2000 compliance. The Company
currently anticipates that business-critical information technology systems
will be replaced by new systems or reprogrammed and tested by mid 1999. Formal
communications are being made with all significant suppliers and service
providers to determine the extent to which the Company is vulnerable to those
third parties' failure to remedy the Year 2000 problem. Unless public suppliers
of water, electricity and natural gas are disrupted for a substantial period of
time (in which the Company's business may be materially adversely affected),
the Company currently believes that its operations will not be significantly
disrupted even if third parties with whom the Company has relationships are not
Year 2000 compliant. Information will also be provided to franchisees regarding
the potential risks associated with the Year 2000 problem.

The Company currently believes that, with the purchase of new software and
modifications to existing software, any internal Year 2000 compliance issues
will be remedied in a timely manner and will not pose significant operational
problems for the Company's computer systems as so modified and converted.
Further, the Company believes that the costs solely related to addressing Year
2000 compliance issues will not have a material effect on the Company's
earnings or financial condition. However, uncertainty exists concerning the
potential costs and effects associated with any Year 2000 compliance. The
Company intends to continue to make efforts to ensure that third parties with
whom it has relationships are Year 2000 compliant, as well as, develop
contingency plans, including alternative suppliers or service providers. Any
Year 2000 compliance problem of either the Company or its suppliers (to the
extent alternative suppliers are not available on a timely basis) could
possibly result in disruptions and unexpected business problems and could have
a material adverse effect on earnings or financial condition.

LIQUIDITY AND CAPITAL RESOURCES

Thirty-three Company-operated Steak n Shake restaurants and six franchised
Steak n Shake restaurants were opened during the fiscal year. For fiscal 1998,
capital expenditures totaled $51,430,000 as compared to $52,229,000 and
$46,184,000 during fiscal 1997 and 1996, respectively. In addition, the Company
completed the purchase of eight franchised Steak n Shake restaurants in
southern Georgia and northwest Florida during fiscal 1998. Two Company-operated
Steak n Shake restaurants were closed during fiscal 1998 upon expiration of the
leases and two franchised Steak n Shake locations were also closed.

The Company's growth program for fiscal 1999 through 2003 calls for a
controlled growth program adding 290 Company-operated Steak n Shake units. This
growth rate will result in over 500 Company-operated Steak n Shake restaurants
in the year 2003. With the inclusion of Steak n Shake franchise units planned
growth over the next five years, the number of Steak n Shake restaurants in
operation would exceed 600 in year 2003. The average cost of a new
Company-operated Steak n Shake restaurant, including land, site improvements,
building and equipment for fiscal 1998 was $1,430,000. The Company intends to
fund capital expenditures and meet working capital needs using existing
resources and anticipated cash flows from operations, together with additional
capital generated by sale and leaseback transactions involving newly acquired
properties and bank borrowings.

Cash provided by operations in fiscal 1998 totaled $36,654,000 while cash
generated by sale and leaseback transactions and other disposals of property
totaled $31,906,000. Cash provided by operations in fiscal 1997 and 1996
totaled $30,196,000 and $28,829,000, respectively. Cash generated by sale and
leaseback transactions and other disposals in fiscal 1997 and 1996 totaled
$11,534,000 and $6,585,000, respectively. The increased proceeds from
sale/leasebacks and other property disposals reflects the Company's increased
use of sale/leaseback financing during fiscal 1998. At September 30, 1998 the
Company had additional sale/leaseback properties under contract which, when
closed, will generate $7,025,000 in proceeds. Cash used in investing activities
during fiscal 1998 also included the investment of excess cash in
income-producing investments with maturities up to 180 days to be utilized to
fund the growth program.

34
<PAGE>

Net cash used in financing activities during fiscal 1998 totaled
$1,172,000. There were no borrowings under the Company's $30,000,000 Revolving
Credit Agreement at September 30, 1998 and September 24, 1997. During fiscal
1998, the Company borrowed $5,000,000 under its $50,000,000 ten-year Senior
Note Agreement and Private Shelf Facility, the proceeds of which were utilized
to refinance a like amount under the prior senior note agreement. Net cash
generated by financing activities totaled $12,536,000 during fiscal 1997
including the net proceeds of the sale of 1,000,000 shares of Common Stock of
approximately $16,616,000. The proceeds were used to repay all outstanding
borrowings under the Revolving Credit Agreement. Net cash generated by
financing activities totaled $10,050,000 during fiscal 1996 including
borrowings under the Senior Note Agreement. The proceeds of the borrowings were
used, together with cash provided for operations, to fund the Company's growth
program.

As of September 30, 1998, the Company had utilized $30,000,000 under its
Senior Note Agreement. Borrowings under this facility bear interest at an
average fixed rate of 7.4%. Consequently, the Company has borrowings of
$20,000,000 available under the Senior Note Agreement over the period ending
April 28, 2000, at interest rates based upon market rates at the time of
borrowing. As of September 30, 1998 the Company had outstanding $28,522,000
under the Senior Note Agreement. The Company's Revolving Credit Agreement bears
interest based on LIBOR plus 75 basis points, or the prime rate, at the
election of the Company. During the second quarter of 1998, the Company amended
the Revolving Credit Agreement to extend the maturity date to December 1999.
The Company expects to be able to secure a new revolving credit facility upon
expiration of the current agreement. The Company's debt agreements contain
restrictions, which among other things require the Company to maintain certain
financial ratios.

35
<PAGE>

FINANCIAL STATEMENTS AND SCHEDULES

CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
Consolidated Products, Inc.
(Years ended September 30, 1998, September 24, 1997 and September 25, 1996)

<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------
(53 weeks)
<S> <C> <C> <C>
Revenues:
Net sales $306,942,834 $262,668,556 $224,146,778
Franchise fees 3,355,073 3,158,634 2,787,235
Other, net 2,254,485 2,357,216 2,486,911
----------------------------------------------
312,552,392 268,184,406 229,420,924
----------------------------------------------
Costs and Expenses:
Cost of sales 78,194,622 69,241,320 59,765,505
Restaurant operating costs 141,997,185 117,828,980 101,024,216
General and administrative 23,615,535 21,251,502 18,148,635
Depreciation and amortization 12,547,067 10,690,410 8,624,951
Rent 9,982,146 8,430,115 7,322,405
Marketing 9,612,099 8,134,422 7,237,551
Amortization of pre-opening costs 3,230,818 3,475,728 3,215,716
Interest 2,445,221 3,558,098 3,147,818
----------------------------------------------
281,624,693 242,610,575 208,486,797
----------------------------------------------
Earnings Before Income Taxes 30,927,699 25,573,831 20,934,127

Income Taxes 11,225,000 9,425,000 7,925,000
----------------------------------------------
Net Earnings $ 19,702,699 $ 16,148,831 $ 13,009,127
----------------------------------------------
Net Earnings Per Common and Common
Equivalent Share:

Basic $ .75 $ .66 $ .55

Diluted $ .74 $ .65 $ .54

Weighted Average Shares and Equivalents:

Basic 26,100,398 24,424,936 23,728,630

Diluted 26,570,857 24,851,650 24,250,460

</TABLE>

SEE ACCOMPANYING NOTES.

36
<PAGE>

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
- --------------------------------------------------------------------------------
Consolidated Products, Inc.
(September 30, 1998 and September 24, 1997)

<TABLE>
<CAPTION>
1998 1997
-----------------------------
<S> <C> <C>
Assets:
Current Assets
Cash, including cash equivalents of $12,235,000 in 1998
and $2,300,000 in 1997 $ 13,655,043 $ 2,668,232
Short term investments 4,971,169 --
Receivables 10,766,170 4,906,798
Inventories 4,438,425 4,592,570
Deferred income taxes 1,135,000 1,971,000
Other current assets 5,406,682 5,853,527
-----------------------------
Total current assets 40,372,489 19,992,127
-----------------------------
Property and Equipment
Land 38,621,688 41,085,184
Buildings 36,001,904 38,814,164
Leasehold improvements 43,275,522 44,153,973
Equipment 80,670,817 66,313,931
Construction in progress 12,356,650 9,998,783
-----------------------------
210,926,581 200,366,035
Less accumulated depreciation and amortization (64,588,300) (56,497,813)
-----------------------------
Net property and equipment 146,338,281 143,868,222
-----------------------------
Net Leased Property 2,968,044 3,918,301
Other Assets 502,066 515,760
-----------------------------
$190,180,880 $168,294,410
-----------------------------
Liabilities and Shareholders' Equity:
Current Liabilities
Accounts payable $ 15,093,193 $ 14,253,267
Accrued expenses 22,055,329 22,167,077
Current portion of senior note 1,305,794 738,889
Current portion of obligations under capital leases 1,309,345 1,380,249
-----------------------------
Total current liabilities 39,763,661 38,539,482
-----------------------------
Deferred Taxes and Credits 3,851,091 2,167,917
Obligations Under Capital Leases 3,999,948 5,375,754
Senior Note 27,216,429 29,261,111

Shareholders' Equity
Common stock -- $.50 stated value, 50,000,000 shares
authorized -- shares issued: 26,491,497 in 1998;
20,867,475 in 1997 13,245,749 10,433,738
Additional paid-in capital 92,350,819 91,143,921
Retained earning (deficit) 14,284,714 (5,396,965)
Less: Unamortized value of restricted shares (2,272,340) (1,839,982)
Treasury stock -- at cost: 163,048 shares in 1998;
114,574 shares in 1997 (2,259,191) (1,390,566)
-----------------------------
Total shareholders' equity 115,349,751 92,950,146
-----------------------------
$190,180,880 $168,294,410
-----------------------------
</TABLE>

SEE ACCOMPANYING NOTES.

37
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 30, 1998, SEPTEMBER 24, 1997 AND SEPTEMBER 25, 1996)

<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------
(53 weeks)
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 19,702,699 $ 16,148,831 $ 13,009,127
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 12,547,067 10,690,410 8,624,951
Amortization of pre-opening costs 3,230,818 3,475,728 3,215,716
Provision for deferred income taxes 1,516,000 157,000 382,000
Changes in receivables and inventories 553,634 (1,256,278) (1,544,703)
Changes in other assets (1,880,154) (3,770,218) (3,037,937)
Changes in income taxes payable (121,733) 1,056,150 1,443,779
Changes in accounts payable and accrued expenses 1,295,113 3,657,280 6,502,973
(Gain) loss on disposal of property (189,846) 37,484 232,740
----------------------------------------------
Net cash provided by operating activities 36,653,598 30,196,387 28,828,646
----------------------------------------------
Investing Activities:
Additions of property and equipment (51,429,949) (52,228,883) (46,183,970)
Purchase of short term investments (4,971,169) -- --
Net proceeds from sale/leasebacks and other disposals 31,906,246 11,534,362 6,585,448
----------------------------------------------
Net cash used in investing activities (24,494,872) (40,694,521) (39,598,522)
----------------------------------------------
Financing Activities:
Proceeds from long-term debt 5,000,000 5,000,000 10,000,000
Net proceeds from (repayments of) revolving line of credit -- (4,000,000) 4,000,000
Proceeds from equipment and property leases 709,959 672,205 750,089
Principal payments on debt and capital lease obligations (7,486,655) (5,945,151) (5,106,924)
Lease payments on subleased properties (680,944) (741,103) (735,480)
Cash dividends paid in lieu of fractional shares (21,020) (20,519) (13,062)
Proceeds from exercise of stock options and warrants 291,224 207,945 616,808
Proceeds from stock offering -- 16,616,331 --
Proceeds from employee stock purchase plan 1,015,521 746,296 538,668
----------------------------------------------
Net cash provided by (used in) financing activities (1,171,915) 12,536,004 10,050,099
----------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 10,986,811 2,037,870 (719,777)
Cash and Cash Equivalents at Beginning of Year 2,668,232 630,362 1,350,139
----------------------------------------------
Cash and Cash Equivalents at End of Year $ 13,655,043 $ 2,668,232 $ 630,362
----------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.

38
<PAGE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 30, 1998, SEPTEMBER 24, 1997 AND SEPTEMBER 25, 1996)

<TABLE>
<CAPTION>
Unamortized
Additional Retained Value of
Common Paid-In Earnings Restricted Treasury Stock
Stock Capital (Deficit) Shares Shares Amount
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 27, 1995 $ 6,235,940 $31,952,996 $ 6,405,050 $ (975,862) 139,564 $(1,002,669)
Net earnings 13,009,127
Shares issued under stock option plan 60,921 263,204 (72,826) 335,540
Shares exchanged to exercise stock options 14,870 (242,857)
Shares granted under Capital Appreciation Plan 29,250 869,075 (1,015,375) (8,000) 117,050
Shares forfeited under Capital Appreciation Plan (36,370) 49,202 4,680 (12,832)
Shares issued for exercise of warrants 36,603 163,397
Changes in unamortized value of shares
granted under Capital Appreciation Plan 525,184
Tax benefit relating to stock plans 536,752
Ten percent common stock dividend declared
December 12, 1995 (1,246,670 shares) 623,335 17,515,714 (18,139,049)
Cash dividends paid in lieu of fractional shares (13,062)
Shares issued for Employee Stock Purchase Plan 36,694 501,974
-------------------------------------------------------------------------------
Balance at September 25, 1996 7,022,743 51,766,742 1,262,066 (1,416,851) 78,288 (805,768)
Net earnings 16,148,831
Shares issued under stock option plan 72,664 691,943
Shares exchanged to exercise stock options 32,821 (540,360)
Shares granted under Capital Appreciation Plan 32,625 1,101,094 (1,133,719)
Shares forfeited under Capital Appreciation Plan 28,135 3,465 (44,438)
Shares issued in stock offering 500,000 16,116,331
Changes in unamortized value of shares
granted under Capital Appreciation Plan 682,453
Tax benefit relating to stock plans 739,878
Ten percent common stock dividend declared
December 18, 1996 (1,402,298 shares) 701,149 22,086,194 (22,787,343)
Cash dividends paid in lieu of fractional shares (20,519)
Shares issued form Employee Stock Purchase Plan 29,267 717,029
Five for four common stock split declared
December 3, 1997 (4,150,580 shares) 2,075,290 (2,075,290)
-------------------------------------------------------------------------------
Balance at September 25, 1997 10,433,738 91,143,921 (5,396,965) (1,839,982) 114,574 (1,390,566)
Net earnings 19,702,699
Shares issued under stock option plan 96,521 936,569
Shares exchanged to exercise stock options 39,472 (743,269)
Shares granted under Capital Appreciation Plan 41,100 1,449,387 (1,490,488)
Shares forfeited under Capital Appreciation Plan 85,920 9,750 (134,344)
Changes in unamortized value of shares
granted under Capital Appreciation Plan 972,210
Tax benefit relating to stock plans 487,398
Cash dividends paid in lieu of fractional shares (21,020)
Shares issued for Employee Stock Purchase Plan 41,791 973,730
Five for four common stock split declared
December 1, 1998 (5,265,690 shares) 2,632,845 (2,632,845)
Other (246) (7,341) (748) 8,988
-------------------------------------------------------------------------------
Balance at September 30, 1998 $13,245,749 $92,350,819 $ 14,284,714 $(2,272,340) 163,048 $(2,259,191)
-------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.

39
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Consolidated Products, Inc.
(YEARS ENDED SEPTEMBER 30, 1998, SEPTEMBER 24, 1997 AND SEPTEMBER 25, 1996)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of Consolidated Products, Inc. (the
"Company") include the accounts of Consolidated Products, Inc. (parent) and its
wholly-owned subsidiaries: Steak n Shake, Inc., Consolidated Specialty
Restaurants, Inc. and SNS Investment Company. All intercompany items have been
eliminated. The Company's fiscal year ends on the last Wednesday in September.

CASH, INCLUDING CASH EQUIVALENTS, AND SHORT TERM INVESTMENTS

The Company's policy is to invest cash in excess of operating requirements
in income producing investments. Cash equivalents primarily consist of bank
repurchase agreements, U.S. Government securities and money market accounts,
all of which have maturities of three months or less. Short term investments
primarily consist of commercial paper all of which are available for sale. Cash
equivalents and short term investments are carried at cost, which approximates
market value.

RECEIVABLES

At September 30, 1998 and September 24, 1997, receivables include
$7,025,867 and $885,000, respectively, related to the cost of seven and one
properties, respectively, for which sale and leaseback contracts have been
entered into for the sale of these properties. Receivables are net of any
related allowances.

INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out method) or
market.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are recognized on the straight-line
method over the estimated useful lives of the assets (15 to 25 years for
buildings and 5 to 10 years for restaurant equipment). Leasehold improvements
are amortized by the straight-line method over the shorter of the estimated
useful lives of the improvements or the terms of the related leases.

LEASED PROPERTY

The lower of fair market value or the discounted value of that portion of a
capital lease attributable to building costs is capitalized and amortized by
the straight-line method over the term of such leases and included with
depreciation expense. The portions of such leases relating to land are
accounted for as operating leases.

FRANCHISE FEES

Unit franchise fees and area development fees are recorded as revenue when
the related restaurant begins operations. Royalty fees based on franchise sales
are recognized as revenue on the accrual basis of accounting.

PRE-OPENING COSTS

Pre-opening costs, which represent costs incurred before a new restaurant
opens, are capitalized and then amortized from the opening date over a one-year
period. At September 30, 1998 and September 24, 1997, unamortized pre-opening
costs were $2,818,430 and $2,193,000, respectively.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Cost of Start-up Activities." SOP
98-5 broadly defines start-up activities as those one time activities that
relate to, among other activities, the opening of a new facility. Under the new
requirements for reporting costs of start-up activities, companies will be
required to expense start-up costs as incurred. The provisions of SOP 98-5 are
effective for fiscal years beginning after December 15, 1998. Upon adoption at
the end of fiscal 1999, the Company will be required to write-off the
unamortized pre-opening cost balance as a cumulative-effect change in
accounting principle, net of applicable income taxes.

EMPLOYEES' PROFIT SHARING PLAN

The Consolidated Products, Inc. Employees' Profit Sharing Plan is a defined
contribution plan covering substantially all employees of the Company after
they have attained age 21 and completed one year of service. Contributions to
the Plan, which are subject to the discretion of the Board of Directors,
amounted to $1,545,000 for 1998, $1,340,000 for 1997 and $1,100,000 for 1996.

DEFERRED DEBT COSTS

Certain fees and expenses incurred to obtain long-term financing are being
amortized over the life of the related borrowings. The unamortized balance was
$123,000 as of September 30, 1998.

ADVERTISING EXPENSES

Advertising costs are charged to expense as incurred.

40
<PAGE>

USE OF ESTIMATES

Preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from the estimates.

RECLASSIFICATIONS

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

STOCK SPLIT

On December 3, 1997, the Company declared a five for four stock split
distributable on December 26, 1997 to shareholders of record on December 15,
1997. Accordingly, all references in the consolidated financial statements and
accompanying notes related to per share amounts, average shares outstanding and
shareholders' equity have been adjusted retroactively to reflect the five for
four stock split. Stock splits are accounted for through the reduction of
paid-in capital at the par value of the shares issued.

INCOME TAXES

The components of the provision for income taxes consist of the following:

<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 8,109,000 $7,853,000 $5,873,000
State 1,600,000 1,415,000 1,670,000
Deferred 1,516,000 157,000 382,000
-----------------------------------------
Total income taxes $11,225,000 $9,425,000 $7,925,000
-----------------------------------------
</TABLE>

The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rates $10,825,000 $8,951,000 $7,327,000
State income taxes, net of federal tax benefit 1,040,000 920,000 1,086,000
Employer's FICA tax credit (477,000) (382,000) (384,000)
Jobs tax credit (163,000) (29,000) (13,000)
Other -- (35,000) (91,000)
-----------------------------------------
Total income taxes $11,225,000 $9,425,000 $7,925,000
-----------------------------------------
</TABLE>

Income taxes paid totaled $10,129,000 in 1998, $8,202,000 in 1997 and
$6,044,000 in 1996.

Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted marginal tax rates and laws that will be in effect
when the differences are expected to reverse. The components of the Company's
net deferred tax (liability) asset consist of the following:

<TABLE>
<CAPTION>
1998 1997
--------------------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 1,434,000 $ 1,914,000
Capital leases 654,000 797,000
Other 1,514,000 1,222,000
--------------------------
Total deferred tax assets 3,602,000 3,933,000
--------------------------
Deferred tax liabilities:
Depreciation 3,254,000 2,270,000
Restaurant pre-opening costs 986,000 767,000
Other 112,000 130,000
--------------------------
Total deferred tax liabilities 4,352,000 3,167,000
--------------------------
Net deferred tax asset (liability) (750,000) 766,000
Less current portion 1,135,000 1,971,000
--------------------------
Long-term liability $(1,885,000) $(1,205,000)
--------------------------
</TABLE>

41
<PAGE>

LEASED ASSETS AND LEASE COMMITMENTS

<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
Leased property under capital leases, less accumulated amortization
of $8,084,607 in 1998 and $9,722,025 in 1997 $2,188,983 $2,710,269
Long-term portion of net investment in direct financing leases 779,061 1,208,032
-------------------------
Net leased property $2,968,044 $3,918,301
-------------------------
</TABLE>

The Company leases certain of its physical facilities under non-cancelable
lease agreements. Steak n Shake restaurant leases typically have initial terms
of eighteen to twenty-five years and renewal terms aggregating twenty years or
more and Consolidated Specialty Restaurant leases typically have terms of ten
to fifteen years and three five-year renewal terms. These leases require the
subsidiaries to pay real estate taxes, insurance and maintenance costs. Certain
leased facilities which are no longer operated by the subsidiaries, but have
been subleased to third parties, are classified as non-operating properties in
the table below of minimum future rental payments. Minimum future rental
payments have not been reduced by minimum sublease rentals of $1,522,000
related to capital leases and $1,127,000 related to operating leases receivable
in the future under non-cancelable subleases.

At September 30, 1998, obligations under non-cancelable capital leases and
operating leases (excluding real estate taxes, insurance and maintenance costs)
require the following minimum future rental payments:

<TABLE>
<CAPTION>
Capital Leases (000's) Operating Leases (000's)
---------------------- ------------------------
Non- Non-
Operating Operating Operating Operating
Year Property Property Total Property Property
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $1,312 $ 572 $1,884 $ 12,919 $ 399
2000 1,133 517 1,650 12,532 358
2001 836 350 1,186 12,232 245
2002 657 99 756 12,073 83
2003 555 -- 555 11,917 14
After 2003 966 -- 966 116,639 28
----------------------------------- ------------------------
Total minimum future rental payments 5,459 1,538 6,997 $ 178,312 $ 1,127
Less amount representing interest 1,427 261 1,688
-----------------------------------
Total obligations under capital leases 4,032 1,277 5,309
Less current portion 874 435 1,309
-----------------------------------
Long-term obligations under capital leases $3,158 $ 842 $4,000
-----------------------------------
</TABLE>

During 1998 and 1997, the Company received net proceeds of $30,871,822
involving twenty-seven properties, and $11,534,362 involving ten properties,
respectively, from sale and leaseback transactions. Since these leases are
classified as operating, any related gains on the transactions have been
deferred and are being amortized in proportion to the related gross rental
charged to expense over the eighteen-year lease terms.

Direct financing leases resulted from subleasing certain of the
aforementioned leased facilities and the leasing of certain Company-owned
facilities identified for disposal. Net investment in direct financing leases
consists of:

<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
Total minimum lease payments to be received $1,521,651 $2,188,085
Less unearned income 358,677 626,113
---------------------------
Net investment in direct financing leases 1,162,974 1,561,972
Less current portion included in receivables 383,913 353,940
---------------------------
Long-term net investment $ 779,061 $1,208,032
---------------------------
</TABLE>

At September 30, 1998, minimum annual lease payments on direct financing
leases are receivable as follows: 1999-$556,000; 2000-$508,000; 2001-$356,000;
and 2002-$101,000.

42
<PAGE>

DEBT

REVOLVING CREDIT AGREEMENT

The Company's $30,000,000 Revolving Credit Agreement matures in December
1999 and bears interest at a rate based on LIBOR plus 75 basis points or the
prime rate, at the election of the Company. The line of credit includes an
option for conversion into a five-year term loan with a ten-year amortization
schedule. There were no outstanding borrowings under the Revolving Credit
Agreement as of September 30, 1998.

SENIOR NOTE

The Company had utilized $30,000,000 under its $50,000,000 ten-year Senior
Note Agreement and Private Shelf Facility (the "Senior Note Agreement").
Consequently, the Company has borrowings of $20,000,000 available under the
Senior Note Agreement over the period ending April 28, 2000, at interest rates
based upon market rates at the time of borrowings. As of September 30, 1998,
outstanding borrowings under the Senior Note Agreement had an average interest
rate of 7.4% and the amounts maturing subsequent to fiscal 1998 in each of the
five years ending September 30 are as follows: 1999--$1,306,000
2000--$2,734,000; 2001--$3,960,000; 2002--$3,960,000; 2003--$4,322,000. The
Senior Note Agreement is unsecured and contains restrictions which, among other
things, require the Company to maintain certain financial ratios.

Interest capitalized in connection with financing additions to property and
equipment amounted to $672,000 and $694,000 in fiscal 1998 and 1997,
respectively. Interest paid on all debt amounted to $2,938,000 in 1998,
$3,559,000 in 1997 and $3,532,000 in 1996.

The carrying amounts reported in the consolidated balance sheet of debt do
not materially differ from their fair market value at September 30, 1998.

ACCRUED EXPENSES

<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Salaries and wages $ 7,454,917 $ 5,670,898
Insurance 3,415,840 5,979,720
Income taxes 1,550,154 2,159,286
Property taxes 3,771,869 2,843,551
Other 5,862,549 5,513,622
----------------------------
$ 22,055,329 $22,167,077
----------------------------
</TABLE>

DEFERRED TAXES AND CREDITS

<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Income taxes $ 1,885,000 $ 1,205,000
Gain on sale and leaseback transactions 1,966,091 962,917
----------------------------
$ 3,851,091 $ 2,167,917
----------------------------
</TABLE>

CAPITAL APPRECIATION PLANS

The Capital Appreciation Plans established in 1994 and 1997 provide for
tandem awards of Common Stock (restricted shares) and book units up to 199,650
and 412,500 shares and related units, respectively. These awards are restricted
for a period of three years and are returnable to the Company if the grantee is
not employed (except for reasons of retirement, permanent disability or death)
by the Company at the end of the period. The stock is valued at 100% of market
value at the date of grant, and the book units, which are granted in an equal
number to the shares of stock, provide for a cash payment at the end of the
three-year period equal to the sum of the net change in book value per share
and the common stock dividends paid per share during the period, as adjusted
for stock dividends/splits. The total value of the stock grant (based upon
market value at the date of the grant) is debited to unamortized value of
restricted shares and amortized to compensation expense ratably over the
three-year period. The total number of shares and book units granted under the
1994 and 1997 Plans for which restrictions have not lapsed was 244,350 at
September 30, 1998; 189,104 at September 24, 1997 and 193,435 at September 25,
1996. At September 30, 1998, 254,362 shares were reserved for future grants.
The average remaining period for which restrictions had not lapsed at September
30, 1998 was 1.79 years. The amount charged to expense under the Plans was
$1,169,000 in 1998; $846,000 in 1997, and $701,000 in 1996.

43
<PAGE>

STOCK OPTION PLANS

EMPLOYEE STOCK OPTION PLAN

In February 1997, the shareholders approved the 1997 Employee Stock Option
Plan ("the 1997 Plan"), which provides for the granting of 687,500 stock
options. The 1997 Plan provides for the issuance of stock options exercisable
as to 20% on the date of grant and 20% on each anniversary of the date of grant
thereafter until fully exercisable. The options expire five years from the date
of grant. Options were granted under the 1997 Plan to officers and key
employees selected by the Stock Option Committee. As of September 30, 1998,
143,293 options have been granted under the 1997 Plan and 29,173 are
exercisable.

The 1995 Employee Stock Option Plan ("the 1995 Plan"), provides for the
granting of 499,125 stock options. Options granted under the 1995 Plan are
primarily incentive stock options exercisable on the same terms as the 1997
Plan. Options were granted under the 1995 Plan to officers and key employees
selected by the Stock Option Committee. At September 30, 1998, 499,115 options
have been granted under the 1995 Plan and 276,869 are exercisable.

The 1992 Employee Stock Option Plan ("the 1992 Plan"), provides for the
granting of 366,025 stock options. Options granted under the 1992 Plan are
primarily incentive stock options exercisable on the same terms as the 1995
Plan. The options expire five years from the date of grant. Options were
granted under the 1992 Plan to officers and key employees selected by the Stock
Option Committee. All options have been granted under the 1992 Plan and 120,996
are exercisable.

As of September 24, 1997, 719,718 options were available for grant and
418,275 options were exercisable. The following table summarizes the changes in
options outstanding and related average prices under the 1997, 1995 and 1992
Plans:

<TABLE>
<CAPTION>
Weighted
Average
Shares Price
--------------------------
<S> <C> <C>
Outstanding at September 27, 1995 842,136 $ 4.92
Fiscal 1996 Activity:
Granted 142,456 11.80
Exercised (249,338) 3.03
Canceled (6,122) 6.61
---------
Outstanding at September 25, 1996 729,132 6.97
Fiscal 1997 Activity:
Granted 168,644 11.86
Exercised (168,681) 4.10
Canceled (11,776) 8.46
---------
Outstanding at September 24, 1997 717,319 8.77
Fiscal 1998 Activity:
Granted 187,272 19.55
Exercised (169,164) 5.34
Canceled (11,773) 11.77
---------
Outstanding at September 30, 1998 723,658 $ 12.31
---------
</TABLE>

NONEMPLOYEE DIRECTOR STOCK OPTION PLANS

The Company's 1994, 1995, 1996, 1997 and 1998 Nonemployee Director Stock
Option Plans provide for the grant of nonqualified stock options at a price
equal to the fair market value of the Common Stock on the date of the grant.
Options outstanding under each Plan are exercisable as to 20% on the date of
grant and 20% on each anniversary of the date of grant thereafter until fully
exercisable. The options expire five years from the date of grant.

An aggregate of 49,414 shares of Common Stock are reserved for the grant of
options under the 1994 Plan. At September 30, 1998, all of the options
authorized under the 1994 Plan have been granted at a price of $5.40 and are
exercisable. No options have been canceled and 40,263 shares have been
exercised since the inception of the 1994 Plan.

An aggregate of 41,594 shares of Common Stock are reserved for the grant of
options under the 1995 Plan. At September 30, 1998, all of the options
authorized under the 1995 Plan have been granted at a price of $6.07 of which
33,275 are exercisable. No options have been canceled or exercised since the
inception of the 1995 Plan.

An aggregate of 22,688 shares of Common Stock are reserved for the grant of
options under the 1996 Plan. At September 30, 1998, all of the options
authorized under the 1996 Plan have been granted at a price of $10.58 of which
13,615 are exercisable. No options have been canceled or exercised since the
inception of the 1996 Plan.

An aggregate of 24,750 shares of Common Stock are reserved for the grant of
options under the 1997 Plan. At September 30, 1998, all of the options
authorized under the 1997 Plan have been granted at an average price of $11.65
of which 10,313 are exercisable. No options have been canceled or exercised
since the inception of the 1997 Plan.

An aggregate of 18,750 shares of Common Stock are reserved for the grant of
options under the 1998 Plan. At September 30, 1998, all of the options
authorized under the 1998 Plan have been granted at an average price of $15.40
of which 3,750 are exercisable. No options have been canceled or exercised
since the inception of the 1998 Plan.

44
<PAGE>

The following table summarizes information about the exercise price for stock
options outstanding at September 30, 1998 under the employee and nonemployee
director stock option plans.

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices September 30, 1998 Life Price September 30, 1998 Price
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5 - $10 299,914 1.21 years $ 7.19 260,038 $ 7.07
$10 - $15 336,646 3.14 years $11.76 170,988 $11.81
$15 - $20 165,945 4.49 years $18.68 52,025 $18.49
$20 - $22 38,090 4.61 years $21.30 14,090 $21.06
-------------------------------------------------------------------------------------------------
$ 5 - $22 840,595 2.79 years $11.93 497,141 $10.29

</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

In February 1993, the shareholders approved a tax-qualified Employee Stock
Purchase Plan, providing for a maximum of 91,506 shares of Common Stock per
year for five years. In February 1998, the shareholders approved an amendment
to the Employee Stock Purchase Plan providing for a maximum of 112,500 shares
of Common Stock per year for an additional five years. Unissued shares in any
given year are carried forward and are available to increase the annual
maximum. The Plan is available to all eligible employees of the Company and its
subsidiaries as determined by the Board of Directors and has a calendar plan
year. Employees are able to purchase shares of Common Stock each year through
payroll deductions from 2% to 10% of compensation up to a maximum allowable
fair market value of $10,000 or 1,000 shares per year, whichever is less. The
purchase price will be the lesser of 85% of the market price, as defined, on
the first or last trading day of the plan year. During fiscal 1998 and fiscal
1997, 83,582 shares and 80,483 shares, respectively, were purchased and issued
to employees.

STOCK-BASED COMPENSATION

The Company measures stock-based compensation cost in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" requires that the Company disclose pro forma
information regarding net earnings and earnings per share as if the Company has
accounted for its employee stock awards, consisting of stock options and stock
issued pursuant to the Employee Stock Purchase Plan, granted subsequent to
September 28, 1995, under the fair value method as defined by that statement.
The fair value for these awards was estimated at the date of grant using a
Block-Scholes option pricing model with the following assumptions for fiscal
1998 and 1997: volatility factor of the expected market price of the Company's
common stock of .32 in 1998 and .34 in 1997; expected option lives of 1-5
years; cash dividend yield of 0.0%; and a risk-free interest rate of 5.5% in
1998 and 6.0% in 1997.

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

For purposes of pro forma disclosures, the estimated fair value of the
options discussed below are amortized to expense over the related vesting
period. Because compensation expense is recognized over the vesting period, the
initial impact on pro forma net earnings may not be representative of
compensation expense in future years, when the effect of the amortization of
multiple awards would be reflected. The Company's pro forma information giving
effect to the estimated compensation expense related to stock-based
compensation is as follows:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net earnings as reported $19,702,699 $16,148,831
Less pro forma compensation expense 931,449 547,985
----------- -----------
Pro forma net earnings $18,771,250 $15,600,846
----------- -----------
Diluted earnings per share as reported $ .74 $ .65
Pro forma diluted earnings per share $ .71 $ .63

</TABLE>

45
<PAGE>

RELATED PARTY TRANSACTIONS

Kelley & Partners, Ltd. owned 1,729,667 shares, or 8.2%, of the Company at
September 30, 1998. Additionally, certain of the partners, who also serve as
officers and/or directors of the Company, collectively controlled 2,416,603
shares, or 11.5% of the Company's outstanding stock at September 30, 1998.

NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No.128, "Earnings Per Share."
Statement No. 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will be excluded. Diluted earnings per share is very similar to
the previously reported primary earnings per share. All earnings per share
amounts have been presented and, where necessary, have been restated to conform
to the requirements of Statement No. 128.

Diluted earnings per common and common equivalent share are computed by
dividing net earnings by the weighted average number of common shares
outstanding and common equivalent shares. Common equivalent shares include
shares subject to purchase under stock options.

The following table presents information necessary to calculate basic
and diluted earnings per common and common equivalent share (adjusted for the
five for four stock split declared in December 1998):

<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding - basic 26,100,398 24,424,936 23,728,630
Share equivalents 470,459 426,714 521,830
------------------------------------------
Weighted average shares and equivalents - diluted 26,570,857 24,851,650 24,250,460
------------------------------------------

Net earnings for basic and diluted earnings per
share computation $19,702,699 $16,148,831 $13,009,127
------------------------------------------
</TABLE>

SUBSEQUENT EVENT-STOCK SPLIT

On December 1, 1998, the Company declared a five for four stock split
distributable on December 28, 1998 to shareholders of record on December 14,
1998. Accordingly, all references in the consolidated financial statements
related to per share amounts, average shares outstanding and shareholders'
equity have been adjusted retroactively to reflect the five for four stock
split. Notes to the consolidated financial statements related to Capital
Appreciation Plans, Stock Option Plans, Employee Stock Purchase Plan and
Related Party Transactions have not been adjusted to reflect the effect of the
five for four stock split.

<PAGE>

QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
QUARTER(1)
FIRST SECOND THIRD FOURTH
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Revenues $ 65,169,897 $ 91,140,048 $ 72,533,128 $ 84,000,242
Costs and Expenses $ 58,990,981 $ 83,460,487 $ 64,130,890 $ 75,333,258
Earnings Before Income Taxes $ 6,178,916 $ 7,679,561 $ 8,402,238 $ 8,666,984
Net Earnings $ 3,923,916 $ 4,874,561 $ 5,322,238 $ 5,581,984
Net Earnings Per Common and
Common Equivalent Share(2)(3) $ .15 $ .18 $ .20 $ .21

1997
Revenues $ 55,599,303 $ 78,235,708 $ 65,724,712 $ 68,624,694
Costs and Expenses $ 50,430,098 $ 71,992,453 $ 58,489,081 $ 61,698,954
Earnings Before Income Taxes $ 5,169,205 $ 6,243,255 $ 7,235,631 $ 6,925,740
Net Earnings $ 3,229,205 $ 3,803,255 $ 4,555,631 $ 4,560,740
Net Earnings Per Common and
Common Equivalent Share(2)(3) $ .13 $ .15 $ .18 $ .18

</TABLE>

(1) The Company's fiscal year includes quarters consisting of 12, 16, 12 and 12
weeks, respectively, except for 1998 which has 13 weeks in the fourth quarter
due to it being a 53 week year.

(2) All financial data regarding per share amounts have been restated to
conform to the requirements of Statement of Financial Accounting Standards No.
128, "Earnings per Share."

(3) All financial data regarding per share amounts have been adjusted to
reflect the five for four stock split declared in December 1998.

47
<PAGE>

MANAGEMENT'S REPORT
- --------------------------------------------------------------------------------
Consolidated Products, Inc.
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING

The management of Consolidated Products, Inc. is responsible for the
preparation, integrity and objectivity of the Company's financial statements
and the other financial information in this report. The financial statements
were prepared in conformity with generally accepted accounting principles and
reflect in all material respects the Company's results of operations and the
financial position for the periods shown based upon management's best estimates
and judgments.

In addition, management maintains internal control systems which are
adequate to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and which produce records adequate for preparation of
financial information. There are limits inherent in all systems of internal
accounting control based on the recognition that the cost of such systems
should not exceed the benefits to be derived. We believe the Company's systems
provide the appropriate balance. The effectiveness of the control systems is
supported by the selection and training of qualified personnel, an
organizational structure that provides an appropriate division of
responsibility and a strong budgetary system of control.

Ernst & Young LLP, independent auditors, has been engaged to express an
opinion regarding the fair presentation of the Company's financial condition
and operating results. As part of their audit of the Company's financial
statements, Ernst & Young LLP considered the Company's system of internal
controls to the extent they deemed necessary to determine the nature, timing
and extent of their audit tests.

The Audit Committee of the Board of Directors, which is composed of four
outside directors, serves in an oversight role to assure the integrity and
objectivity of the Company's financial reporting process. The Committee meets
periodically with representatives of management and the independent auditors to
review matters of a material nature related to auditing, financial reporting,
internal accounting controls and audit results. The independent auditors have
free access to the Audit Committee. The Committee is also responsible for
making recommendations to the Board of Directors concerning the selection of
the independent auditors.

/s/ Alan B. Gilman /s/ James W. Bear
PRESIDENT AND SENIOR VICE PRESIDENT
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Consolidated Products, Inc.

We have audited the accompanying consolidated statements of financial
position of Consolidated Products, Inc. as of September 30, 1998 and September
24, 1997, and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three years in the period ended September
30, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Consolidated
Products, Inc. at September 30, 1998 and September 24, 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles.

/s/ Ernst & Young LLP
Indianapolis, Indiana
November 25, 1998
except for the stock split described
on page 41, as to which the date is
December 1, 1998.

<PAGE>

EXHIBIT 21.01

CONSOLIDATED PRODUCTS, INC.

State of
Wholly-owned Subsidiaries Incorporation
------------------------------------- -------------
Steak n Shake, Inc. Indiana

SNSTM, Inc. * Delaware

Consolidated Specialty Restaurants, Inc. Indiana

SNS Investment Company Indiana

* Wholly owned subsidiary of Steak n Shake, Inc.

<PAGE>

EXHIBIT 23.01

CONSOLIDATED PRODUCTS, INC.

CONSENT OF ERNST & YOUNG LLP

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-63342) pertaining to the 1992 Employee Stock Option Plan,
(Forms S-8 No. 33-63344 and No. 333-53447) pertaining to the Employee Stock
Purchase Plan, (Form S-8 No. 33-61945) pertaining to the 1995 Employee Stock
Option Plan and (Form S-8 No. 333-33667) pertaining to the 1997 Employee Stock
Option Plan of our report dated November 25, 1998 (except the Subsequent Event
- -Stock Split footnote, as to which the date is December 1, 1998), with respect
to the consolidated financial statements of Consolidated Products, Inc.
incorporated by reference in the Annual Report (Form 10-K) for the year ended
September 30, 1998.

/s/ Ernst & Young LLP

Indianapolis, Indiana
December 17, 1998

<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement and financial position as of September 30, 1998 and the
consolidated statement of earnings for the fifty-three weeks ended September 30,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> SEP-25-1997
<PERIOD-END> SEP-30-1998
<CASH> 13,655,043<F1>
<SECURITIES> 4,971,169
<RECEIVABLES> 10,766,170
<ALLOWANCES> 0
<INVENTORY> 4,438,425
<CURRENT-ASSETS> 40,372,489
<PP&E> 210,926,581
<DEPRECIATION> 64,588,300
<TOTAL-ASSETS> 190,180,880
<CURRENT-LIABILITIES> 39,763,661
<BONDS> 0
0
0
<COMMON> 13,245,749
<OTHER-SE> 102,104,002
<TOTAL-LIABILITY-AND-EQUITY> 190,180,880
<SALES> 306,942,834
<TOTAL-REVENUES> 312,552,392
<CGS> 78,194,622
<TOTAL-COSTS> 220,191,807<F2>
<OTHER-EXPENSES> 25,760,031<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,445,221
<INCOME-PRETAX> 30,927,699
<INCOME-TAX> 11,225,000
<INCOME-CONTINUING> 19,702,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,702,699
<EPS-PRIMARY> .75
<EPS-DILUTED> .74
<FN>
<F1>Cash includes cash equivalents of $12,235,000.
<F2>Includes restaurant operating costs of $141,997,185.
<F3>Includes depreciation and amortization and rent of $15,777,885 and $9,982,146
respectively.
</FN>

</TABLE>