FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

<Table>

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
FEBRUARY 2, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ____ TO ____
</Table>

COMMISSION FILE NUMBER 0-12497

DAIRY MART CONVENIENCE STORES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<Table>

DELAWARE 04-2497894
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</Table>

ONE DAIRY MART WAY, 300 EXECUTIVE PARKWAY WEST, HUDSON, OHIO 44236
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(330) 342-6600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock (Par
Value $.01)

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 [ ]

As of April 26, 2002, 5,006,039 shares of Common Stock were outstanding,
and the aggregate market value of Common Stock outstanding of DAIRY MART
CONVENIENCE STORES, INC., held by nonaffiliates was approximately $35,001.

PART I

ITEM 1. BUSINESS

BUSINESS OUTLOOK

This Form 10-K contains forward-looking statements within the meaning of
the "safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are generally identified by the words
"anticipate", "believe", "expect", "plan", "intend", "should", "estimate", and
similar expressions. These forward-looking statements include statements
relating to the Company's plans and objectives to reorganize the Company under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the Southern District of New York, including a possible sale (whether to
Couche-Tard or to another bidder pursuant to a "363 sale"), to pay its employee
salaries and benefits, to pay for its ongoing operations (including payments to
vendors) and other working capital needs, to comply with the terms of its DIP
Facility (or to be provided additional financing under the DIP Facility while in
default) and any cash management order entered by the Bankruptcy Court in
connection with the Chapter 11 Cases, to maintain adequate cash on hand, to
generate cash from operations, to receive confirmation of a plan or plans of
reorganization under the Bankruptcy Code, to maintain profitability following
such confirmation, to sell or lease certain assets, as well as the availability
of supplies of gasoline, the estimated costs for environmental remediation and
the sufficiency of the Company's liquidity and the availability of capital. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements. Such factors
and uncertainties include, but are not limited to, the availability of financing
and additional capital to fund the Company's operations on acceptable terms
(including the DIP Facility lenders' willingness to provide additional financing
while the Company is in default), if at all, the ability of the Company to
reorganize itself and successfully emerge from its Chapter 11 bankruptcy,
whether through a "stand-alone" reorganization, a reorganization through the
sale of the Company's assets, or another method, perceptions of the Company by
the Company's customers and vendors regarding the Company's bankruptcy filing
and their willingness to continue to do business with the Company after its
bankruptcy, the Company's ability to negotiate and enter into lease, acquisition
and supply agreements on acceptable terms, competition and pricing in the
Company's market area, volatility in the wholesale gasoline market due to supply
interruptions, modifications of environmental regulatory requirements, detection
of unanticipated environmental conditions, the timing of reimbursements from
state environmental trust funds, weather conditions, the favorable resolution of
certain pending and future litigation, general economic conditions and other
factors disclosed in this Form 10-K and the Company's other filings with the
Securities and Exchange Commission. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.

GENERAL

Dairy Mart Convenience Stores, Inc., and its subsidiaries (the "Company" or
"Dairy Mart") operate one of the nation's largest regional convenience store
chains. Founded in 1957, the Company operates 480 stores under the "Dairy Mart"
name in seven states located in the Midwest and Southeast, of which 89 stores
are franchised.

Dairy Mart stores offer a wide range of products and services that cater to
the convenience needs of its customers, including gasoline, milk, ice cream,
groceries, beverages, snack foods, candy, deli products, publications, health
and beauty care aids, tobacco products, select highly consumable general
merchandise, lottery tickets, money orders and select customer focused services.
The stores are typically located in densely populated, suburban areas on sites
which are easily accessible to customers and provide ample parking. Dairy Mart
stores are generally free-standing, well-lit structures and are designed to
encourage customers to purchase high-profit margin products, such as deli items,
coffee, fountain drinks and other fast food items.

The Company is incorporated in Delaware and maintains its principal
executive offices at One Dairy Mart Way, 300 Executive Parkway West, Hudson,
Ohio 44236. The Company's telephone number is (330) 342-6600.

BANKRUPTCY FILING

On September 24, 2001 (the "Petition Date"), Dairy Mart Convenience Stores,
Inc. and all of its subsidiaries (with the exception of Financial Opportunities,
Inc.) (collectively, the "Debtor" or "Debtors") filed voluntary petitions for
protection (the "Filing") under Chapter 11 of the U.S. Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court"). The Debtors are currently
operating their business as debtors-in-possession in accordance with provisions
of the Bankruptcy Code. The Chapter 11 cases of the Debtors (collectively, the
"Chapter 11 Cases") are being jointly administered under Case No. 01-42400
(AJG). The Chapter 11 Cases are also discussed in Note 1 to the Consolidated
Financial Statements.

An official creditors' committee representing the Debtors' unsecured
creditors has been appointed in the Chapter 11 Cases (the "Creditors'
Committee"). The Creditors' Committee has played an important role in the
Chapter 11 Cases and will be a critical party in the negotiation of the terms of
any plan or plans of reorganization.

As a consequence of the Filing, all pending litigation against the Debtors
is stayed automatically by section 362 of the Bankruptcy Code and, absent a
specific order of the Bankruptcy Court, no party may take any action to recover
on pre-petition claims against the Debtors. In addition, pursuant to section 365
of the Bankruptcy Code, the Debtors may reject or assume pre-petition executory
contracts and unexpired leases. Substantially all pre-petition liabilities,
including rejection damages claims by the parties to contracts or leases that
are rejected, are subject to settlement under a plan of reorganization to be
voted upon by creditors and equity holders and approved by the Bankruptcy Court.

On June 5, 2002, the Company executed an asset purchase agreement (the
"Purchase Agreement") pursuant to which Alimentation Couche-Tard Inc.
("Couche-Tard") agreed to acquire the majority of the Company's stores. Under
the terms of the Purchase Agreement, Couche-Tard would acquire the majority of
Dairy Mart's stores for approximately $80 million in cash, subject to
adjustments, and the assumption of certain liabilities. Couche-Tard would also
manage any stores that it does not acquire, with the intention of eventually
selling or closing those stores on behalf of the Company. The Company's board of
directors and the Creditors' Committee have approved the transaction. The
execution of the Purchase Agreement commences the auction process required under
Section 363 of the Bankruptcy Code in which other interested parties may submit
bids for the Company. The Company anticipates that an auction will be held for
qualified bidders on July 30, 2002. If the Purchase Agreement is completed, the
Company would submit a plan of reorganization and liquidation pursuant to the
Bankruptcy Code. There can be no assurance, however, that the Company or
Couche-Tard will be able to complete the Purchase Agreement or that a
reorganization or liquidation plan will be proposed by the Debtors or confirmed
by the Bankruptcy Court. As provided by the Bankruptcy Code, the Debtors
initially had the exclusive right to propose a plan of reorganization for 120
days following the Petition Date. By subsequent action, the Bankruptcy Court has
extended such exclusivity period until July 19, 2002. If the Debtors fail to
file a plan of reorganization during such period or if such plan is not accepted
by the required number of creditors and equity holders, any party in interest
may subsequently file its own plan of reorganization or liquidation for the
Debtors. A plan of reorganization (or liquidation) must be confirmed by the
Bankruptcy Court, upon certain findings being made by the Bankruptcy Court which
are required by the Bankruptcy Code. The Bankruptcy Court may confirm a plan
notwithstanding the non-acceptance of the plan by an impaired class of creditors
or equity security holders if certain requirements of the Bankruptcy Code are
met. The Company believes, based on information presently available to it, that
a plan of reorganization will likely result in holders of the Company's common
stock receiving no value for their interests.

Company believes the DIP Facility will be retired in full if the Purchase
Agreement is consummated. The Company and the DIP Facility lenders have agreed
in principle to the terms of an agreement whereby the DIP Lenders have agreed to
forbear from exercising their rights and remedies with respect to the present
events of default and any financial covenant defaults, and continue to provide
financing in accordance with the terms of the DIP Facility through August 23,
2002. The agreement is subject to execution by the parties and Bankruptcy Court
approval. Please see Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, for more information concerning cash
availability and the DIP Facility.

The Company believes, based on information presently available to it, that
cash available from operations and the DIP Facility will provide sufficient
liquidity to allow it to continue to operate through the consummation of the
Purchase Agreement. However, the ability of the Company to continue operation on
a going concern basis (including its ability to meet post-petition obligations
of the Debtors) and the appropriateness of using the going concern basis for its
financial statements are dependent upon, among other things, (i) the Company's
ability to comply with the terms of the DIP Facility and any cash management
order entered by the Bankruptcy Court in connection with the Chapter 11 Cases,
(ii) the ability of the Company to maintain adequate cash on hand, (iii) the
ability of the Company to generate cash from operations, (iv) confirmation and
consummation of a plan of reorganization under the Bankruptcy Code and (v) the
continued availability of financing under the DIP Facility given the continuance
of a default or defaults.

The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As a result of the
Filing and related circumstances, however, the Company's ability to continue as
a going concern is subject to significant uncertainty. While under the
protection of Chapter 11, the Debtors may sell or otherwise dispose of assets
and liquidate or settle liabilities for amounts other than those reflected in
the accompanying consolidated financial statements. Further, a plan of
reorganization could materially change the amounts reported in the accompanying
consolidated financial statements. The consolidated financial statements do not
include any adjustments relating to a recoverability of the value of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary as a consequence of a plan of reorganization.

STORES

The Company's stores are generally located in suburban areas, and are
situated close to single-family homes and apartments to attract neighborhood
shoppers. Store location, design, lighting and layout are intended to cater to
customers' desire for fast and convenient access. As of February 2, 2002, 202
locations also sold gasoline, which the Company believes is an important
convenience for customers.

Shelving and displays, including refrigeration units, deli and other fast
food counters and displays, are designed to encourage customers to purchase high
profit margin products including impulse purchase items such as candy, fountain
drinks and ice cream novelties. All of the Company's stores also offer extended
hours for additional convenience, with over one-half of the stores open 24 hours
per day. A typical Dairy Mart store ranges between 2,400 and 3,800 square feet
and is a freestanding structure.

As of February 2, 2002, the Company operated and franchised retail
convenience stores in the following states:

<Table>
<Caption>
NUMBER OF
STORES
---------

Ohio........................................................ 307
Kentucky.................................................... 93
Pennsylvania................................................ 29
Michigan.................................................... 27
Indiana..................................................... 16
Tennessee................................................... 6
North Carolina.............................................. 2
---
Total Stores................................................ 480
===
</Table>

The following table shows the number of Company and franchise stores that
were opened or acquired, closed or sold, and transferred between
Company-operated and franchise-operated, during the last three fiscal years:

<Table>
<Caption>
FEBRUARY 2, 2002 FEBRUARY 3, 2001 JANUARY 29, 2000
------------------------------ ------------------------------ ------------------------------
COMPANY FRANCHISE COMPANY FRANCHISE COMPANY FRANCHISE
OPERATED OPERATED TOTAL OPERATED OPERATED TOTAL OPERATED OPERATED TOTAL
-------- --------- ----- -------- --------- ----- -------- --------- -----

At beginning of period.... 444 103 547 475 128 603 477 141 618
Opened or acquired........ 1 -- 1 9 -- 9 18 -- 18
Closed or sold............ (58) (10) (68) (42) (23) (65) (25) (8) (33)
Transferred (net)......... 4 (4) -- 2 (2) -- 5 (5) --
--- --- --- --- --- --- --- --- ---
391 89 480 444 103 547 475 128 603
=== === === === === === === === ===
</Table>

EVALUATION OF EXISTING STORE BASE AND CLOSING UNDER-PERFORMING STORES

The Company evaluates the performance of each of its stores in order to
determine its contribution to the Company's overall profitability. Management
determines a minimum acceptable level of store performance required for a store
to be eligible for on-going capital expenditures and/or lease option renewal or
re-negotiation. Accordingly, in fiscal year 2002, the Company closed 58 of its
retail facilities because of their inability to meet the Company's economic and
non-economic criteria for long-term stability and growth. An additional ten
stores were sold to independent operators in fiscal year 2002. Additional stores
have been closed subsequent to February 2, 2002 and future store closures may
occur as a result of the Company's plan of reorganization.

GASOLINE OPERATIONS

Gasoline sales accounted for approximately 45% of total revenue in fiscal
year 2002, 48% in fiscal year 2001 and 40% in fiscal year 2000. As of February
2, 2002, 202 stores sold gasoline.

The Company's gasoline pricing strategy has historically been designed, in
part, to provide value to customers by offering the same quality gasoline
offered by major oil companies at prices that are generally below the prices of
nationally advertised brands and comparable to the prices of other convenience
store chains.

Gasoline profit margins have a significant impact on the Company's income.
These profit margins could be adversely influenced by factors beyond the
Company's control, such as volatility in the wholesale gasoline market due to
supply interruptions. In addition, gasoline profit margins are continually
influenced by competition in each local market area. Throughout fiscal years
2001 and 2002, the Company's operating results were adversely impacted by high
wholesale gasoline prices and competitive pressures that prevented the Company
from fully recovering these higher wholesale costs in the form of higher retail
selling prices.

PRODUCT SELECTION

All stores generally offer more than 3,000 core food and non-food
convenience items featuring well-known national brand names, as well as the
Company's private label products. Food items include a wide variety of products,
including canned foods and groceries, dairy products, beverages, snack items,
candy, baked goods and food service items, such as fountain soft drinks, coffee,
cappuccino, hot dogs, deli meats and deli sandwiches and similar foods. Non-food
convenience items include gasoline (at 202 stores), cigarettes, health and
beauty aids, publications, lottery tickets, ATMs and money orders.

The Company has installed branded food service, which carries a relatively
higher gross profit margin, at 36 store locations, including 13 Mr. Heros(R), 12
Taco Bells(R) and 8 Subways(R). These branded food service offerings seek to
allow the Company to offer competitive, high-quality food service and increase
customer traffic providing ancillary sales opportunities for gasoline and other
convenience items.

In recent years, the Company has altered the mix of products and services
to emphasize the sale of items carrying higher profit margins. Fast food items
carry higher profit margins and tend to lead to the purchase of other high
profit margin products and impulse items, including salty-snacks, candy and
beverages. Dairy Mart offers a number of private label products such as milk,
bakery products, juices, dips and cheeses that generally carry a higher gross
profit margin than the Company's average gross profit margin on comparable
brand-name products.

FRANCHISE OPERATIONS

The Company franchises 89 stores. Franchise stores generally follow the
same operating policies as Company-operated stores, and are subject to Company
supervision under franchise agreements. Company-operated and franchise-operated
stores are of the same basic store design and sell substantially the same types
of products.

The Company offers two types of franchising arrangements: a "full"
franchise and a "limited" franchise. Under a full franchise agreement, the
franchisee purchases and owns both the merchandise inventory and the equipment
located in the store and leases or subleases the store from the Company. Under a
limited franchise agreement, the franchisee owns only the merchandise inventory
while the Company retains ownership of the store equipment. Franchise fees are
higher for limited franchisees. As of February 2, 2002, there were 32 full
franchise locations and 57 limited franchise locations.

ADVERTISING

To promote a uniform image for all stores, the Company designs and
coordinates advertising for most stores to complement its marketing strategy,
which is derived, in part, from market history and research. In-store,
newspaper, direct-mail, special promotions, outdoor billboard and radio
advertising focus on current promotional offerings and also feature certain
specially priced items designed to attract today's time-constrained consumers in
search of convenience related items, and typically include national brand items
for which advertising costs are often supplemented by the national brand vendor
partners. Sales promotions are generally established and maintained on a monthly
basis.

COMPETITION AND OTHER EXTERNAL INFLUENCES

The convenience store and retail gasoline industries are highly
competitive. The number and type of competitors vary by location. The Company
presently competes with other convenience stores, large integrated gasoline
service station operators, supermarket chains, neighborhood grocery stores,
independent gasoline service stations, fast food operations and other similar
retail outlets, some of which are well recognized national or regional retail
chains. The Company's competitors have greater financial resources than the
Company. Key competitive factors include, among others, location, ease of
access, store management, product selection, pricing, hours of operation, store
safety, cleanliness, product promotions and marketing.

Weather conditions have a significant effect on the Company's sales, as
convenience store customers are more likely to go to stores to purchase
convenience goods and services, particularly higher profit margin items
6

such as fast food items, fountain drinks and other beverages, when weather
conditions are favorable. Accordingly, the Company's stores generally experience
higher revenues and profit margins during the warmer weather months, which fall
within the Company's second and third fiscal quarters.

EMPLOYEES

As of February 2, 2002, exclusive of franchisees and franchisees'
employees, the Company employed, on a full-time or part-time basis,
approximately 3,500 employees. The Company has not experienced any work
stoppages. There are no collective bargaining agreements between the Company and
any of its employees. The Company implemented employee retention plans in
conjunction with the Filing, which it believes will enhance its ability to
retain employees.

ENVIRONMENTAL COMPLIANCE

The Company incurs ongoing costs to comply with federal, state and local
environmental laws and regulations, including costs for assessment, compliance,
remediation and certain capital expenditures relating to its gasoline
operations. These laws and regulations relate primarily to underground storage
tanks ("USTs"). The United States Environmental Protection Agency has
established standards for, among other things, (i) maintaining leak detection,
(ii) upgrading UST systems, (iii) taking corrective action in response to
releases, (iv) closing USTs to prevent future releases, (v) keeping appropriate
records and (vi) maintaining evidence of financial responsibility for taking
corrective action and compensating third parties for bodily injury and property
damage resulting from releases. Most states in which the Company operates also
have adopted UST regulatory programs. The Company has retained an outside third
party to perform testing and remediation services for those of its stores for
which it is responsible for performing environmental compliance and remediation.

In the ordinary course of business, the Company periodically detects
releases of gasoline or other regulated substances from USTs it owns or
operates. As part of its program to manage USTs, the Company is involved in
environmental assessment and remediation activities with respect to releases of
regulated substances from its existing and previously operated retail gasoline
facilities. The Company accrues its estimate of all costs to be incurred for
assessment and remediation for known releases. These accruals are adjusted if
and when new information becomes known. Additionally, the Company records
receivables based upon the estimated reimbursement from various state
environmental trust funds which have provisions for sharing or reimbursing
certain costs incurred by UST owners or operators based upon compliance with the
terms and conditions of such funds. Because of the nature of such releases, the
actual costs of assessment and remediation activities may vary significantly
from year to year. A more complete discussion of environmental remediation
liabilities is included in the Notes to the Consolidated Financial Statements.

ITEM 2. PROPERTIES

The Company's stores are generally located in suburban areas, and are
situated close to single-family homes and apartments to attract neighborhood
shoppers. The stores are located in Ohio, Kentucky, Pennsylvania, Michigan,
Indiana, Tennessee and North Carolina. A typical Dairy Mart store ranges between
2,400 and 3,800 square feet and is a freestanding structure.

Of the 480 stores in operation as of February 2, 2002, 73 were owned by the
Company and 407 were leased. The Company's policy is to endeavor to lease or
sublease these locations to third parties. From time to time, the Company has
entered into sale-leaseback transactions whereby the Company sells retail
locations and leases such locations back from the purchasers. The Company's
corporate headquarters, a 47,000 square-foot facility in Hudson, Ohio, is leased
from a third party. In addition, the Company leases administrative offices for
various regional operations.

Pursuant to the Bankruptcy Code, the Debtors in the Chapter 11 Cases may
elect to reject or assume unexpired pre-petition leases. The Debtors are
currently reviewing the leases for which such an election exists to determine
whether they should be accepted or rejected. The Bankruptcy Court has extended
the time period within which the Debtors must make their elections through the
date at which a plan of reorganization is

confirmed. In the process of their review, the Debtors may conclude that certain
of the arrangements constitute secured financings rather than leases, in which
event the applicable facility will be owned rather than leased.

ITEM 3. LEGAL PROCEEDINGS

On the Petition Date, the Debtors submitted the Filing under Chapter 11 of
the Bankruptcy Code. The Chapter 11 Cases are discussed in greater detail in
Item 1, Item 7 and in Note 1 to the Consolidated Financial Statements.

The Company is a defendant in an action captioned Colley v. Dairy Mart
Convenience Stores, Inc. (Case No. CV 2001-08-3774) that was initiated on August
13, 2001 in the Summit County Court of Common Pleas by J. Wayne Colley, the
former Executive Vice President and Chief Operating Officer of the Company. The
action alleges that the Company committed a breach of Mr. Colley's severance
agreement with the Company, and Mr. Colley is seeking damages in the approximate
amount of $167,000. Mr. Colley also filed proofs of claims against the Company
in the Bankruptcy Court relating to the claims he alleged in the lawsuit.

Gregory Landry, President and Chief Executive Officer of the Company, has
filed proofs of claims against the Debtors in connection with contingent,
undetermined and unliquidated claims that Mr. Landry may have with respect to
indemnification, contribution, reimbursement or other payments from the Debtors.
Also, the Company's Directors have filed proofs of claims against the Company in
connection with unpaid Directors' fees, and Mr. William A. Foley has filed a
claim based on deferred director's fees pursuant to the Directors' Deferred
Compensation Plan. The Company is evaluating these claims and believes that they
will be treated in a manner consistent with other similarly situated claimants.

Robert B. Stein, Jr., the Company's former President, Chief Executive
Officer and Chairman of the Board, filed a proof of claim against the Company
with the Bankruptcy Court regarding unpaid wages, expenses, and benefits
pursuant to his Employment Agreement with the Company in the approximate amount
of $4.8 million. The Company, however, believes that the allowable portion of
his claim will not exceed $1,200,000. Mr. Stein also filed proofs of claims
against the Company and certain of its subsidiaries for unknown, contingent and
unliquidated claims. Furthermore, DM Acquisition Corp., which is owned by Mr.
Stein, has filed a proof of claim against the Company in the amount of $550,245
to recover certain professional services fees.

The Company was a defendant in an action brought by a former supplier of
certain dairy products to convenience stores formerly owned by the Company in
Massachusetts, Rhode Island, Connecticut, and New York ("New England Stores").
The action is captioned New England Dairies, Inc. v. Dairy Mart Convenience
Stores, Inc. and Dairy Mart, Inc., Civil Action No. 397CU00894 (U.S. District
Court for the State of Connecticut). This action was commenced on April 17,
1997, by New England Dairies, Inc. ("NED") alleging that the Company committed
an anticipatory breach of a supply agreement entered into between NED and the
Company on April 25, 1995 ("the Agreement"), when the Company entered into a
contract with a third party to sell all company-owned and franchised convenience
stores in New England, without requiring the third party purchaser to assume the
Agreement. On February 4, 2002, judgment was entered in favor of NED for
$960,194. Neither party appealed. NED has filed with U.S. District Court for the
State of Connecticut a motion for prejudgment interest and attorney's fees. This
motion is pending. The Company has recognized in the accompanying financial
statements for fiscal year 2002, a $1.7 million provision for the judgment and
related expenses. As a result of the Company's bankruptcy, the United States
Bankruptcy Court for the Southern District of New York and the U.S. District
Court for the State of Connecticut are determining NED's status as a secured or
unsecured creditor.

On December 20, 2001, Frank Colaccino ("Colaccino"), the former Chief
Executive Officer of the Company, whose employment with the Company was
terminated in August of 1994, Richard M. Osborne ("Osborne") and William Lannon
(collectively, the "Delaware Plaintiffs") filed a complaint, Colaccino et al. v.
Dairy Mart Convenience Stores, Inc., C.A. No. 19322 NC, against the Company in
the Court of Chancery of the State of Delaware (the "Delaware Action"), which
alleged, among other things, that there had not been a meeting of stockholders
since May, 2000. The Delaware Plaintiffs sought an order compelling the Company
to hold an annual meeting of stockholders and to elect directors at the proposed
meeting. The Delaware Action is effectively stayed because the parties have
agreed to extend the Company's time to answer the complaint without assigning a
date for further hearing and have also agreed that the plaintiffs would only
pursue the Delaware Action in the
8

event all outstanding issues among the parties were not resolved in the
Colaccino Action (described in the paragraph immediately following this
paragraph).

On January 14, 2002, the Company initiated an adversary proceeding in the
Bankruptcy Court captioned Dairy Mart Convenience Stores, Inc., et al. v.
Colaccino, et al., No. 02/02019 (the "Colaccino Action"). The Company initiated
this suit against the Delaware Plaintiffs to stay and permanently enjoin the
prosecution of the Delaware Action and for breach of the automatic stay
provisions of Bankruptcy Code. Because the Company is insolvent, the Company
asserted that the plaintiffs have no economic interests in the Company's estates
and no right to demand a meeting of stockholders. The Company also asserted that
allowing the Delaware Action to go forward would likely impair the
reorganization proceedings and violate the automatic stay provisions of the
Bankruptcy Code. Discovery has not yet been completed in this matter.

On January 14, 2002, Colaccino, William Lannon, Joseph Wodarski and Bonita
Wodarski (collectively, the "Movants") filed a motion in the Bankruptcy Court
(the "Motion") for leave to commence a derivative action in the United States
District Court for the Western District of Pennsylvania against the Company, a
nominal defendant, and the Company's former and current directors. The Movants
proposed to file a complaint asserting claims for common law fraud, violations
of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and breach
of fiduciary duty on behalf of the Company against the named defendants. The
proposed complaint revolves around the management buyout proposed by Mr. Robert
B. Stein, Jr., and the Movants would (if permitted to do so) seek compensatory
damages, punitive damages, attorney fees and costs totaling approximately $168
million and treble damages under RICO in the amount of $504 million. The
Bankruptcy Court held that the Company had priority in the first instance to
assert these potential claims and that the Creditors' Committee was next in
priority to assert any potential claims. The Bankruptcy Court has allowed the
Company and the Creditors' Committee until June 5, 2002, to investigate the
allegations in the proposed complaint and to determine whether either would seek
to assert a potential derivative claim. Additionally, the Bankruptcy Court
denied the Motion without prejudice to Movants filing a separate motion after
June 5, 2002. Although the Creditors' Committee has completed its investigation
as to whether Movants' proposed claims should be pursued it has not yet issued
its determination. The Company anticipates that the Creditors' Committee will
issue its determination by the week of July 15, 2002. The Company believes it
will make its determination shortly thereafter. Since, the Movants have appealed
the Bankruptcy Court's decision to the United States District Court for the
Southern District of New York, but briefing of their appeal has been stayed
pending a conference with the District Court which has been scheduled for July
26, 2002, at which time the District Court will expect to hear the Creditors'
Committee's and the Company's determinations. The Company does not expect that
Movants will attempt to file another motion to pursue a derivative action before
that date.

The Company anticipates that substantially all liabilities of the Debtors
as of the date of the Filing will be resolved under one or more Chapter 11 plans
of reorganization in accordance with the provisions of the Bankruptcy Code. As a
consequence of the Filing, all pending litigation against the Debtors is stayed
automatically by section 362 of the Bankruptcy Code and, absent further order of
the Bankruptcy Court, no party may take any action to recover on pre-petition
claims against the Debtors. Please see Notes 1 and 15 to the Consolidated
Financial Statements.

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

None.

PART II

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

The Company has not paid cash dividends on its common stock during the last
three fiscal years, and pursuant to loan covenants contained in the Company's
DIP Facility is currently restricted from paying dividends and from repurchasing
its common stock. The Company's current bankruptcy proceeding also restricts its
ability to pay dividends without prior approval from the Bankruptcy Court.

The Company's common stock was traded on the American Stock Exchange
("AMEX") under the symbol "DMC" through October 19, 2001. On October 19, 2001,
the Company's common stock began trading on the Over-the-Counter Bulletin Board
("OTC") under the symbol "DMCS". The following table represents the high

and low closing price of the Company's common stock on the AMEX and the OTC for
the relevant period. The closing prices that occurred when the shares traded on
the OTC reflect the closing bid prices and reflect prices between dealers
without adjustment for retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.

<Table>
<Caption>
HIGH LOW
---- ---

FISCAL YEAR ENDED FEBRUARY 2, 2002:
First Quarter............................................. 4 7/20 2 1/2
Second Quarter............................................ 3 4/5 9/10
Third Quarter............................................. 1 3/23 1/100
Fourth Quarter............................................ 1/25 1/100
FISCAL YEAR ENDED FEBRUARY 3, 2001:
First Quarter............................................. 3 1/8 1 7/8
Second Quarter............................................ 4 5/8 2 1/4
Third Quarter............................................. 5 3/8 3 3/4
Fourth Quarter............................................ 5 1/4 2
</Table>

There were approximately 1,850 holders of record of the Company's Common
Stock as of April 26, 2002. Included in this number are shares held in nominee
or street names.

ITEM 6. SELECTED FINANCIAL DATA

FIVE FISCAL YEARS ENDED FEBRUARY 2, 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------

OPERATING RESULTS:
Revenues.............................. $646,902 $723,671 $588,551 $481,598 $505,654
Interest expense, net................. 15,045 14,183 11,583 10,806 10,612
Income (loss) before income taxes and
extraordinary loss................. (61,723) (24,073) (3,660) 175 (1,999)
Net income (loss)..................... (63,188) (29,451) (2,496) 25 (1,468)
EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share before
extraordinary item -- basic and
diluted............................ (12.42) (5.96) (.51) .01 (.31)
Effect of extraordinary loss per
share.............................. (.21) -- -- -- --
-------- -------- -------- -------- --------
Net earnings (loss) per share -- basic
and diluted........................ (12.63) (5.96) (.51) .01 (.31)
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Property and equipment, net........... $ 97,010 $111,448 $110,946 $ 98,829 $ 82,589
Total assets.......................... 164,170 190,717 209,799 181,331 167,647
Long-term obligations (a)............. 41,359 135,600 123,135 108,507 96,448
Liabilities subject to compromise
(b)................................ 171,329 -- -- -- --
Stockholders' equity (deficit)........ (85,449) (22,272) 6,869 9,257 8,988
</Table>

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

(a) Long-term obligations include the current portion of long-term obligations.
Please see Note 8 to the Consolidated Financial Statements.

(b) Liabilities subject to compromise refer to Debtors' liabilities incurred
prior to the commencement of the Chapter 11 Cases. For a complete discussion
of "Liabilities Subject to Compromise" please see Note 15 to the
Consolidated Financial Statements.

FINANCIAL HIGHLIGHTS
FOR THE FISCAL YEARS ENDED FEBRUARY 2, 2002, FEBRUARY 3, 2001
AND JANUARY 29, 2000

(IN THOUSANDS, EXCEPT NUMBER OF LOCATIONS, GROSS PROFIT PER GALLON AND PER SHARE
DATA)

<Table>
<Caption>
2002 2001 2000
-------- -------- --------

FINANCIAL DATA:
Revenues:
Merchandise sales........................................ $354,861 $375,122 $353,545
Gasoline sales........................................... 291,351 347,759 233,926
Other.................................................... 690 790 1,080
-------- -------- --------
Total revenues........................................... 646,902 723,671 588,551
-------- -------- --------
Net income (loss).......................................... $(63,188) $(29,451) $ (2,496)
-------- -------- --------
STORE DATA:
Company operated:
Gross profit............................................. $106,551 $115,546 $111,664
Average sales per store (1)........................... $ 795 $ 794 $ 729
Average gross profit per store (1).................... $ 243 $ 250 $ 236
Number of stores at year end............................. 391 444 475
Franchise operated:
Franchise fees........................................... $ 7,182 $ 9,085 $ 9,678
Average sales per store (1)........................... $ 644 $ 656 $ 642
Average franchise fees per store (1).................. $ 76 $ 80 $ 71
Number of stores at year end............................. 89 103 128
Total stores:
Gross profit............................................. $113,733 $124,631 $121,342
Average sales per store (1)........................... $ 747 $ 744 $ 689
Average combined gross profit and franchise fees per
store (1)........................................... $ 213 $ 217 $ 199
Number of stores at year end............................. 480 547 603
GASOLINE DATA:
Gallons sold............................................. 215,395 238,054 202,648
Gross profit............................................. $ 18,659 $ 22,260 $ 22,568
Average gallons sold per location..................... 848 838 753
Gross profit per gallon.................................. $ .0866 $ .0935 $ .1114
Number of gasoline locations at year end................. 202 276 283
OTHER DATA:
Weighted-average number of shares in basic EPS........... 5,005 4,945 4,869
Book value per share (2)................................. $ (17.07) $ (3.23) $ 1.02
</Table>

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

(1) The calculation of average sales per store, average gross profit per store,
average franchise fees per store and gasoline gallons per store is based on
a weighted-average number of stores open during fiscal years 2002, 2001 and
2000, respectively.

(2) The calculation uses total outstanding shares including the dilutive effect
of stock options, stock grants and stock warrants as of February 2, 2002,
February 3, 2001 and January 29, 2000, respectively.

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

OVERVIEW

The consolidated financial statements and the notes thereto are an integral
part of Management's Discussion and Analysis of Financial Condition and Results
of Operations and should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations.

On the Petition Date, the Debtors filed for protection under Chapter 11 of
the Bankruptcy Code. The Chapter 11 Cases are discussed in greater detail in
Item 1, Item 7 and Note 1 to the Consolidated Financial Statements.

As a consequence of the Filing, all pending litigation against the Debtors
is stayed automatically by section 362 of the Bankruptcy Code and, absent a
specific order of the Bankruptcy Court, no party may take any action to recover
on pre-petition claims against the Debtors. In addition, pursuant to section 365
of the Bankruptcy Code, the Debtors may reject or assume pre-petition executory
contracts and unexpired leases, and parties to contracts or leases that are
rejected may assert rejection damages claims as permitted by the Bankruptcy
Code.

On June 5, 2002, the Company executed the Purchase Agreement pursuant to
which Couche-Tard agreed to acquire the majority of the Company's stores. Under
the terms of the Purchase Agreement, Couche-Tard would acquire the majority of
Dairy Mart's stores for approximately $80 million in cash, subject to
adjustments, and the assumption of certain liabilities. Couche-Tard would also
manage any stores that it does not acquire, with the intention of eventually
selling or closing those stores on behalf of the Company. The Company's board of
directors and the Creditors' Committee have approved the transaction.

On September 26, 2001, the Debtors received interim approval of their
debtor-in-possession credit facility (as amended from time to time, the "DIP
Facility") and on October 19, 2001, the Company received approval on its entire
$46 million DIP Facility. The DIP Facility has an initial term of twelve months
with an option to extend the term of the facility upon the satisfaction of
certain conditions. During the first quarter and first period of the second
quarter of fiscal year 2003 the Company failed to meet certain earnings
covenants required by the terms of the DIP Facility. The Company notified the
DIP Facility lenders that the Company was in default under the terms of the DIP
Facility. Subsequent to receiving notification from the Company of the event of
default, the DIP Facility lenders have continued to provide financing to the
Company under the terms of the DIP Facility. The Company believes the DIP
Facility will be retired in full if the Purchase Agreement is consummated. The
Company and the DIP Facility lenders have agreed in principle to the terms of an
agreement whereby the DIP Lenders have agreed to forbear from exercising their
rights and remedies with respect to the present events of default and any
financial covenant defaults, and continue to provide financing in accordance
with the terms of the DIP Facility through August 23, 2002. The agreement is
subject to execution by the parties and Bankruptcy Court approval.

Substantially all of the Company's pre-petition debt is now in default due
to the Filing. As described below, the accompanying consolidated financial
statements present the Debtors' pre-petition debt under the caption "Liabilities
Subject to Compromise." As required by SOP 90-7 the Company, beginning in fiscal
year 2002, recorded the Debtors' pre-petition debt instruments at the allowed
amount, as defined by SOP 90-7.

As reflected in the consolidated financial statements, "Liabilities Subject
to Compromise" refer to Debtors' liabilities incurred prior to the commencement
of the Chapter 11 Cases. The amounts of the various liabilities that are subject
to compromise are reflected in the accompanying balance sheets. These amounts
represent the Company's estimate of known or potential pre-petition claims to be
resolved in connection with the Chapter 11 Cases. Such claims remain subject to
future adjustments. Adjustments may result from (1) negotiations; (2) actions of
the Bankruptcy Court; (3) further developments with respect to disputed claims;
(4) rejection of executory contracts and unexpired leases; (5) the determination
as to the value of any secured claims; (6) proofs of claim; or (7) other events.
Payment terms for these amounts will be established in connection with the
confirmation of a plan or plans in the Chapter 11 Cases.

Pursuant to the Bankruptcy Code, schedules have been filed by the Debtors
with the Bankruptcy Court setting forth the assets and liabilities of the
Debtors as of the date of the Filing. The bar date for filing proofs of

pre-petition claims against the Debtors was February 22, 2002. Differences
between amounts recorded by the Debtors and claims filed by creditors are being
investigated and will be resolved as part of the Chapter 11 Cases. Accordingly,
the ultimate allowed amount of such claims is not presently known.

The Debtors received approval from the Bankruptcy Court to pay or otherwise
honor certain of their pre-petition obligations, including certain of their
employee wages, salaries, benefits and other employee obligations, gasoline and
sales taxes held in trust, and certain other pre-petition claims.

The Company believes, based on information presently available to it, that
cash available from operations and the DIP Facility will provide sufficient
liquidity to allow it to continue to operate through the consummation of the
Purchase Agreement. However, the ability of the Company to continue operation on
a going concern basis (including its ability to meet its post-petition
obligations) and the appropriateness of using the going concern basis for its
financial statements are dependent upon, among other things, (i) the Company's
ability to comply with the terms of the DIP Facility and any cash management
order entered by the Bankruptcy Court in connection with the Chapter 11 Cases,
(ii) the ability of the Company to maintain adequate cash on hand, (iii) the
ability of the Company to generate cash from operations, (iv) confirmation and
consummation of a plan or plans of reorganization under the Bankruptcy Code and
(v) the continued availability of financing under the DIP Facility given the
continuance of a default or defaults.

The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Filing,
related circumstances and the losses from operations, raise substantial doubt
about the Company's ability to continue as a going concern and such realization
of assets and liquidation of liabilities is subject to significant uncertainty.
While under the protection of Chapter 11, the Debtors may sell or otherwise
dispose of assets and liquidate or settle liabilities for amounts other than
those reflected in the accompanying consolidated financial statements. Further,
a plan of reorganization could materially change the amounts reported in the
accompanying consolidated financial statements. The consolidated financial
statements do not include any adjustments relating to a recoverability of the
value of recorded asset amounts or the amounts and classification of liabilities
that might be necessary as a consequence of a plan of reorganization.

As a result of the Filing, the financial position and results of operations
of the Company subsequent to the Filing are not necessarily comparable to the
financial position and results of operations of the Company prior to the Filing.
Amounts reported for financial reporting purposes in fiscal year 2002 represent
the activity of the Company operating as debtor-in-possession beginning
September 24, 2001.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

FOR THE FISCAL YEARS ENDED FEBRUARY 2, 2002, FEBRUARY 3, 2001, AND JANUARY 29,
2000

<Table>
<Caption>
2002 2001 2000
------- ------ ------

Revenues.................................................... $ 646.9 $723.7 $588.5
Cost of goods sold and expenses:
Cost of goods sold........................................ 513.8 576.1 443.5
Operating and administrative expenses..................... 156.7 157.5 137.1
Impairment charges........................................ 17.0 -- --
Chapter 11 related restructuring expenses................. 6.1 -- --
Interest expense, net..................................... 15.1 14.2 11.6
------- ------ ------
708.7 747.8 592.2
------- ------ ------
Loss before income taxes and extraordinary item........... (61.8) (24.1) (3.7)
(Provision for) benefit from income taxes................. (.4) (5.4) 1.2
------- ------ ------
Loss before extraordinary item............................ (62.2) (29.5) (2.5)
Extraordinary loss on early retirement of debt............ (1.0) -- --
------- ------ ------
Net loss.................................................. $ (63.2) $(29.5) $ (2.5)
======= ====== ======
Earnings (loss) per share before extraordinary item -
basic and diluted...................................... (12.42) (5.96) (0.51)
Effect of extraordinary loss per share.................... (0.21) -- --
------- ------ ------
Loss per share - basic and diluted........................ $(12.63) $(5.96) $(0.51)
======= ====== ======
</Table>

FISCAL YEAR 2002 RESULTS COMPARED TO FISCAL YEAR 2001 RESULTS:

Revenues

Revenues for fiscal year 2002 decreased $76.8 million compared to fiscal
year 2001. The Company's fiscal year ends on the Saturday closest to January 31.
There were 52 weeks in the fiscal year ended February 2, 2002 and 53 weeks
included in the fiscal year ended February 3, 2001. A summary of revenues by
functional area is shown below:

<Table>
<Caption>
2002 2001
------ ------
(IN MILLIONS)

Convenience stores.......................................... $354.9 $375.2
Gasoline.................................................... 291.3 347.7
Other....................................................... .7 .8
------ ------
Total..................................................... $646.9 $723.7
====== ======
</Table>

Convenience store revenues decreased $20.3 million, or 5.4%, in fiscal year
2002 compared to fiscal year 2001. This decrease is the result of the inclusion
of 53 weeks in fiscal year 2001, as described above, a 1.6% decrease in
comparable Company-operated store sales and the closure or sale of 68
under-performing stores during fiscal year 2002.

Gasoline revenues decreased $56.4 million in fiscal year 2002 compared to
fiscal year 2001 as a result of the inclusion of 53 weeks in fiscal year 2001, a
decrease in the average selling price of gasoline of 10.7 cents per gallon and a
decrease in total gallons sold of 22.7 million, or 9.5%. The decrease in gallons
sold is primarily a result of the closure or sale of 25 stores which sold
gasoline and the suspension of gasoline supply following the Filing at 46 lower
volume gasoline locations which are supplied under a consignment agreement.
Gasoline supply at 29 of these locations is scheduled to resume during the first
half of fiscal year 2003 pursuant to an agreement reached with the supplier.
Gallons of gasoline sold for comparable stores that sell gasoline decreased 7.3%
from fiscal year 2001 to fiscal year 2002.

Gross Profit

Gross profit decreased $14.6 million from fiscal year 2001 to fiscal year
2002. A summary of gross profit by functional area is shown below:

<Table>
<Caption>
2002 2001
------ ------
(IN MILLIONS)

Convenience Stores.......................................... $113.7 $124.6
Gasoline.................................................... 18.7 22.3
Other....................................................... .7 .8
------ ------
Total..................................................... $133.1 $147.7
====== ======
</Table>

Convenience store gross profits decreased by $10.9 million in fiscal year
2002 compared to fiscal year 2001. The decrease in store gross profit was a
result of the decrease in convenience store sales and a decrease in overall
convenience store gross profit margin. Convenience store gross profit margin
decreased from 33.2% in fiscal year 2001 to 32.0% in fiscal year 2002.
Convenience store gross profit margins decreased primarily because of increases
in wholesale cigarette costs during fiscal year 2002 that were not able to be
passed on through increased retail prices.

Gasoline gross profits decreased $3.6 million in fiscal year 2002 compared
to fiscal year 2001. This decrease was attributable to a 0.7 cent per gallon
decrease in gasoline gross profit and by the decrease in gasoline gallons sold,
described above. Gasoline gross profit was 8.7 cents per gallon in fiscal year
2002 compared to 9.4 cents per gallon in fiscal year 2001.

Operating Expenses, Administrative Expenses and the Impairment Charge

Operating and administrative expenses increased $22.3 million in fiscal
year 2002 compared to fiscal year 2001. A summary of operating and
administrative expenses is shown below:

<Table>
<Caption>
2002 2001
------ ------
(IN MILLIONS)

Operating expenses.......................................... $118.7 $124.9
Impairment charge........................................... 17.0 --
Chapter 11 related restructuring costs...................... 6.1 --
General & administrative expenses........................... 38.0 32.6
------ ------
Total..................................................... $179.8 $157.5
====== ======
</Table>

The decrease in operating expenses was primarily the result of the store
dispositions, as described above, and a $0.9 million reduction in store cash
losses, partially offset by increases in equipment depreciation and store
occupancy expenses.

An impairment charge of $17.0 million was recorded during fiscal year 2002
related to goodwill, other intangible assets including franchise rights and
favorable leases, and certain property, plant and equipment. This charge is
discussed in greater detail in Note 3 to Consolidated Financial Statements.

Chapter 11 related restructuring charges consist primarily of professional
fees, severance and retention costs.

General and administrative expenses increased as a result of (1) increases
in severance and related costs associated with a reduction in corporate
headquarter positions, (2) increases in costs incurred to sell or close
under-performing stores and (3) a $1.7 million charge related to the judgment
entered in a lawsuit brought by a former supplier of dairy products to the
Company. The lawsuit is described more fully in the Legal Proceedings section of
this document.

Interest Expense, Inflation and Taxes

Interest expense, net, was $15.0 million in fiscal year 2002 and $14.2
million in fiscal year 2001. The increase was primarily attributable to an
increase in the average outstanding balance of the revolving credit facility and
an increase in bank fees, partially offset by a decrease in interest rates.

As discussed above, the Company experienced inflationary increases in the
wholesale cost of cigarettes during fiscal year 2002.

The effective tax rate for the Company was a provision of 1% for fiscal
year 2002 and 22% for fiscal year 2001. The Company did not record a tax benefit
in the current or prior fiscal years because of the uncertainty as to its
ability to utilize current operating losses to offset potential future income
tax liabilities. In fiscal year 2001, the Company fully offset net deferred tax
assets by recording a valuation allowance of $4.8 million because of the
uncertainty of realizing certain tax credits and loss carryforwards in the
future. The recording of the valuation allowance in fiscal year 2001 had no
impact on the Company's net cash provided by operating activities.

Extraordinary Loss

On October 19, 2001, the Company retired the outstanding balance of
approximately $26.5 million on its existing $30 million senior secured revolving
credit facility. This debt became due when the Company defaulted by, among other
things, not paying a $250,000 amendment fee to its senior secured revolving
credit facility lenders. On October 19, 2001, the Company received Bankruptcy
Court approval of its entire $46 million DIP Facility, and the Company retired
its senior secured revolving credit facility with proceeds from the DIP
Facility. An extraordinary loss of approximately $1.0 million was incurred as a
result of the early retirement which represented the write-off of remaining
unamortized deferred financing costs at that date. No tax benefit has been
recorded due to the uncertainty as to the Company's ability to utilize current
operating losses to offset future income tax liabilities.

FISCAL YEAR 2001 RESULTS COMPARED TO FISCAL YEAR 2000 RESULTS:

Revenues

Revenues for fiscal year 2001 increased $135.2 million compared to fiscal
year 2000. The Company's fiscal year ends on the Saturday closest to January 31.
There were 53 weeks included in the fiscal year ended February 3, 2001 and 52
weeks in the fiscal year ended January 29, 2000. A summary of revenues by
functional area is shown below:

<Table>
<Caption>
2001 2000
------ ------
(IN MILLIONS)

Convenience stores.......................................... $375.2 $353.6
Gasoline.................................................... 347.7 233.9
Other....................................................... .8 1.0
------ ------
Total..................................................... $723.7 $588.5
====== ======
</Table>

Convenience store revenues increased $21.6 million, or 6.1%, in fiscal year
2001 compared to fiscal year 2000. This increase was the result of the inclusion
of 53 weeks in fiscal year 2001, as described above, a 2.8% increase in
comparable Company-operated store sales and the opening of nine new stores
during fiscal year 2001, which was partially offset by the closure or sale of 65
under-performing stores.

Gasoline revenues increased $113.8 million in fiscal year 2001 compared to
fiscal year 2000 as a result of the inclusion of 53 weeks in fiscal year 2001,
an increase in the average selling price of gasoline of 30.7 cents per gallon
and an increase in total gallons sold of 35.4 million, or 17.5%. The increase in
gallons sold was primarily a result of opening 27 convenience stores during
fiscal years 2000 and 2001, all of which have expanded gasoline facilities
resulting in substantially higher average gasoline sales than the Company's
older, less modern convenience stores that sell gasoline. Gallons of gasoline
sold for comparable stores that sell gasoline decreased 2.3% from fiscal year
2000 to fiscal year 2001.

Gross Profit

Gross profit increased $2.7 million from fiscal year 2000 to fiscal year
2001. A summary of gross profit by functional area is shown below:

<Table>
<Caption>
2001 2000
------ ------
(IN MILLIONS)

Convenience Stores.......................................... $124.6 $121.4
Gasoline.................................................... 22.3 22.6
Other....................................................... .8 1.0
------ ------
Total..................................................... $147.7 $145.0
====== ======
</Table>

Convenience store gross profits increased by $3.3 million in fiscal year
2001 compared to fiscal year 2000. The increase in store gross profit was a
result of the increase in convenience store sales, as described above, which was
partially offset by a decrease in overall convenience store gross profit margin.
Convenience store gross profit margin decreased from 34.3% in fiscal year 2000
to 33.2% in fiscal year 2001. Convenience store gross profit margins decreased
primarily because cigarette sales increased relative to total sales and
cigarette sales carry a lower gross profit margin than merchandise sales in
total. In addition, the gross profit margin on cigarette sales decreased as a
result of increases in wholesale cigarette costs during fiscal year 2001.

Gasoline gross profits decreased $0.4 million in fiscal year 2001 compared
to fiscal year 2000. This decrease was primarily attributable to a 1.7 cent per
gallon decrease in gasoline gross profit which was partially offset by the
increase in gasoline gallons sold, described above. Gasoline gross profit was
9.4 cents per gallon in fiscal year 2001 compared to 11.1 cents per gallon in
fiscal year 2000. Average product cost per gallon increased 31% in fiscal year
2001 compared to fiscal year 2000 as a result of increases in crude oil prices
and wholesale gasoline costs during fiscal year 2001. However, competitive
pressures in the Company's major market areas held the increase in the average
retail price per gallon to 27%. In addition, credit card fees paid by the
Company increased $1.8 million, or 83%, during fiscal year 2001 as a result of
the higher average retail price of gasoline and the higher relative proportion
of gasoline purchases made using credit cards.

Operating and Administrative Expenses

Operating and administrative expenses increased $20.4 million in fiscal
year 2001 compared to fiscal year 2000. A summary of operating and
administrative expenses is shown below:

<Table>
<Caption>
2001 2000
------ ------
(IN MILLIONS)

Operating expenses.......................................... $124.9 $111.4
General & administrative expenses........................... 32.6 25.7
------ ------
Total..................................................... $157.5 $137.1
====== ======
</Table>

The increase in operating expenses was primarily the result of an increase
in store wages, employee benefits, payroll taxes, advertising expense,
depreciation and store occupancy costs. Store labor costs increased as a result
of wage rate increases required to attract store associates in a low
unemployment environment and highly competitive labor market. Advertising
expenses were increased to promote the Company's food service offerings.
Depreciation and store occupancy costs increased as a result of 27 new stores
opened during fiscal years 2000 and 2001.

General and administrative expenses increased as a result of (1) higher
liability and health insurance costs, (2) increases in costs incurred to sell or
close under-performing stores, (3) costs associated with corporate governance
activities, including the previously announced review of the Company's strategic
alternatives, and (4) a $1.3 million charge related to the settlement of a
lawsuit involving the recovery of costs associated with a previously settled
shareholder derivative action. The settlement is described more fully in the
Legal Proceedings section of this document.

Interest Expense, Inflation and Taxes

Interest expense, net, was $14.2 million in fiscal year 2001 and $11.6
million in fiscal year 2000. The increase was primarily attributable to an
increase in capital lease borrowings, an increase in the average outstanding
balance of the senior revolving credit facility and an increase in interest
rates.

As noted in the analyses above, the Company experienced inflationary
increases in the cost of tobacco products, gasoline and wages during fiscal year
2001.

The effective tax rate for the Company was a provision of 22% for fiscal
year 2001 and a benefit of 32% for fiscal year 2000. In fiscal year 2001, the
Company fully offset net deferred tax assets by recording a valuation allowance
of $4.8 million because of the uncertainty of realizing certain tax credits and
loss carryforwards in the future. The recording of the valuation allowance had
no impact on the Company's net cash provided by operating activities.

Liquidity and Capital Resources

On September 24, 2001, as a consequence of impending liquidity issues
facing the Company during the second quarter of fiscal year 2002 and after not
making the $250,000 payment due under its former senior secured revolving credit
facility and the $4.5 million payment due on its $88.5 million 10 1/4% Senior
Subordinated Notes due 2004 (the "Notes"), the Company filed for Chapter 11
protection.

At February 2, 2002, the Company had $105.8 million of long-term
borrowings, including the Notes, which were in default as a consequence of the
Filing. These amounts are included in "Liabilities Subject to Compromise" on the
Consolidated Balance Sheet as of February 2, 2002, and are described further in
Notes 8 and 15 to the Company's Consolidated Financial Statements.

The Company has $41.4 million of other borrowings which is comprised
primarily of amounts outstanding under the $46 million DIP Facility. These
borrowings are shown on the Company's Consolidated Balance Sheets under "Current
maturities of long-term obligations" and are discussed further in Note 8 to the
Company's Consolidated Financial Statements. The DIP Facility has an initial
term of twelve months with an option to extend the term of the facility upon the
satisfaction of certain conditions. Proceeds from the DIP Facility were used to
retire in full amounts outstanding under the Company's former senior secured
revolving credit facility. At February 2, 2002, $1.3 million was available for
additional borrowing under the DIP Facility. Because of the seasonal nature of
the Company's business, borrowings under the DIP Facility are expected to be
higher at the end of the fourth quarter of the Company's fiscal year than at the
end of the first, second or third quarters of the fiscal year, other cash
requirements notwithstanding. As of the end of the first quarter of fiscal year
2003, the Company had $3.2 million available for additional borrowing under the
DIP Facility.

During the first quarter and first period of the second quarter of fiscal
year 2003 the Company failed to meet certain earnings covenants required by the
terms of the DIP Facility. The Company notified the DIP Facility lenders that
the Company was in default under the terms of the DIP Facility. Subsequent to
receiving notification from the Company of the event of default, the DIP
Facility lenders have continued to provide financing to the Company under the
terms of the DIP Facility. The Company believes the DIP Facility will be retired
in full if the Purchase Agreement is consummated. The Company and the DIP
Facility lenders have agreed in principle to the terms of an agreement whereby
the DIP Lenders have agreed to forbear from exercising their rights and remedies
with respect to the present events of default and any financial covenant
defaults, and continue to provide financing in accordance with the terms of the
DIP Facility through August 23, 2002. The agreement is subject to execution by
the parties and Bankruptcy Court approval.

The Company believes, based on information presently available to it, that
cash available from operations and the DIP Facility will provide sufficient
liquidity to allow it to continue to operate through consummation of the
Purchase Agreement. However, the ability of the Company to continue operation on
a going concern basis (including its ability to meet post-petition obligations
of the Debtors) and the appropriateness of using the going concern basis for its
financial statements are dependent upon, among other things, (i) the Company's
ability to comply with the terms of the DIP Facility and any cash management
order entered by the Bankruptcy Court in connection with the Chapter 11 Cases,
(ii) the ability of the Company to maintain adequate cash on hand, (iii) the
18

ability of the Company to generate cash from operations, (iv) confirmation of a
plan or plans of reorganization under the Bankruptcy Code, and (v) the continued
availability of financing under the DIP Facility. However, the Company's Chapter
11 filing, recurring operating losses and reduced cash flows from operating
activities as well as other previously disclosed conditions raise substantial
doubt about the Company's ability to continue as a going concern.

During fiscal year 2002, the Company's operating activities used $7.3
million in cash compared to providing $0.3 million of cash in fiscal year 2001.
This change was primarily the result of decreased earnings of the Company as
discussed above. Cash used for operating activities during fiscal year 2002 was
offset by $11.3 million in net cash provided by financing activities under the
Company's former secured revolving credit facility and its DIP Facility.

Capital Expenditures

The Company's capital expenditures, net of the proceeds from the sale of
property, equipment and assets held for sale, were $9.4 million lower in fiscal
year 2002 than in fiscal year 2001. As a result of the Filing, the Company has
continued to defer new store openings and related capital expenditures. Any
additional capital expenditures are expected to be paid with proceeds from the
DIP Facility and through cash provided by operating activities. Management
estimates that capital expenditures in the range of approximately $2.0 million
annually are required to replace existing property, plant and equipment that
becomes obsolete and worn out in the ordinary course of business.

Environmental Responsibility

The Company's financial statements are prepared in conformity with the
American Institute of Certified Public Accountants' Statement of Position
("SOP") No. 96-1, "Environmental Remediation Liabilities," that provides
guidance on specific accounting issues that are present in the recognition,
measurement and disclosure of environmental remediation liabilities. The Company
accrues its estimate of all costs to be incurred for assessment and remediation
with respect to release of regulated substances from existing and previously
operated retail gasoline facilities. For a related discussion on environmental
liabilities, see the Notes to the Consolidated Financial Statements.

New Authoritative Accounting Pronouncements

Please refer to Note 1 of the Company's Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE MARKET RISK

The Company does not have any instruments that it believes would be
materially affected by any future interest rate changes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of the Company and its subsidiaries
and notes thereto appear on pages F1 through F30 of this Form 10-K. The required
Supplementary Data appears on page F30 of this Form 10-K.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Listed below are the names, positions and ages of the directors and
executive officers of the Company as of April 30, 2002. Each executive officer
will serve until a successor is selected by the Board of Directors or until the
earlier of their resignation or removal.

<Table>
<Caption>
NAME POSITION AGE
---- -------- ---

Albert T. Adams............... Director 51
Frank W. Barrett.............. Director 62
J. Kermit Birchfield, Jr...... Chairman of the Board 62
John W. Everets............... Director 55
William A. Foley.............. Director 54
Gregory G. Landry............. President and Chief Executive Officer 44
Gregg R. Budoi................ Vice President Finance, Treasurer and
Chief Financial Officer 37
Alice R. Guiney............... Vice President Human Resources 48
Dale W. Fuller................ Vice President Administration and Retail
Support Services 52
Dale R. Valvo................. Vice President Retail Operations 52
Jay E. Ross................... Vice President Marketing and Merchandising 49
</Table>

ALBERT T. ADAMS

Mr. Adams, a director since 1998, has been a partner with the law firm of
Baker & Hostetler LLP in Cleveland, Ohio, since 1984, and has been affiliated
with the firm since 1977. Mr. Adams is a director of American Industrial
Properties REIT, Associated Estates Realty Corporation, Boykin Lodging Company,
Captec Net Lease Realty, Inc. and Developers Diversified Realty Corporation.

FRANK W. BARRETT

Mr. Barrett, a director since 1983, has been Executive Vice President of
Family Bank, FSB, a subsidiary of Peoples Heritage Financial Group since 1994.
Mr. Barrett is a director of the Providence and Worcester Railroad, which
provides freight rail service in Connecticut, Massachusetts and Rhode Island.

J. KERMIT BIRCHFIELD, JR.

Mr. Birchfield was appointed as Chairman of the Board in August 2001. Mr.
Birchfield, a director since 1996, was the Chairman of the Board of Displaytech,
Inc., a manufacturer of high-resolution miniature ferro-electric liquid crystal
displays from 1995 through January 2001, and is still a director. Mr. Birchfield
is a director of HPSC, Inc., a company that provides financing for the purchase
of health care equipment, Intermountain Gas Company, Inc., an Idaho public
utility company, and the Compass Group of Mutual Funds of MFS, Inc., a
registered mutual funds company and a wholly owned subsidiary of Sun Life of
Canada.

JOHN W. EVERETS

Mr. Everets, a director since 1994, has been Chairman of the Board and
Chief Executive Officer of HPSC, Inc., a company that provides financing for the
purchase of health care equipment, since July 1993 and has been a director of
HPSC, Inc. since 1983. Mr. Everets is also a director of Eastern Company, a
manufacturing company.

WILLIAM A. FOLEY

Mr. Foley, a director since 1999, was the Chairman, President, Chief
Executive Officer and a director of LESCO, Inc., a manufacturer and direct
marketer of turf care products and equipment, from July 1993 through April 2002.
Mr. Foley is a director of Libbey, Inc., a producer of glass products.

GREGORY G. LANDRY

Mr. Landry was appointed as President and Chief Executive Officer in July
2001. Mr. Landry, a director since 1991, has served as Chief Financial Officer
of the Company from August 1990 through July 2001, was named Executive Vice
President of the Company in April 1992 and Vice Chairman in April 2000. Mr.
Landry joined the Company in October 1985 and served in various financial
positions, including Treasurer.

GREGG R. BUDOI

Mr. Budoi was named Vice President Finance, Chief Financial Officer and
Treasurer in September 2001. Mr. Budoi joined the Company in 1997 as Manager
Financial Analysis and in August 1997 was promoted to Director, Treasury
Services. Prior to joining the Company, Mr. Budoi was Manager of Treasury
Operations for Figgie International, Inc.

ALICE R. GUINEY

Ms. Guiney was named Vice President Human Resources in November 1996. From
June 1992 through November 1996, Ms. Guiney directed corporate and field
operational disciplines of human resources for Sunglass Hut International, a
retailer of sunglasses.

DALE W. FULLER

Mr. Fuller was named Vice President Administration and Retail Support
Services in September 2001. Mr. Fuller joined the company from Sherwood
Promotions, a marketing incentive company, where he was Vice President of
Operations from May 1999 through August 2001. From February 1998 through
February 1999, Mr. Fuller was Executive Vice President and Chief Administration
Officer for Dairy Mart Convenience Stores, Inc.

DALE R. VALVO

Mr. Valvo was named Vice President Retail Operations in September 2001.
From April through September 2001, Mr. Valvo was a consultant to Roundtree
Markets, Inc., a company which operates convenience stores. He was previously
employed by the Company in the capacity of Vice President - Gasoline and Store
Development from April 1998 through March 2001. Prior to that, Mr. Valvo was
General Manager Marketing-Southeast Business Unit for Fina Oil and Chemical
Company, a diversified oil company.

JAY E. ROSS

Mr. Ross was named Vice President Marketing and Merchandising in August
2001. Previously, Mr. Ross was employed by Jo-Ann Stores, Inc., a fabric, crafts
and home decorations retailer, from June 2000 through July 2001 as Director of
Merchandising/Presentation. Mr. Ross was also employed by Dairy Mart from
January 1997 through May 2000 as Vice President Marketing and Merchandising

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based on the Company's review of Forms 3, 4 and 5, all transactions
occurring during fiscal year 2002 which required the reporting of changes in
beneficial ownership of the Company's common stock were timely filed for all of
the Company's executive officers and directors, except the Forms 5 that were
inadvertently not filed by Messrs. Adams, Everets, and Foley in connection with
their election to defer the payment of their directors' fees under the
Directors' Deferred Compensation Plan in an account that values that deferred
compensation as if it were invested in the common stock of the Company.
21

ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

EXECUTIVE OFFICERS' COMPENSATION

The following table summarizes the compensation earned by or paid to
persons who acted as the Company's Chief Executive Officer, the Company's
executive officers who make more than $100,000 and served throughout fiscal year
2002, and the Company's former Executive Vice President and Chief Operating
Officer.

SUMMARY COMPENSATION TABLE

<Table>
<Caption>
LONG-TERM
AWARDS (a)
COMPENSATION
ANNUAL COMPENSATION ------------------------------------------
--------------------- OTHER ANNUAL SECURITIES ALL OTHER
FISCAL BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY (b) (c) OPTIONS (d)
- --------------------------- ------ -------- ---------- ------------ ------------ ------------

Robert B. Stein, Jr. (e)............ 2002 $246,764 $ -- $ -- -- $ 3,420
Former Chairman of the Board, 2001 415,385 68,750 68,750 125,000 7,359
President and Chief Executive 2000 391,346 50,000 1,611 -- 877
Officer
Gregory G. Landry (e)............... 2002 362,510 150,000 -- -- 2,523
President and Chief Executive 2001 285,577 52,000 49,500 66,000 5,748
Officer 2000 264,615 37,500 -- -- 863
J. Wayne Colley..................... 2002 43,276 -- 739 -- 110,593
Former Executive Vice President 2001 258,654 10,000 25,792 -- 138
and Chief Operating Officer (f) 2000 -- -- -- -- --
Dale R. Valvo....................... 2002 143,856 10,000 4,500 -- 37,173
Vice President Retail 2001 153,173 -- 6,000 -- 4,405
Operations 2000 133,750 10,000 6,000 7,500 592
Alice R. Guiney..................... 2002 150,810 -- 6,000 -- 745
Vice President Human 2001 143,135 -- 6,045 -- 4,087
Resources 2000 129,904 10,000 2,265 7,500 589
Gregg R. Budoi...................... 2002 132,702 35,000 2,000 -- 746
Vice President Finance, Treasurer 2001 95,885 -- -- -- 2,704
and Chief Financial Officer 2000 74,577 9,000 -- -- --
</Table>

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

(a) The Company did not grant any stock appreciation rights nor make any
long-term incentive plan payments during fiscal years 2002, 2001 or 2000.

(b) Includes 25,000 shares and 18,000 shares granted to Mr. Stein and Mr.
Landry, respectively, on April 6, 2000, at the then-current fair market
value of $2.75. Mr. Landry received a $150,000 retention bonus in fiscal
year 2002. Mr. Budoi received a $35,000 retention bonus in fiscal year 2002.

(c) Other annual compensation for the following named executive officers
includes the following amounts paid on behalf of, or received by, each
officer: (i) in fiscal year 2001, Mr. Stein received $68,750 in tax
reimbursement relating to the award of 25,000 shares of common stock granted
to Mr. Stein, and in fiscal year 2000, Mr. Stein received $894 for
relocation expense and $717 in tax reimbursement; (ii) in fiscal year 2001,
Mr. Landry received $49,500 in tax reimbursement relating to the award of
18,000 shares of common stock granted to Mr. Landry; (iii) in fiscal year
2002, Mr. Colley received $739 in automobile allowance and in fiscal year
2001, Mr. Colley received $25,231 in tax reimbursement and $561 in
automobile allowance; (iv) the amounts shown represent automobile allowances
for Ms. Guiney, Mr. Budoi and Mr. Valvo.

(d) Includes amounts contributed or paid for the benefit of the Company's
executive officers to the Company's non-qualified deferred compensation plan
and qualified profit sharing plan; premiums paid by the Company for
split-dollar and group life insurance for the benefit of certain executive
officers; and, severance payments. Amounts for Mr. Stein include: for fiscal
year 2002, $745 for qualified profit sharing plan, $34 for group life
insurance and $2,641 for split-dollar life insurance; for fiscal year 2001,
$4,231 for non-qualified deferred compensation plan, $462 for qualified
profit sharing plan, $60 for group life insurance and $2,606 for split-
dollar life insurance; and for fiscal year 2000, $550 for qualified profit
sharing plan, $81 for group life

insurance and $246 for split-dollar life insurance. Amounts for Mr. Landry
include: for fiscal year 2002, $60 for group life insurance and $2,463 for
split-dollar life insurance; for fiscal year 2001, $3,385 for non-qualified
deferred compensation plan, $60 for group life insurance and $2,303 for
split-dollar life insurance; and for fiscal year 2000, $550 for qualified
profit sharing plan, $81 for group life insurance and $232 for split-dollar
life insurance. Amounts for Mr. Colley include, for fiscal year 2002, $16
for group life insurance and $110,577 for severance payments and, for fiscal
year 2001, $138 for group life insurance. Amounts for Mr. Valvo include: for
fiscal year 2002, $746 for qualified profit sharing plan, $81 for group life
insurance and $36,346 for severance payments; for fiscal year 2001, $69 for
group life insurance, $4,076 for non-qualified deferred compensation plan
and $260 for qualified profit sharing plan; and for fiscal year 2000, $42
for group life insurance and $550 for qualified profit sharing plan. Amounts
for Ms. Guiney include: for fiscal year 2002, $684 for qualified profit
sharing plan and $61 for group life insurance; for fiscal year 2001, $36 for
group life insurance, $3,808 for non-qualified deferred compensation plan
and $243 for qualified profit sharing plan; and for fiscal year 2000, $39
for group life insurance and $550 for qualified profit sharing plan. Amounts
for Mr. Budoi include, for fiscal year 2002, $719 for qualified profit
sharing plan and $27 for group life insurance and, for fiscal year 2001,
$2,531 for non-qualified deferred compensation plan and $173 for qualified
profit sharing plan.

(e) Mr. Stein resigned his position as Chairman of the Board in July 2001 and
his employment with the Company was terminated in September 2001. Mr. Landry
was appointed President and Chief Executive Officer in July 2001.

(f) Mr. Colley's employment with the Company began January 18, 2000 and was
terminated effective March 30, 2001.

LONG-TERM INCENTIVE AWARDS IN LAST FISCAL YEAR

The Company did not grant long-term incentive awards during fiscal year
2002 to any of the named executive officers listed in the Summary Compensation
Table above.

OPTIONS GRANTED IN LAST FISCAL YEAR

The Company did not grant stock options during fiscal year 2002 to any of
the named executive officers listed in the Summary Compensation Table above.

AGGREGATED OPTION EXERCISES DURING FISCAL YEAR 2002 AND FISCAL YEAR 2002 YEAR
END OPTION VALUES

No stock options were exercised during fiscal year 2002 by the executive
officers listed in the Summary Compensation Table above. The value of any
unexercised stock options held as of February 2, 2002, by the executive officers
listed in the Summary Compensation Table above was zero.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

In March 1998, the Company adopted a Supplemental Executive Retirement Plan
(the "SERP") to provide additional retirement benefits, payable in a lump sum,
to certain executive officers. Currently Mr. Landry is the only active
participant in the SERP. The SERP is an unfunded plan; however, the Company
intends to use the cash surrender value of key life insurance policies purchased
by the Company on the life of Mr. Landry to fund its obligations under the SERP.
Mr. Landry has no claim or right to the proceeds of the cash surrender value of
the insurance policies that are payable upon his death. To the extent he has an
accrued vested benefit under the SERP, he will only have a claim against the
general assets of the Company. Mr. Landry is 100% vested as of the end of fiscal
year 2002.

The benefits under the SERP are payable in a lump sum, which reflects the
annual life benefit determined under the SERP, discounted to its present value.
The lump sum benefit is based on providing the participant the present value of
an annual annuity commencing at age 65 and payable through participant's death
equal to (a) 50% of the average of participant's three greatest years of
compensation during participant's last five years of service with the Company
multiplied by a percentage equal to the actual years of service credited through

retirement divided by the years of service the participant could have been
credited with through the age of 65, less (b) the actuarial equivalent value, as
determined under the SERP, of (i) half the participant's Social Security
benefits and (ii) all Company contributions or allocations on the participant's
behalf to or under any other deferred compensation or retirement-type plans,
such as the Company 401(k) matching contribution, plus deemed interest equal to
seven percent compounded annually, on such contributions or allocations. Stock
option grants and incentive stock awards are not considered under the SERP as
Company contributions or allocations under a retirement plan. The portion of the
benefit that is based on the percentage of years of service credited to the
participant will accelerate to 100% upon (a) a change of control that is not
approved by two-thirds of the Board of Directors or (b) the Company terminating
the participant without "good cause."

The compensation covered under the SERP is generally the same compensation
that is covered in the Summary Compensation Table for Mr. Landry, except that
compensation under the SERP does not include the Company 401(k) match or
compensation from any equity based compensation plan including stock options and
incentive stock awards.

If Mr. Landry retired at age 65 and received annual increases in his
compensation each year through age 65, he would be entitled to an accrued lump
sum benefit of approximately $4,424,000 at age 65. If any excise taxes are due
on such payments, the payments will be grossed up to cover such taxes.

Mr. Stein also participated in the SERP prior to his termination. He has
filed a proof of claim for approximately $4.8 million that includes claims for
benefits due under the SERP. The Company is in the process of evaluating Mr.
Stein's claim but does not believe his entire allowable claim will exceed $1.2
million. Any amount of his claim that will be allowed will be subject to
compromise in accordance with the Company's plan of reorganization.

Continuation of the SERP is subject to acceptance under the Company's plan
of reorganization and approval by the Bankruptcy Court.

DIRECTORS' COMPENSATION

Each non-employee director is compensated at the rate of $12,000 per year
plus $1,000 for attendance at each in-person meeting of the Board of Directors
and for each meeting of any committee on which he serves and $500 for attendance
at telephonic meetings (except for meetings of the special committee for which
each non-employee director was compensated at $1,000 per meeting, whether
in-person or telephonic). Under the Directors' Deferred Compensation Plan that
was adopted in fiscal year 1999 and which was terminated effective September 21,
2001, a director's compensation was credited to the director's account and, as
elected by these directors, valued thereafter as if the director had invested
the deferred amount in the Company's common stock. Messrs. Adams, Everets, and
Foley deferred $28,000, $52,000 and $41,000, respectively, in directors' fees
pursuant to the plan during fiscal year 2002. During fiscal year 2002, Messrs.
Foley, Adams, Everets, Birchfield and Barrett earned directors' fees
compensation (in addition to the amounts deferred under the Directors' Deferred
Compensation Plan) of $6,000, $5,000, $9,000, $68,000 and $44,000, respectively.
The Company's employees and officers who are also directors are not paid any
directors' fees.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee of the Company's Board of
Directors during fiscal year 2002 were Messrs. Adams, Barrett, Everets and
Foley. Mr. Adams is a partner of Baker & Hostetler LLP, which acts as the
Company's general outside legal counsel on a variety of matters. No member of
the Compensation Committee was at any time during fiscal year 2002, or at any
other time, an officer or employee of the Company. Mr. Foley is the former
Chairman, President, Chief Executive Officer and director of LESCO, Inc. Mr.
Stein serves as a director of LESCO, Inc. No other executive officer of the
Company serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.

EMPLOYMENT AND SEVERANCE AGREEMENTS

In November 2001 in connection with the Filing, the Company entered into an
employment agreement with Mr. Landry for a three-year term ending on July 30,
2004. The agreement which was approved by the Bankruptcy Court provides that,
commencing on July 30, 2001 and each July 30 thereafter, the term will be
automatically extended for one additional year such that the remaining unexpired
term shall be three years unless the Company or Mr. Landry gives notice before
July 1 of each calendar year that it or he does not desire to have the term
extended. Under the agreement, Mr. Landry receives an annual base salary in the
minimum amount of $450,000, which may be increased but not decreased.

In addition to his annual base salary, the agreement provides that Mr.
Landry shall receive (i) a $450,000 retention bonus paid in three (3) equal
payments on February 1, 2002, August 1, 2002 and February 1, 2003, provided he
is employed with the Company on such dates, and (ii) an emergence bonus to be
paid on the consummation of an approved stand-alone plan of reorganization or a
change of control event including, but not limited to, merger, consolidation,
reorganization or sale of all or substantially all of the assets of the Company
in which the Company is not the surviving entity. The amount of the emergence
bonus is determined by the type, value and timing of any related change of
control event but may range between $50,000 and $875,000. Any approved
stand-alone plan of reorganization or change of control event for which the
emergence bonus is paid must be consummated by February 28, 2003.

Under the agreement, if Mr. Landry's employment is terminated for any
reason, other than by the Company without cause or by Mr. Landry for good
reason, or as a result of Mr. Landry's death or disability, then Mr. Landry will
receive only his salary and bonus through the date of termination. If Mr. Landry
dies or is disabled, he will also receive any additional benefits that are
provided under the Company's death and disability programs in effect at the time
of death or disability. If Mr. Landry is disabled and there is no disability
program in effect or if he dies, then his beneficiary will receive 100% of Mr.
Landry's annual salary plus an amount equal to the highest of the aggregate
bonus payments (excluding the retention bonus and the emergence bonus) earned by
him for any of the last three 12-month periods prior to the date of termination.

If Mr. Landry's termination is by the Company without cause or by Mr.
Landry for good reason, and not as a result of his death or disability, he will
receive his then current full salary and annual bonus earned through the date of
termination. Mr. Landry's annual bonus is defined as an amount equal to the
highest of the aggregate bonus payments earned by him (excluding the retention
bonus and the emergence bonus) for any of the last three 12-month periods prior
to the date of termination. In the case of such a termination, Mr. Landry would
also receive a severance payment equal to 1.5 times his then current full base
salary. Receipt of the severance payment by Mr. Landry would not preclude Mr.
Landry's receipt of the retention bonus and, if earned, the emergence bonus. If
any payments in connection with the termination of Mr. Landry's employment under
the Agreement would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then the Company would
pay Mr. Landry an additional payment equal to the amount of any excise tax he
might incur as a result of his receipt of these additional payments. The
agreement also provides (i) title to the automobile leased by the Company
currently used by Mr. Landry; (ii) health insurance benefits, for himself and
his dependents until he becomes eligible for substantially equivalent benefits
from a subsequent employer for a period not to exceed three years; (iii)
immediate vesting of any and all unvested stock purchase rights, stock grants
and options to purchase the Company's stock for a period of 18 months after the
date of termination; (iv) transfer to Mr. Landry of all rights and titles to
life insurance policies which benefit him and right and title to the Company's
personal computer used at his home. If the Company elects to not renew the term
of the agreement, then, as provided by the agreement, Mr. Landry is entitled to
all earned amounts described above with exception of the severance payment.
Under this election, Mr. Landry will be paid an amount equal to his then current
full base salary in lieu of the severance payment equal to 1.5 times his then
current full base salary. Total amounts paid to Mr. Landry under the terms of
the agreement vary based on the unknown outcome of future events, such as a sale
of the Company or restructuring under an approved plan of reorganization.

In September, 2001, the Company entered into retention agreements with
Messrs. Budoi and Valvo and Ms. Guiney in which the Company will pay to each an
amount equal to 50% of that person's annual base salary in consideration for
that person remaining in the Company's employ. Payments will be made in three
equal

installments in April 2002, October, 2002 and April 2003. If Messrs. Budoi or
Valvo or Ms. Guiney's employment with the Company is terminated by the Company
for good cause, or if the employee resigns other than for good reason, or if the
employee dies or is disabled prior to the installment due dates, no amounts will
be owing by the Company to the employee.

After the Filing, the Company established a Change of Control Severance
Plan -- 2001 to provide a range of severance benefits for its employees,
depending on their positions with the Company, in order to retain the services
of its work force during a period in which a change of control may occur. Under
this plan, each of Messrs. Budoi and Valvo and Ms. Guiney would receive a
minimum of one year's base salary (payable in installments pursuant to the
Company's normal payroll practices) in the event of a (i) change of control; and
(ii) termination of that officer's employment by the Company without cause or by
the employee for good reason. Additionally, each of Messrs. Budoi and Valvo and
Ms. Guiney would be entitled to receive certain medical and dental benefits
until the earlier of one year from the date of such person's termination or
until such person commenced comparable benefit coverage with a subsequent
employer.

In January 2000, the Company entered into employment agreements with
Messrs. Stein and Colley. The employment agreement for Mr. Stein commenced on
January 1, 2000, and was initially for a three-year term. The employment
agreement for Mr. Colley commenced on January 18, 2000, and was initially for a
term which was to terminate on December 31, 2002. Each of the employment
agreements provided that commencing on January 1, 2001, and each January 1
thereafter, each term was automatically extended for one additional year such
that the remaining unexpired term would be three years unless the Company or the
employee gives notice before December 31st of each year that it or he did not
desire to have the term extended. Under the employment agreements, Messrs. Stein
and Colley were entitled to receive various payments upon their termination
without cause.

Mr. Colley's employment was terminated effective March 30, 2001. In lieu of
the lump sum payment called for in Mr. Colley's employment agreement, Mr. Colley
agreed to receive severance payments totaling, in the aggregate, $250,000, to be
paid in equal biweekly installments through July 2001 and was to receive the
balance in a lump sum. As a result of the Company's liquidity position Mr.
Colley did not receive the lump sum payment in July, 2001, but did receive
biweekly installments totaling approximately $111,000 through September 14,
2001, at which time biweekly payments to Mr. Colley were suspended as a result
of the Company's Chapter 11 Filing. Mr. Colley initiated litigation to collect
the lump sum balance due under his employment agreement and has also filed an
unsecured claim with the Bankruptcy Court for amounts due under his employment
agreement totaling approximately $167,000.

Mr. Stein's employment with the Company terminated effective September 21,
2001. As a result of the Company's Chapter 11 bankruptcy proceedings Mr. Stein
received no payments under his employment agreement. Mr. Stein has filed with
the Bankruptcy Court an unsecured claim for amounts due him under his employment
agreement totaling approximately $4.8 million. The Company, however, believes
that the allowable portion of his claim will not exceed $1,200,000.

COMPENSATION COMMITTEE

REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors (the "Compensation
Committee") is composed entirely of outside directors. The Compensation
Committee, which consists of Messrs. Everets (Chairman), Adams, Barrett, and
Foley, is responsible for establishing and administering the Company's executive
compensation policies, the Company's stock option plan and other employee equity
plans.

Amounts payable and arrangements for payment to the executive officers have
been largely established as a result of negotiations among the individual
executive officers, the Debtors and the Unsecured Creditors' Committee. The
executive officers' compensation, bonuses and severance have been established as
a means of incentivizing the officers to cause the Company to emerge quickly and
successfully from the Chapter 11 proceedings. As a result, neither the
Compensation Committee nor the Board of Directors performed its traditional role
of setting the compensation of any of the executive officers, including Mr.
Landry; however, the executive officers' compensation was considered and
approved by the Board of Directors. Accordingly, neither the Board of Directors
nor the Compensation Committee has prepared a Compensation Report.

PERFORMANCE GRAPH

The Performance Graph set forth below compares the performance of the
common stock over the past five years with (i) the cumulative total return on
the American Stock Exchange Stock Market (the "AMEX") and (ii) a peer group
index consisting of AMEX Stocks Standard Industry Codes 5410-5419 (grocery
stores) ("Peer Group Index").

The figures presented assume the reinvestment of all dividends into shares
of common stock on the dividend payment date and that $100 was invested in
common stock and in the AMEX Stock Market Index (U.S. Companies) and Peer Group
Index on January 31, 1997, and held through February 2, 2002 (the end of the
Company's most recent fiscal year).

COMPARISON OF FIVE -- YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
DAIRY MART CONVENIENCE STORES, INC.

PRODUCED ON 05/15/2002 INCLUDING DATA TO 02/02/2002

DAIRY MART CONVENIENCE STORES, INC. GRAPH

<Table>
<Caption>
CRSP TOTAL RETURNS INDEX FOR: 01/31/1997 01/30/1998 01/29/1999 01/28/2000 02/03/2001 02/02/2002
- ----------------------------- ---------- ---------- ---------- ---------- ---------- ----------

Dairy Mart Convenience Stores,
Inc. ............................. 100.0 73.7 60.7 56.3 52.0 0.7
AMEX Stock Market (US Companies).... 100.0 120.3 137.2 166.9 168.8 145.1
AMEX Stocks (SIC 5410-5419 US
Companies) Grocery Stores......... 100.0 99.9 131.3 100.0 89.6 91.5
</Table>

NOTES:

A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.

B. The indexes are reweighted daily using the market capitalization on the
previous trading day.

C. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.

D. The index level for all series was set to $100.00 on 01/31/1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows the amount of the Company's common stock
beneficially owned as of April 26, 2002, by: (i) the Company's directors; (ii)
each other person who is known by the Company to own beneficially more than 5%
of the Company's outstanding common shares; (iii) the named executive officers
listed in the Summary Compensation Table; and (iv) all directors and executive
officers as a group.

This information is furnished in accordance with the SEC regulations
relating to any persons known by the Company to be the beneficial owners of 5%
or more of common stock. In preparing the following table, the Company has
relied on information filed by such persons with the SEC, and in some cases,
other information provided to the Company by such persons.

<Table>
<Caption>
AMOUNT AND
NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP OUTSTANDING SHARES
------------------- ----------------- ------------------

DM Associates Limited Partnership......................... 702,617(1) 14.0%
300 Executive Parkway West
Hudson, Ohio 44236
New DM Management Associates I............................ 702,617(1) 14.0%
300 Executive Parkway West
Hudson, Ohio 44236
Robert B. Stein, Jr. ..................................... 795,743(1) 15.9%
90 Grey Fox Run
Bentleyville, OH 44022
Gregory G. Landry......................................... 955,742(1)(2) 18.3%
300 Executive Parkway West
Hudson, Ohio 44236
Turkey Vulture Fund XIII, Ltd. ........................... 730,200(3) 14.6%
7001 Center Street
Mentor, Ohio 44060
William L. Musser, Jr. ................................... 327,550(4) 6.5%
and New Frontier Capital, L.P.
919 Third Avenue
New York, New York 10022
Albert T. Adams........................................... 19,875(5) (*)
3200 National City Center
1900 E. 9th Street
Cleveland, Ohio 44114
Frank W. Barrett.......................................... 32,625(6) (*)
1441 Main Street
Springfield, Massachusetts 01101
J. Kermit Birchfield, Jr. ................................ 35,450(7) (*)
Cranberry Hill
33 Way Road
Gloucester, Massachusetts 01930
John W. Everets........................................... 38,625(8) (*)
60 State Street
Boston, Massachusetts 02109
William A. Foley.......................................... 5,375(9) (*)
20005 Lake Road
Rocky River, Ohio 44116
J. Wayne Colley........................................... 50 (*)
4837 Arbour Green
Bath, Ohio 44333
</Table>

<Table>
<Caption>
AMOUNT AND
NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP OUTSTANDING SHARES
------------------- ----------------- ------------------

Dale R. Valvo............................................. 0 (*)
300 Executive Parkway West
Hudson, Ohio 44236
Alice R. Guiney........................................... 26,732(10) (*)
300 Executive Parkway West
Hudson, Ohio 44236
Gregg R. Budoi............................................ 3,750(11) (*)
300 Executive Parkway West
Hudson, Ohio 44236
All directors and executive officers as a group (11
persons)................................................ 1,119,766(12) 20.9%
</Table>

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

(*) Owns less than 1% of the issued and outstanding shares of Common Stock.

(1) DM Associates Limited Partnership ("DM Associates") is the owner of record
of 702,617 shares of Common Stock of the Company, representing
approximately 14.0% of the issued and outstanding shares of Common Stock.
The general partner of DM Associates is New DM Management Associates I ("DM
Management I"), which is a general partnership. The general partners of DM
Management I are Robert B. Stein, Jr. and Gregory G. Landry, each of whom
owns 50% of the partnership interest of DM Management I.

As the sole general partner of DM Associates, DM Management I has the power
to vote and dispose of the 702,617 shares of Common Stock owned by DM
Associates, subject to the required consent of a class of limited partners
of DM Associates for sales of more than 396,000 shares. The partnership
agreement of DM Management I provides that a majority of the partnership
interests of DM Management I is required to vote the shares of Common Stock
owned by DM Associates.

As the managing general partner of DM Management I, Mr. Stein has sole
dispositive power with respect to the 702,617 shares owned by DM
Associates, subject to the limitation described above. As general partners
of DM Management I, Mr. Stein and Landry share voting power with respect to
the 702,617 shares owned by DM Associates.

(2) Includes 218,250 shares of Common Stock issuable to Mr. Landry within 60
days of April 26, 2002, pursuant to employee stock options and grants.

(3) Turkey Vulture Fund XIII, Ltd. and Richard M. Osborne, as sole manager of
the Fund, reported on Form 13D filed with the SEC, their beneficial
ownership of 730,200 shares of Common Stock.

(4) New Frontier Capital, L.P., and William L. Musser, Jr., in his capacity as
General Partner, reported on a Form 13F filed with the SEC its beneficial
ownership, as an investment advisor, of 327,550 shares of Common Stock.

(5) Includes 14,875 shares of Common Stock that Mr. Adams is, or within 60 days
of April 26, 2002, will be, entitled to purchase upon the exercise of stock
options.

(6) Includes 28,250 shares of Common Stock that Mr. Barrett is, or within 60
days of April 26, 2002, will be, entitled to purchase upon the exercise of
stock options.

(7) Includes 22,250 shares of Common Stock that Mr. Birchfield is, or within 60
days of April 26, 2002, will be, entitled to purchase upon the exercise of
stock options.

(8) Includes 26,625 shares of Common Stock that Mr. Everets is, or within 60
days of April 26, 2002, will be, entitled to purchase upon the exercise of
stock options.

(9) Includes 4,375 shares of Common Stock that Mr. Foley is, or within 60 days
of April 26, 2002, will be, entitled to purchase upon the exercise of stock
options.

(10) Includes 25,625 shares of Common Stock that Ms. Guiney is, or within 60
days of April 26, 2002, will be, entitled to purchase upon the exercise of
stock options.

(11) Includes 3,750 shares of Common Stock that Mr. Budoi is, or within 60 days
of April 26, 2002, will be, entitled to purchase upon the exercise of stock
options.

(12) Includes exercisable, within 60 days of April 26, 2002, stock options
granted to all directors and executive officers of the Company to purchase
344,000 shares of Common Stock.

ITEM 13. CERTAIN TRANSACTIONS

Stock Owned by DM Associates

DM Associates Limited Partnership ("DM Associates") is the owner of record
of 702,617 shares of common stock of the Company, representing approximately
14.0% of the issued and outstanding shares of Common Stock. The general partner
of DM Associates is New DM Management Associates I, which is a general
partnership. The general partners of New DM Management Associates I are Robert
B. Stein, Jr., a former Director and the former Chairman of the Board, Chief
Executive Officer and President of the Company, and Gregory G. Landry, a
Director and the Chief Executive Officer and President of the Company.

As the sole general partner of DM Associates, DM Management I has the power
to vote and dispose of the 702,617 shares of common stock owned by DM
Associates, subject to the required consent of a class of limited partners of DM
Associates for sales of more than 396,000 shares. The partnership agreement of
DM Management I provides that a majority of the partnership interests of DM
Management I is required to vote the shares of Common Stock owned by DM
Associates.

As the managing general partner of DM Management I, Mr. Stein has sole
dispositive power with respect to the 702,617 shares owned by DM Associates,
subject to the limitation described above. As general partners of DM Management
I, Mr. Stein and Landry share voting power with respect to the 702,617 shares
owned by DM Associates.

OUTSIDE COUNSEL

Albert T. Adams, one of the Company's directors, is a partner of Baker &
Hostetler LLP, which acts as the Company's general outside legal counsel on a
variety of matters. The Company expects that Baker & Hostetler will continue to
provide legal services in that capacity in fiscal year 2003.

IT SERVICES AGREEMENT

On May 1, 2001, the Company renewed an IT Services Agreement with
EmpowerWare, Inc. EmpowerWare, Inc. is a Connecticut-based company specializing
in financial and retail accounting support services. It is owned by Scott Stein,
the former Vice President Management Information Systems of the Company and the
brother of Mr. Stein, the Company's former Chairman, President and Chief
Executive Officer. For a monthly fee of approximately $49,875 (plus expenses)
EmpowerWare, Inc. provided relationship management, project management and
administration, software upgrades, production support and other services. The
term of the Agreement was from May 1, 2001 to April 30, 2004, unless otherwise
terminated or extended in accordance with its terms. In February 2002 the
Company rejected this agreement as part of its Chapter 11 bankruptcy
proceedings.

DM ACQUISITION CORP

On March 15, 2001, the Company executed a merger agreement (the "Merger
Agreement") pursuant to which DM Acquisition Corp. agreed to acquire the Company
in a cash merger. DM Acquisition Corp. is wholly owned by Robert B. Stein, Jr.,
the former Chairman, President and Chief Executive Officer of the Company. On
July 29, 2001, the Merger Agreement was terminated. Baker & Hostetler LLP, with
the consent of the Company's board of directors, represented DM Acquisition
Corp. in connection with the Merger Agreement. Mr. Adams, a director of the
Company, is a partner of Baker & Hostetler, LLP. During fiscal year 2002 the
Company incurred and paid fees on behalf of DM Acquisition Corp. pursuant to the
terms of the Merger Agreement. DM Acquisition Corp has filed a proof of claim
with the Bankruptcy Court for reimbursement of approximately $550,000 in
professional fees incurred in connection with the merger transaction.

PART IV

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

(a) The following are filed as part of this Form 10-K:

(1) Financial Statements:

Consolidated Statements of Operations for the Fiscal Years ended
February 2, 2002, February 3, 2001 and January 29, 2000.

Consolidated Balance Sheets as of February 2, 2002 and February 3, 2001.

Consolidated Statements of Stockholders' Deficit for the Fiscal Years
Ended February 2, 2002, February 3, 2001 and January 29, 2000.

Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 2, 2002, February 3, 2001 and January 29, 2000.

Notes to Consolidated Financial Statements for the Fiscal Years Ended
February 2, 2002, February 3, 2001 and January 29, 2000.

(2) Financial Statement Schedules:

Report of Independent Public Accountants

Schedule II -- Valuation Accounts

All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the Consolidated
Financial Statements or notes thereto.

(3) Exhibits:

<Table>
<Caption>
EXHIBIT
NUMBER:

(2.1(a)) Agreement and Plan of Merger, dated as of March 15, 2001,
between DM Acquisition Corp. and Dairy Mart Convenience
Stores, Inc. was filed as Exhibit 2.1 to the Company's 10-K
for the fiscal year ended February 3, 2001, and is
incorporated herein by reference.
(2.1(b)) Asset Purchase Agreement, dated as of June 5, 2002, between
Bigfoot Food Stores LLC and Dairy Mart Convenience Stores,
Inc. is filed herewith.
(3.1) The Company's Restated Certificate of Incorporation, as
amended, and Amended Certificate of Designations were filed
as Exhibit 3.1 to the Company's 10-K for the fiscal year
ended January 29, 2000, and are incorporated herein by
reference.
(3.2) The Company's Amended and Restated Bylaws were filed as
Exhibit 3.2 to the Company's Form 10-Q for the fiscal
quarter ended November 2, 1996, and are incorporated herein
by reference.
(4.1) The Company's Restated Certificate of Incorporation, as
amended, and Amended Certificate of Designations were filed
as Exhibit 3.1 to the Company's 10-K for the fiscal year
ended January 29, 2000, and are incorporated herein by
reference.
(4.2) The Company's Amended and Restated Bylaws were filed as
Exhibit 3.2 to the Company's Form 10-Q for the fiscal
quarter ended November 2, 1996, and are incorporated herein
by reference.
(4.3(a)) Amended and Restated Rights Agreement, as amended, dated as
of February 8, 2000, between the Company and the American
Stock Transfer and Trust Company, as Rights Agent, including
form of Rights Certificate, was filed as Exhibit 5 to the
Company's Form 8-A/A Amendment No. 2 to Form 8-A for the
February 9, 2000 event and is incorporated herein by
reference.
</Table>

<Table>
<Caption>
EXHIBIT
NUMBER:

(4.3(b)) First Amendment to the Amended and Restated Rights
Agreement, dated as of February 8, 2000, by and between
Dairy Mart Convenience Stores, Inc. and American Stock
Transfer & Trust Company, as Rights Agent, was filed as
Exhibit 10.22(b) to the Company's 10-K for the fiscal year
ended February 3, 2001, and is incorporated herein by
reference.
(4.4) Those instruments filed as Exhibit 4.1 of the Company's
Registration Statement on Form S-1 (Registration No. 33-639)
dated November 5, 1985, which are incorporated herein by
reference.
(4.5) Amended and Restated Indenture, dated as of December 1,
1995, by and among the Company, Certain Subsidiaries of the
Company, as Guarantors, and First Bank National Association,
as Trustee, was filed as Exhibit 4.1 to the Company's Form
10-Q for the fiscal quarter ended October 28, 1995, and is
incorporated herein by reference.
(4.7) Note Purchase Agreement, dated as of December 1, 1995,
between the Company and the Purchasers listed in the
Schedule of Purchasers therein, relating to 10 1/4% Senior
Subordinated Notes (Series B) due March 15, 2004, was filed
as Exhibit 10.1 to the Company's Form 10-Q for the fiscal
quarter ended October 28, 1995, and is incorporated herein
by reference.
(4.8) Registration Rights Agreement, dated December 1, 1995, by
and among the Company and the Holders of (i) 10 1/4% Senior
Subordinated Notes (Series B) of the Company, due March 15,
2004, and (ii) Warrants to Purchase 1,715,000 shares of
Common Stock, par value $.01 per share, of the Company was
filed as Exhibit 10.4 to the Company's Form 10-Q for the
fiscal quarter ended October 28, 1995, and is incorporated
herein by reference.
(10.1(a)) Loan and Security Agreement by and among Dairy Mart
Convenience Stores, Inc. and certain of its subsidiaries
that are signatories thereto, as Debtors and Debtors-In-
Possession, as Borrowers, certain of its subsidiaries that
are Signatories thereto, as Debtors and
Debtors-In-Possession, as Guarantors, the Lenders that are
Signatories thereto as the Lenders, and Foothill Capital
Corporation as the Arranger and Administrative Agent, dated
as of September 26, 2001, was filed as Exhibit 10 to the
Company's Form 10-Q for the fiscal quarter ended November 3,
2001, and is incorporated herein by reference.
(10.1(b)) First Amendment to Loan and Security Agreement by and among
Dairy Mart Convenience Stores, Inc. and certain of its
subsidiaries that are signatories thereto, as Debtors and
Debtors-In-Possession, as Borrowers, certain of its
subsidiaries that are Signatories thereto, as Debtors and
Debtors-In-Possession, as Guarantors, the Lenders that are
Signatories thereto as the Lenders, and Foothill Capital
Corporation as the Arranger and Administrative Agent, dated
as of October 18, 2001, is filed as Exhibit 10.1(b) hereto.
(10.2) Asset Purchase Agreement, dated March 6, 1997, among Dairy
Mart Convenience Stores, Inc. and DB Companies, Inc. was
filed as Exhibit 2.1 to the Company's Form 8-K for the June
21, 1997 event and is incorporated herein by reference.
(10.3) Closing Agreement, dated June 19, 1997, between Dairy Mart
Convenience Stores, Inc. and DB Companies, Inc. was filed as
Exhibit 2.2 to the Company's Form 8-K for the June 21, 1997
event and is incorporated herein by reference.
(10.4) 1990 Stock Option Plan was filed as Exhibit 10.6 to the
Company's Form 10-K for the fiscal year ended January 30,
1999 and is incorporated herein by reference.
(10.5) Amended and Restated 1995 Stock Option and Incentive Award
Plan was filed as Exhibit A to the Company's 1998 Annual
Proxy Statement filed on Schedule 14A on May 29, 1998 and is
incorporated herein by reference.
(10.6) 1995 Stock Option Plan for Outside Directors was filed as
Exhibit 10.6 to the Company's Form 10-K for the fiscal year
ended January 28, 1995, and is incorporated herein by
reference.
</Table>

<Table>
<Caption>
EXHIBIT
NUMBER:

(10.7) Employment Agreement between the Company and Robert B.
Stein, Jr., dated January 1, 2000, was filed as Exhibit 10.7
to the Company's Form 10-K for the fiscal year ended January
29, 2000, and is incorporated herein by reference.
(10.8) Amended and Restated Employment Agreement between the
Company and Gregory G. Landry, dated November 1, 2001, is
filed as Exhibit 10.8 hereto.
(10.9) Dairy Mart Convenience Stores, Inc. Change of Control
Severance Plan -- 2001 is filed as Exhibit 10.9 hereto.
(10.10) Settlement Agreement dated January 27, 1995, between the
Company and Frank Colaccino was filed as Exhibit 10.10 to
the Company's January 28, 1995 Form 10-K and is incorporated
herein by reference.
(10.11) Note Purchase Agreement, dated as of December 1, 1995,
between the Company and the Purchasers listed in the
Schedule of Purchasers therein, relating to 10 1/4% Senior
Subordinated Notes (Series B) due March 15, 2004, was filed
as Exhibit 10.1 to the Company's Form 10-Q for the fiscal
quarter ended October 28, 1995, and is incorporated herein
by reference.
(10.12) Form of Stock Purchase Warrant to Subscribe for and Purchase
Shares of Common Stock of the Company (Initially Exercisable
for an Aggregate of 1,215,000 Shares of Common Stock) was
filed as Exhibit 10.1 to the Company's Form 10-Q for the
fiscal quarter ended October 28, 1995, and is incorporated
herein by reference.
(10.13) Form of Stock Purchase Warrant to Subscribe for and Purchase
Shares of Common Stock of the Company (Initially Exercisable
for an Aggregate of 500,000 Shares of Common Stock) was
filed as Exhibit 10.3 to the Company's Form 10-Q for the
fiscal quarter ended October 28, 1995, and is incorporated
herein by reference.
(10.14) Registration Rights Agreement, dated December 1, 1995, by
and among the Company and the Holders of (i) 10 1/4% Senior
Subordinated Notes (Series B) of the Company, due March 15,
2004, and (ii) Warrants to Purchase 1,715,000 shares of
Common Stock, par value $.01 per share, of the Company was
filed as Exhibit 10.4 to the Company's Form 10-Q for the
fiscal quarter ended October 28, 1995, and is incorporated
herein by reference.
(10.15) Agreement, dated as of October 30, 1995, among the Company,
Charles Nirenberg, FCN Properties Corporation and The
Nirenberg Family Charitable Foundation, Inc. was filed as
Exhibit 10.1 to the Company's Form 8-K/A Amendment No. 1 for
the October 30, 1995, event and is incorporated herein by
reference.
(10.16) Modification Agreement, dated as of December 1, 1995, by and
among the Company, Charles Nirenberg, FCN Properties
Corporation, The Nirenberg Foundation, Inc., formerly known
as the Nirenberg Family Charitable Foundation, Inc., Robert
B. Stein, Jr., and Gregory G. Landry was filed as Exhibit
10.6 to the Company's Form 10-Q for the fiscal quarter ended
October 28, 1995 and is incorporated herein by reference.
(10.17) Amended and Restated Letter Agreement, dated December 1,
1995, to Mitchell J. Kupperman from the Company, Robert B.
Stein, Jr., and Gregory G. Landry was filed as Exhibit 10.7
to the Company's Form 10-Q for the fiscal quarter ended
October 28, 1995 and is incorporated herein by reference.
(10.18) DM Associates Limited Partnership Agreement, dated March 12,
1992 was filed as Exhibit 10.18 to the Company's 10-K for
the fiscal year ended February 3, 2001, and is incorporated
herein by reference.
(10.19) First Amendment to Partnership Agreement of DM Associates
Limited Partnership, dated as of September 8, 1994, was
filed as Exhibit F to the Company's Schedule 13D, Amendment
No. 4, dated January 27, 1995, by DM Associates Limited
Partnership, New DM Management Associates I, New DM
Management Associates II, Charles Nirenberg, Robert B.
Stein, Jr., Gregory G. Landry, Mitchell J. Kupperman and
Frank Colaccino and is incorporated herein by reference.
</Table>

<Table>
<Caption>
EXHIBIT
NUMBER:

(10.20) Partnership Agreement of New DM Management Associates I,
dated as of September 8, 1994, was filed as Exhibit G to the
Company's Schedule 13D, Amendment No. 4, dated January 27,
1995, by DM Associates Limited Partnership, New DM
Management Associates I, New DM Management Associates II,
Charles Nirenberg, Robert B. Stein, Jr., Gregory G. Landry,
Mitchell J. Kupperman and Frank Colaccino and is
incorporated herein by reference.
(10.21) First Amendment to Partnership Agreement of New DM
Management Associates I, dated as of December 1, 1995,
between Robert B. Stein, Jr., Gregory G. Landry and Mitchell
J. Kupperman was filed as Exhibit 10.10 to the Company's
Form 10-Q for the fiscal quarter ended October 28, 1995, and
is incorporated herein by reference.
(10.22(a)) Amended and Restated Rights Agreement, as amended, dated as
of February 8, 2000, between the Company and the American
Stock Transfer and Trust Company, as Rights Agent, including
form of Rights Certificate, was filed as Exhibit 5 to the
Company's Form 8-A/A Amendment No. 2 to Form 8-A for the
February 9, 2000 event and is incorporated herein by
reference.
(10.22(b)) First Amendment to the Amended and Restated Rights
Agreement, dated as of February 8, 2000, by and between
Dairy Mart Convenience Stores, Inc. and American Stock
Transfer & Trust Company, as Rights Agent, was filed as
Exhibit 10.22(b) to the Company's 10-K for the fiscal year
ended February 3, 2001, and is incorporated herein by
reference.
(10.23) Third Amendment to Partnership Agreement of New DM
Management Associate I, dated as of December 12, 1997, was
filed as Exhibit 1 to the Company's Form 8-K for the
December 12, 1997 event and is incorporated herein by
reference.
(10.24) Dairy Mart Convenience Stores, Inc. Supplemental Executive
Retirement Plan was filed as Exhibit 10.26 to the Company's
Form 10-K for the fiscal year ended January 30, 1999, and is
incorporated herein by reference.
(10.25) Director's Deferred Compensation Plan was filed as Exhibit
10.27 to the Company's Form 10-K for the fiscal year ended
January 30, 1999, and is incorporated herein by reference.
(10.26) Employment Agreement between the Company and J. Wayne
Colley, dated January 18, 2000, was filed as Exhibit 10.25
to the Company's Form 10-K for the fiscal year ended January
29, 2000, and is incorporated herein by reference.
(10.27) Supplement to Employment Agreement, dated April 20, 2001,
between the Company and J. Wayne Colley was filed as Exhibit
10.27 to the Company's 10-K for the fiscal year ended
February 3, 2001, and is incorporated herein by reference.
(10.28) Nonqualified Deferred Compensation Plan, dated January 1,
2000, was filed as Exhibit 10.26 to the Company's Form 10-K
for the fiscal year ended January 29, 2000, and is
incorporated herein by reference.
(10.29) Agreement, dated May 21, 2000, between the Committee of
Concerned Dairy Mart Shareholders and Frank Colaccino and
the Company was filed as Exhibit 10(a) to the Company's Form
8-K for the May 21, 2000 event and is incorporated herein by
reference.
(10.30) Exchange and Voting Agreement by and among the Company and
the Noteholders listed therein, dated March 15, 2001, was
filed as Exhibit 10.31 to the Company's 10-K for the fiscal
year ended February 3, 2001, and is incorporated herein by
reference.
(10.31) Form Retention Agreement between Dairy Mart Convenience
Stores, Inc. and named executive officers is filed as
Exhibit 10.31 hereto.
(18.1) Preferability letter of Arthur Andersen LLP regarding change
in accounting policy relating to the change in inventory
valuation methods filed as Exhibit 18.1 to the Company's
Form 10-K for the fiscal year ended January 30, 1999, and is
incorporated herein by reference.
</Table>

<Table>
<Caption>
EXHIBIT
NUMBER:

(21) Subsidiaries of the Company was filed as Exhibit 21 to the
Company's 10-K for the fiscal year ended February 3, 2001,
and is incorporated herein by reference.
(99.1) Letter responsive to Temporary Note 3T to Article 3 of
Regulation S-X is filed as Exhibit 99.1 hereto.
</Table>

(b) Reports on Form 8-K:

A Form 8-K was filed on December 18, 2001 reporting that the Company
(and substantially all of its subsidiaries) filed voluntary petitions
for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court for the Southern District of New York on September 24,
2001, and no financial statements were filed with the Form 8-K.

(d) See (a)(2) above.

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.

Dated: June 28, 2002 DAIRY MART CONVENIENCE STORES, INC.

By /s/ GREGORY G. LANDRY
------------------------------------
Gregory G. Landry
President and Chief Executive
Officer

By /s/ GREGG R. BUDOI
------------------------------------
Gregg R. Budoi
Vice President and Chief Financial
Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.

<Table>
<Caption>
NAME TITLE DATE
---- ----- ----

/s/ J. KERMIT BIRCHFIELD, JR. Chairman of the Board and Director
- ------------------------------------------------
J. Kermit Birchfield, Jr. Dated: June 28, 2002

/s/ GREGORY G. LANDRY President, Chief Executive Officer and
- ------------------------------------------------ Director
Gregory G. Landry Dated: June 28, 2002

/s/ ALBERT T. ADAMS Director
- ------------------------------------------------
Albert T. Adams Dated: June 28, 2002

/s/ FRANK W. BARRETT Director
- ------------------------------------------------
Frank W. Barrett Dated: June 28, 2002

/s/ JOHN W. EVERETS Director
- ------------------------------------------------
John W. Everets Dated: June 28, 2002

/s/ WILLIAM A. FOLEY Director
- ------------------------------------------------
William A. Foley Dated: June 28, 2002
</Table>

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
FORM 10-K
PAGE
---------

Report of Independent Public Accountants on Consolidated
Financial Statements...................................... F-2
Consolidated Statements of Operations for the Fiscal Years
Ended February 2, 2002, February 3, 2001 and January 29,
2000...................................................... F-3
Consolidated Balance Sheets as of February 2, 2002 and
February 3, 2001.......................................... F-4
Consolidated Statements of Stockholders' Deficit for the
Fiscal Years Ended February 2, 2002, February 3, 2001 and
January 29, 2000.......................................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended February 2, 2002 , February 3, 2001 and January 29,
2000...................................................... F-6
Notes to Consolidated Financial Statements for the Fiscal
Years Ended February 2, 2002, February 3, 2001 and January
29, 2000.................................................. F-7
Report of Independent Public Accountants on Schedule II..... F-31
Schedule II................................................. F-32
</Table>

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors
of Dairy Mart Convenience Stores, Inc.:

We have audited the accompanying consolidated balance sheets of Dairy Mart
Convenience Stores, Inc. (a Delaware corporation) and Subsidiaries as of
February 2, 2002 and February 3, 2001, and the related consolidated statements
of operations, stockholders' deficit and cash flows for each of the three years
in the period ended February 2, 2002. 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 auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Dairy Mart Convenience Stores, Inc. and Subsidiaries as of February 2, 2002, and
February 3, 2001, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended February 2, 2002, in
conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company voluntarily filed for
Chapter 11 bankruptcy protection on September 24, 2001. This action raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

/s/ ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP

Cleveland, Ohio,
May 8, 2002 (except with respect to the matters discussed
in Notes 1, 8 and 19 as to which the date is June 28, 2002).

F-2

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE FISCAL YEARS ENDED FEBRUARY 2, 2002, FEBRUARY 3, 2001 AND
JANUARY 29, 2000

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
2002 2001 2000
-------- -------- --------

Revenues (including excise taxes of $36,449, $42,054 and
$34,865, respectively).................................... $646,902 $723,671 $588,551
Cost of goods sold and expenses:
Cost of goods sold........................................ 513,821 576,042 443,559
Operating and administrative expenses..................... 156,700 157,519 137,069
Impairment charges........................................ 16,997 -- --
Chapter 11 related restructuring costs.................... 6,062 -- --
Interest expense, net..................................... 15,045 14,183 11,583
-------- -------- --------
708,625 747,744 592,211
-------- -------- --------
Loss before income taxes and extraordinary item........... (61,723) (24,073) (3,660)
(Provision for) benefit from income taxes................. (436) (5,378) 1,164
-------- -------- --------
Loss before extraordinary item............................ (62,159) (29,451) (2,496)
Extraordinary loss on early retirement of debt (Note 2)... (1,029) -- --
-------- -------- --------
Net loss.................................................. $(63,188) $(29,451) $ (2,496)
======== ======== ========
Loss per share before extraordinary item, basic and
diluted................................................... $ (12.42) $ (5.96) $ (.51)
Effect of extraordinary loss per share...................... (.21) -- --
-------- -------- --------
Net loss per share, basic and diluted....................... $ (12.63) $ (5.96) $ (.51)
======== ======== ========
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
CONSOLIDATED BALANCE SHEETS

FEBRUARY 2, 2002 AND FEBRUARY 3, 2001

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
2002 2001
-------- --------

ASSETS
Current assets:
Cash...................................................... $ 9,239 $ 5,667
Short-term investments.................................... 886 3,000
Accounts and notes receivable, net........................ 18,207 13,462
Inventory................................................. 21,309 24,424
Prepaid expenses and other current assets................. 3,131 3,612
-------- --------
Total current assets................................. 52,772 50,165
Property and equipment, net................................. 97,010 111,448
Intangible assets, net...................................... -- 13,731
Other assets, net........................................... 14,388 15,373
-------- --------
Total assets......................................... $164,170 $190,717
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term obligations............... $ 41,359 $ 6,043
Accounts payable.......................................... 11,987 44,361
Accrued expenses.......................................... 11,363 15,835
Accrued interest.......................................... 3,612 3,638
-------- --------
Total current liabilities............................ 68,321 69,877
-------- --------
Long-term obligations, less current portion above........... -- 129,557
Other liabilities........................................... 9,969 13,555
Commitments and contingencies (Notes 8, 9 and 14)........... -- --
Liabilities subject to compromise (Note 15)................. 171,329 --
Stockholders' equity:
Preferred stock (serial), par value $.01, 1,000 shares
authorized, no shares issued........................... -- --
Common stock, par value $.01, 30,000 shares authorized,
7,063 and 7,059 issued................................. 70 70
Paid-in capital........................................... 32,427 32,416
Retained deficit.......................................... (102,941) (39,753)
Treasury stock, at cost................................... (15,005) (15,005)
-------- --------
Total stockholders' deficit.......................... (85,449) (22,272)
-------- --------
Total liabilities and stockholders' deficit............... $164,170 $190,717
======== ========
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE FISCAL YEARS ENDED FEBRUARY 2, 2002, FEBRUARY 3, 2001 AND
JANUARY 29, 2000

(IN THOUSANDS)

<Table>
<Caption>
COMMON STOCK TREASURY STOCK
------------------------------------- -----------------
COMMON PAID-IN RETAINED
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
------ ------ ------- --------- ------ --------

Balance January 30, 1999............ 6,909 $69 $31,999 $ (7,806) 2,058 $(15,005)
Issuance of Common Stock.......... 40 -- 108 -- -- --
Net loss.......................... -- -- -- (2,496) -- --
----- --- ------- --------- ----- --------
Balance January 29, 2000............ 6,949 69 32,107 (10,302) 2,058 (15,005)
Issuance of Common Stock.......... 110 1 309 -- -- --
Net loss.......................... -- -- -- (29,451) -- --
----- --- ------- --------- ----- --------
Balance February 3, 2001............ 7,059 70 32,416 (39,753) 2,058 (15,005)
Issuance of Common Stock.......... 4 -- 11 -- -- --
Net loss.......................... -- -- -- (63,188) -- --
----- --- ------- --------- ----- --------
Balance February 2, 2002............ 7,063 $70 $32,427 $(102,941) 2,058 $(15,005)
===== === ======= ========= ===== ========
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDED FEBRUARY 2, 2002, FEBRUARY 3, 2001 AND
JANUARY 29, 2000

(IN THOUSANDS)

<Table>
<Caption>
2002 2001 2000
-------- -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(63,188) $(29,451) $ (2,496)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 11,720 15,142 13,576
Extraordinary loss on early retirement of debt............ 1,029 -- --
Impairment charges........................................ 16,997 -- --
Deferred income taxes..................................... -- 4,760 (1,420)
(Gain) loss on dispositions of properties, net............ 2,622 550 (577)
Net changes in assets and liabilities:
Accounts and notes receivable............................. (5,056) 3,982 (4,679)
Inventory................................................. 3,115 10,380 (10,511)
Accounts payable.......................................... 8,255 (6,555) 15,231
Accrued interest.......................................... 5,114 148 (223)
Other assets and liabilities, net......................... 12,120 1,357 (2,086)
-------- -------- --------
Net cash (used for) provided by operating activities...... (7,272) 313 6,815
-------- -------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Sale (purchase) of short-term investments................. 2,114 (2,845) 2,569
Purchase of property & equipment.......................... (4,247) (17,398) (41,878)
Proceeds from sale of property and equipment.............. 1,648 5,350 22,254
-------- -------- --------
Net cash used for investing activities.................... (485) (14,893) (17,055)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving loan, net......................... 5,574 10,030 4,096
Borrowings of long-term obligations, net.................. 5,744 2,205 10,371
Issuance of Common Stock.................................. 11 310 108
-------- -------- --------
Net cash provided by financing activities................... 11,329 12,545 14,575
-------- -------- --------
Increase (decrease) in cash................................. 3,572 (2,035) 4,335
Cash at beginning of year................................... 5,667 7,702 3,367
-------- -------- --------
Cash at end of year......................................... $ 9,239 $ 5,667 $ 7,702
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash (paid) refunded during the year --
Interest............................................... $ (9,932) $(14,035) $(11,806)
Income taxes refunded, net............................. 155 139 119
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 2, 2002, FEBRUARY 3, 2001 AND JANUARY 29, 2000

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11:

F-7

adjustments relating to a recoverability of the value of recorded asset amounts
or the amounts and classification of liabilities that might be necessary as a
consequence of a plan of reorganization.

2. EXTRAORDINARY LOSS:

On October 19, 2001, the Company retired the outstanding balance of
approximately $26.5 million on its former $30 million senior revolving credit
facility. This debt became due when the Company defaulted by, among other
things, not paying a $250,000 amendment fee to its senior revolving credit
lenders. On October 19, 2001, the Company received court approval of its entire
$46 million DIP ("Debtor-in-possession") Facility and the Company retired the
senior revolving credit facility with proceeds from the DIP Facility. An
extraordinary loss of approximately $1.0 million was incurred as a result of the
early retirement which represented the write-off of remaining unamortized
deferred financing costs at that date. No tax benefit has been recorded due to
the uncertainty as to the Company's ability to utilize current operating losses
to offset future income tax liabilities.

3. SIGNIFICANT ACCOUNTING POLICIES:

Corporate Organization and Consolidation -- The accompanying financial
statements include the accounts of Dairy Mart Convenience Stores, Inc. and its
Subsidiaries (the Company). All intercompany transactions have been eliminated.

Financial Statement Presentation -- The accompanying consolidated financial
statements have been prepared in accordance with AICPA Statement of Position
90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," and on a going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the ordinary
course of business. However, as a result of the Filing, such realization of
assets and liquidation of liabilities are subject to uncertainty. While
operating as debtors-in-possession under the protection of Chapter 11 of the
Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as
permitted in the ordinary course of business, the Debtors may sell or otherwise
dispose of assets and liquidate or settle liabilities for amounts other than
those reflected in the consolidated financial statements. Further, a plan of
reorganization could materially change the amounts and classifications reported
in the consolidated historical financial statements.

Substantially all of the Company's pre-petition debt is now in default due
to the Filing. As described in Note 15, the accompanying consolidated financial
statements present the Debtors' pre-petition debt under the caption "Liabilities
Subject to Compromise." As required by SOP 90-7, the Company, beginning fiscal
year 2002, recorded the Debtors' pre-petition debt instruments at the allowed
amount, as defined by SOP 90-7.

Nature of the Business -- The Company owns, operates and franchises
convenience retail stores, a number of which also sell gasoline. The convenience
stores are primarily located in 7 states in the Midwest and the Southeast United
States. The stores offer a wide range of products including gasoline, groceries,
dairy products, snack foods, tobacco products, lottery tickets, beverages,
general merchandise, health and beauty aids and deli products.

Fiscal Year -- The Company's fiscal year ends on the Saturday closest to
January 31. There were 52 weeks included in the fiscal year ended February 2,
2002, 53 weeks in the fiscal year ended February 3, 2001 and 52 weeks in the
fiscal year ended January 29, 2000.

Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Short-term Investments -- As of February 2, 2002 and February 3, 2001 the
Company's short-term investments consisted of U.S. Treasury Bills having
original maturities of less than one year. As of February 2, 2002 and February
3, 2001, the fair values of the short-term investments approximated their cost.

Inventory -- The Company's inventory is stated at the lower of first-in,
first-out (FIFO) cost or market.

F-8

Property, Equipment, and Depreciation -- Property is stated at cost and is
depreciated on the straight-line basis for financial reporting purposes over the
following estimated useful lives:

Buildings.............................................. 30-40 years
Equipment.............................................. 5-30 years
Leasehold improvements................................. 5-31 years
</Table>

Repair and maintenance costs are expensed as incurred.

Long-lived Assets -- Impairment of long-lived assets is recognized when
events or changes in circumstances indicate that the carrying amount of the
asset, or related group of assets, may not be recoverable. Measurement of the
amount of the impairment may be based on market values of similar assets or
estimated discounted future cash flows resulting from use and ultimate
disposition of the asset. As a result of termination of the merger agreement
with DM Acquisition Corp. during fiscal year 2002 and certain store closings
which occurred during and subsequent to fiscal year 2002, an impairment charge
of $17.0 million was recorded during fiscal year 2002 in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of."
The impairment charge related to goodwill, other intangible assets including
franchise rights and favorable leases, and certain property, plant and
equipment.

Self Insurance Reserves -- The Company is self-insured for certain
property, liability, accident and health insurance risks, and establishes
reserves for estimated outstanding claims based on its historical claims
experience and reviews by third-party loss reserves specialists. The Company has
purchased insurance coverage for losses that may occur above certain levels. As
of February 2, 2002 and February 3, 2001 the Company had established reserves
for these risks of $1,789,000 and $1,604,000, respectively, which are recorded
on a present value basis using a risk-free rate of return to discount the
liability. The ultimate amount of these liabilities could differ from these
estimates. At February 2, 2002 and February 3, 2001, the risk-free rate of
return was 5.19%.

Fair Value of Financial Instruments -- The Company has disclosed the fair
value, related carrying value and method of determining fair value for the
following financial instruments in the accompanying notes as referenced:
short-term investments (see Note 3), accounts and notes receivable (see Note 4)
and long-term obligations (see Note 8).

Revenue Recognition -- The Company recognizes revenues as earned, including
franchise revenues and interest income. Franchise revenues represent a
percentage of franchise store sales remitted to the Company on a weekly or
monthly basis in exchange for the Company providing merchandising, advertising,
store audit, and other operating and administrative support services, as well as
revenues derived from initial fees and the gain on sale of store assets to
franchisees. Franchise revenues were $7,182,000, $9,085,000 and $9,678,000 for
the fiscal years ended February 2, 2002, February 3, 2001 and January 29, 2000,
respectively.

Store Preopening and Closing Costs -- Consistent with the requirements of
the American Institute of Certified Public Accountants' Statement of Position
(SOP) 98-5, "Reporting on the Costs of Start-Up Activities," expenditures of a
non-capital nature associated with opening a new store are expensed as incurred.
At the time the decision is made to close a store, estimated unrecoverable costs
are charged to expense. Such costs include the net book value of abandoned
fixtures, equipment, leasehold improvements and a provision for the present
value of future lease obligations, less the present value of estimated future
sub-rental income.

Earnings (Loss) per Share -- Earnings (loss) per share have been calculated
based on the weighted average number of shares of common stock outstanding and
the effect of stock options, if dilutive, during each year. The weighted-average
number of shares used in the calculation of basic earnings (loss) per share is
5,005,009, 4,945,207 and 4,868,664 for the fiscal years ended February 2, 2002,
February 3, 2001 and January 29, 2000, respectively. Dilutive earnings per share
has not been presented as the Company's basic and dilutive earnings per share
are equal for fiscal years 2002, 2001 and 2000.

New Authoritative Accounting Pronouncements -- On February 3, 2002, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" and Statement of Financial Accounting Standards No.
144, "Accounting for Impairment or Disposal of Long-Lived Assets." SFAS No. 142

F-9

addresses the accounting for goodwill and other intangible assets after an
acquisition. Goodwill and other intangibles that have indefinite lives will no
longer be amortized, but will be subject to annual impairment tests. All other
intangible assets will continue to be amortized over their estimated useful
lives, which is no longer limited to 40 years. The adoption will not have a
material impact on the Company's consolidated financial statements as a result
of the impairment charge recorded during fiscal year 2002 as discussed in the
Long-Lived Assets section of Note 3. SFAS No. 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supercedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business, as previously
defined in that Opinion. SFAS No. 144 provides a single accounting model, based
on the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale. Many of the provisions of SFAS No. 121 are retained,
however, SFAS No. 144 clarifies some of the implementation issues related to
SFAS No. 121. SFAS No. 144 also broadens the presentation of discontinued
operations to include more disposal transactions. Management is currently
evaluating the impact that adoption of SFAS No. 144 will have on the Company's
financial statements. The Company will adopt Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" in fiscal year
2004. SFAS No. 143 provides accounting requirements for retirement obligations
associated with tangible long-lived assets, including: (i) the timing of
liability recognition; (ii) initial measurement of the liability; (iii)
allocation of asset retirement cost to expense; (iv) subsequent measurement of
the liability; and (v) financial statement disclosures. SFAS No. 143 requires
that an asset's retirement cost should be capitalized as part of the cost of the
related long-lived asset and subsequently allocated to expense using a
systematic and rational method. Management has not yet determined what impact,
if any, the adoption of this Statement will have on either its financial
position or results of operations.

Reclassifications -- Certain amounts in the prior periods' Consolidated
Financial Statements have been reclassified to conform to the presentation used
for the current period.

4. ACCOUNTS AND NOTES RECEIVABLE:

A summary of accounts and notes receivable as of February 2, 2002 and
February 3, 2001 is as follows:

<Table>
<Caption>
2002 2001
------- -------
(IN THOUSANDS)

Franchise accounts receivable............................... $ 3,118 $ 3,386
Franchise notes receivable.................................. 752 1,140
Marketing allowances........................................ 8,718 5,358
Receivables from states' environmental remediation funds.... 11,495 10,575
Other receivables........................................... 6,663 4,917
------- -------
30,746 25,376
Less allowance for doubtful accounts and notes receivable... (2,614) (2,301)
------- -------
Net accounts and notes receivable........................... 28,132 23,075
Less noncurrent receivables (included in other assets)...... (9,925) (9,613)
------- -------
Current accounts and notes receivable....................... $18,207 $13,462
======= =======
</Table>

The carrying amount of current accounts and notes receivable approximates
fair value because of the short maturity of those receivables. The fair value of
the Company's noncurrent notes receivable is estimated by discounting the future
cash flows using the rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. As of
February 2, 2002 and February 3, 2001, management has determined the fair values
of the noncurrent notes receivable approximate their carrying values.

F-10

5. PROPERTY AND EQUIPMENT:

A summary of property and equipment as of February 2, 2002 and February 3,
2001 is as follows:

<Table>
<Caption>
2002 2001
-------- --------
(IN THOUSANDS)

Land and improvements....................................... $ 4,666 $ 5,171
Building and leasehold improvements......................... 47,363 47,556
Equipment................................................... 119,277 125,501
-------- --------
171,306 178,228
Less accumulated depreciation and amortization.............. (74,296) (66,780)
-------- --------
Property and equipment, net................................. $ 97,010 $111,448
======== ========
</Table>

6. INTANGIBLE ASSETS:

A summary of intangibles as of February 2, 2002 and February 3, 2001 is as
follows:

<Table>
<Caption>
2002 2001
-------- --------
(IN THOUSANDS)

Goodwill.................................................... $ -- $ 13,907
Franchise and operating rights.............................. -- 10,104
-------- --------
-- 24,011
Less accumulated amortization............................... -- (10,280)
-------- --------
Intangible assets, net...................................... $ -- $ 13,731
======== ========
</Table>

Goodwill represents the excess of cost over fair value of net assets
purchased. Franchise and operating rights represent the value of franchise
relationships purchased in connection with past acquisitions. During fiscal year
2002 management determined that the value of these assets had been impaired and
wrote off the balance of these assets. The write-off of these assets is included
in the Impairment Charges caption in the accompanying Consolidated Statements of
Operations and is discussed further in Note 3 hereto.

7. ACCRUED EXPENSES:

A summary of accrued expenses as of February 2, 2002 and February 3, 2001
is as follows:

<Table>
<Caption>
2002 2001
------- -------
(IN THOUSANDS)

Accrued salaries and wages.................................. $ 3,281 $ 3,804
Accrued environmental assessment and remediation............ 2,211 4,434
Other accrued expenses...................................... 5,871 7,597
------- -------
Total accrued expenses...................................... $11,363 $15,835
======= =======
</Table>

F-11

8. CURRENT MATURITIES OF LONG-TERM OBLIGATIONS AND LONG-TERM OBLIGATIONS:

The Company had the following long-term obligations as of February 2, 2002
and February 3, 2001:

<Table>
<Caption>
FEB. 3
FEBRUARY 2, 2002 2001
INTEREST MATURITY ----------------------------- --------
RATE (FISCAL YR.) CURRENT LONG-TERM TOTAL TOTAL
------------ ------------ ------- --------- ------- --------
(IN THOUSANDS)

Senior subordinated notes
(Series A Notes)........ 10.25% 2005 $ -- $ -- $ -- $ 75,000
Senior subordinated notes
(Series B Notes) net of
original issue discount
of $528................. 10.25% 2005 -- -- -- 12,728
Senior revolving credit
facility................ Variable 2002 -- -- -- 24,326
Senior DIP credit
facility................ Variable 2003 40,651 -- 40,651 --
Real estate mortgage notes
payable................. 9.84%-10.95% 2007-2021 -- -- -- 7,334
Small Business
Administration
debentures.............. 6.875%-8.33% 2002-2006 708 -- 708 3,130
Equipment financing....... 8.5%-11.81% 2003-2009 -- -- -- 13,082
------- ------- ------- --------
$41,359 $ -- $41,359 $135,600
======= ======= ======= ========
</Table>

In March 1994, the Company issued $75,000,000 principal amount of 10.25%
senior subordinated notes (the "Series A Notes") due March 15, 2004. The
proceeds received from the sale of the Series A Notes, net of offering costs of
$2,298,000, were used to repay the entire outstanding indebtedness under the
then existing bank term loan and bank revolving loan and to redeem in full the
Company's 14.25% subordinated debentures due November, 2000. In December 1995,
the Company issued an additional $13,500,000 principal amount of 10.25% senior
subordinated notes (the "Series B Notes") due March 15, 2004.

The Series A and Series B Notes (collectively, the "Notes") are redeemable,
at the option of the Company, beginning March 15, 1999 at rates starting at
104.75% of the principal amount reduced annually through March 15, 2002, at
which time they become redeemable at 100% of the principal amount. The terms of
the Notes may restrict, among other things, the payment of dividends and other
distributions, investments, the repurchase of capital stock and the making of
certain other restricted payments by the Company and its subsidiaries, the
incurrence of additional indebtedness and new operating lease obligations by the
Company or any of its subsidiaries, and certain mergers, consolidations and
dispositions of assets. Additionally, according to the terms of the Notes, if a
change of control occurs, as defined, each holder of the Notes will have the
right to require the Company to repurchase such holder's Notes at 101% of the
principal amount thereof. The original issue discount amortization related to
the Series B Notes of $243,900, $230,080 and $160,980 is included in interest
expense for the fiscal years ended February 2, 2002, February 3, 2001 and
January 29, 2000, respectively. As of February 2, 2002 the Notes are shown in
"Liabilities Subject to Compromise" on the Company's Consolidated Balance Sheet.
"Liabilities Subject to Compromise" is discussed in Note 15.

The Company is a borrower under a $46,000,000 debtor-in-possession credit
facility (the "DIP Facility") with a term loan commitment of $10,750,000 and a
revolving credit commitment of $35,250,000 (which revolving credit commitment
includes a letter of credit sub-limit of up to $15,000,000). As of February 2,
2002, the outstanding loans under the DIP Facility totaled $40,650,831 in
addition to outstanding letters of credit issued thereunder as of such date in
an aggregate face amount of $4,058,721. The outstanding balance under the DIP
Facility is due and payable not later than September 26, 2002, with an option to
extend the term of the facility for 180 days upon satisfaction of certain
conditions. Interest on the outstanding balance under the DIP Facility accrues
at a variable rate per annum equal at any time to 3.5% plus the agent lender's
prime rate at such time, such variable rate never to fall below 10.25% per
annum. The rate increases by 1.0% per annum during any extension period. Among
other restrictions, the DIP Facility contains financial covenants relating to
specified

F-12

minimum levels of earnings before interest expense, taxes, depreciation,
amortization and non-recurring expenses, as defined, and a limit on capital
expenditures. As of February 2, 2002, the Company was in compliance or had
obtained waivers for all covenants under the DIP Facility. During the first
quarter and first period of the second quarter of fiscal year 2003, however, the
Company failed to meet certain earnings covenants required by the terms of the
DIP Facility. The Company notified the DIP Facility lenders that the Company was
in default under the terms of the DIP Facility. Subsequent to receiving
notification from the Company of the event of default, the DIP Facility lenders
have continued to provide financing to the Company under the terms of the DIP
Facility. The Company believes the DIP Facility will be retired in full if the
Purchase Agreement is consummated. The Company and the DIP Facility lenders have
agreed in principle to the terms of an agreement whereby the DIP Lenders have
agreed to forbear from exercising their rights and remedies with respect to the
present events of default and any financial covenant defaults, and continue to
provide financing in accordance with the terms of the DIP Facility through
August 23, 2002. The agreement is subject to execution by the parties and
Bankruptcy Court approval. The Company believes the agreement will be executed
and approved and that the DIP Facility will provide adequate financing to the
Company which will allow the Company to continue to operate through the date at
which the Purchase Agreement is consummated. The Company expects to continue to
pay for employee salaries and benefits, ongoing operations (including payments
to vendors) and other working capital needs using funds acquired from its DIP
Facility. In connection with the DIP Facility, the Company granted a security
interest in substantially all of its assets including the shares of capital
stock of certain subsidiary corporations of the Company. The Company is
prohibited under the DIP Facility from declaring or paying any cash dividends
and from purchasing or redeeming any of its capital stock.

In fiscal year 2001, the Company entered into capital lease agreements of
$3.7 million for equipment and $2.2 million in real estate mortgages that were
used to support new store development. As of February 2, 2002, the capital lease
obligations are shown in "Liabilities Subject to Compromise" on the Company's
Consolidated Balance Sheet. "Liabilities Subject to Compromise" is discussed in
Note 15.

As of February 2, 2002 management has determined that the fair value of the
Small Business Administration debenture approximated its carrying amount. Fair
values of obligations are based on rates available to the Company for debt with
similar terms and maturities. The DIP Facility is a variable rate loan, and
thus, the fair value approximates the carrying amount as of February 2, 2002.

As of February 2, 2002, scheduled maturities on long-term obligations
including amounts shown in Liabilities Subject to Compromise and shown net of
original issue discount of $528 for the next five years and thereafter, are as
follows:

<Table>
<Caption>
FISCAL YEAR
- ----------- (IN THOUSANDS)

2003................................................... $ 46,118
2004................................................... 3,695
2005................................................... 89,522
2006................................................... 1,431
2007................................................... 388
Thereafter............................................. 6,008
--------
$147,162
========
</Table>

Substantially all of the Company's pre-petition debt is now in default as a
result of the Filing. The Company's pre-petition debt, including the Notes, is
included in "Liabilities Subject to Compromise" which is discussed further in
Note 15 hereto.

9. OPERATING LEASES:

The Company leases operating properties, including store locations and
office space, under various lease agreements expiring through fiscal year 2020.
Certain of these locations are sublet to the Company's franchisees.

F-13

The future minimum lease payments related to these properties, net of subleases,
as of February 2, 2002 is as follows:

<Table>
<Caption>
NET
OPERATING
FISCAL YEAR LEASES
- ----------- --------------
(IN THOUSANDS)

2003................................................... $ 14,529
2004................................................... 13,116
2005................................................... 12,095
2006................................................... 10,872
2007................................................... 9,764
Thereafter............................................. 67,342
--------
$127,718
========
</Table>

Rental expense for all operating leases was as follows:

<Table>
<Caption>
2002 2001 2000
------- ------- -------
(IN THOUSANDS)

Leases...................................................... $20,229 $20,268 $16,691
Less subleases.............................................. 1,075 1,293 1,592
------- ------- -------
Net......................................................... $19,154 $18,975 $15,099
======= ======= =======
</Table>

As part of its plan of reorganization, the Company expects to evaluate its
properties and may seek to reject a number of leases, including those leases
related to stores scheduled to be closed.

10. FEDERAL AND STATE INCOME TAXES:

The (provision) benefit from income taxes for the fiscal years ended
February 2, 2002, February 3, 2001 and January 29, 2000 was as follows:

<Table>
<Caption>
2002 2001 2000
----- ------- ------
(IN THOUSANDS)

Current provision
Federal................................................... $(250) $ -- $ (102)
State and Local........................................... (186) (618) (249)
----- ------- ------
Total current provision................................ (436) (618) (351)
----- ------- ------
Deferred (provision) benefit
Federal................................................... -- (4,760) 1,299
State and Local........................................... -- -- 216
----- ------- ------
Total deferred (provision) benefit..................... -- (4,760) 1,515
----- ------- ------
Total (provision) benefit.............................. $(436) $(5,378) $1,164
===== ======= ======
</Table>

F-14

The Company is subject to minimum state taxes in excess of statutory state
income taxes in many of the states in which it operates. A reconciliation of the
difference between the statutory federal income tax rate and the effective
income tax rate follows:

<Table>
<Caption>
PERCENT OF PRETAX
INCOME (LOSS)
--------------------
2002 2001 2000
---- ---- ----

Statutory federal income tax rate........................... (34%) (34%) (34%)
Increase (decrease) from:
State income tax net of federal tax effect................ 1 3 (1)
Nondeductible expenses and amortization of acquired
assets................................................. -- -- 3
Change in valuation allowance............................. 34 53 --
--- --- ---
Effective income tax rate................................. 1% 22% (32%)
</Table>

The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax basis of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. The Company provides a
valuation allowance for deferred taxes for which it does not consider
realization of such assets to be more likely than not. Significant deferred tax
assets (liabilities) as of February 2, 2002 and February 3, 2001 were as
follows:

<Table>
<Caption>
2002 2001
-------- --------
(IN THOUSANDS)

Capitalized leases.......................................... $ -- $ 350
Depreciation and amortization............................... (19,468) (16,833)
Vacation accrual............................................ 241 297
Reserve for asset valuations................................ 935 905
Insurance reserves not deductible for tax purposes.......... 1,893 273
Income deferred for financial statement purposes............ 6,053 3,557
Reserve for closed stores and renovations................... 1,177 297
Environmental reserves...................................... (145) (805)
Tax credits and net operating loss carryforwards............ 52,660 26,760
Other....................................................... 317 (49)
Valuation allowance......................................... (43,663) (14,752)
-------- --------
Net deferred tax asset...................................... $ 0 $ 0
======== ========
</Table>

At February 2, 2002 and February 3, 2001, the Company's net deferred tax
assets are fully offset by a valuation allowance. For financial reporting
purposes, the Company recorded a valuation allowance because of the uncertainty
of realizing certain tax credits and loss carryforwards in the future.

As of February 2, 2002, the Company had alternative minimum tax credits
aggregating $466,000 which carryforward indefinitely. For federal income tax
purposes, these credits can be used in the future to the extent that the
Company's regular tax liability exceeds its liability calculated under the
alternative minimum tax method. The Company and its subsidiaries file a
consolidated federal income tax return but generally file separate state income
tax returns. As of February 2, 2002, the Company had a capital loss carryforward
of $1,610,000 that will expire in fiscal year 2003. As of February 2, 2002, the
Company had regular federal income tax net operating loss carryforwards of
$119,985,000, which expire, if unused, during fiscal years 2011 to 2020 and net
operating loss carryforwards for state income tax purposes of $131,874,000 which
expire, if unused, during fiscal years 2002 to 2015.

F-15

11. CAPITAL STOCK:

In January 1996, a Stock Rights Plan ("SRP") was adopted by the Company.
Under the SRP, each holder of Common Stock received a dividend of one Preferred
Stock Purchase Right (the "Rights"). The Rights are to purchase one
one-hundredth (1/100) of a share of Series A Junior Preferred Stock at a price
of $30 subject to certain adjustments. The Rights are exercisable under certain
circumstances, and expire on January 19, 2006.

In June 1986, the stockholders approved an Employee Stock Purchase Plan.
The plan, as amended in September 1996, provides that employees may purchase
quarterly, through payroll deductions, up to 1,000 shares of Common Stock at 85%
of the market value. Of the original 1,250,000 shares provided for under this
plan, 958,992 shares remained available for issuance as of February 2, 2002.

As of February 2, 2002, February 3, 2001 and January 29, 2000, the Company
held 2,058,000 shares of Common Stock as treasury stock.

12. STOCK OPTION PLANS AND GRANTS:

In general, the Company's stock option plans provide for the granting of
options to purchase the Company's shares at the market price of such shares as
of the option grant date. The options generally have a ten year term and vest
and become exercisable on a pro rata basis over four years.

In fiscal year 1996, and subsequently amended in fiscal year 1998, the
Company adopted a Stock Option and Incentive Award Plan ("Award Plan") and a
non-qualified Stock Option Plan for Outside Directors ("Outside Directors
Plan"). The Award Plan provides for the granting of stock awards and options to
employees up to a total of 1,150,000 shares of Common Stock. In fiscal years
2002, 2001 and 2000, the Company granted incentive stock options of 0, 191,000,
and 246,000, respectively. The Outside Directors Plan provides for the initial
grant of an option to purchase 3,500 shares of the Company's common stock to
each non-employee director and an annual grant of an option to purchase 3,500
shares. The maximum number of shares reserved for issuance under this plan, as
amended, is 150,000. The Company granted 0 and 21,000 non-qualified stock
options in fiscal years 2002 and 2001, respectively.

During fiscal year 2001, the Company awarded, pursuant to the Award Plan,
stock grants consisting of an aggregate of 43,000 shares of the Company's Common
Stock. Compensation expense in the amount of $236,500 was recorded with respect
to the shares awarded in fiscal year 2001. No shares were awarded in fiscal year
2002 or 2000.

The Company adopted Stock Option Plans in 1985 and 1990 providing for the
granting of options to employees up to an aggregate of 226,875 shares of the
former Class B Common Stock and 750,000 shares of the former Class A Common
Stock. No options were granted from these plans in fiscal year 2002, 2001 or
2000.

The Company did not grant any stock options that are not part of a specific
plan in fiscal years 2002, 2001 or 2000. The fair value of the Company's stock
is a diminutive value as a result of the Filing. As such, management has elected
not to include pro forma information regarding net loss and loss per share; nor
has Pro forma information regarding net loss and loss per share as required by
SFAS No. 123, "Accounting for Stock-Based Compensation" been determined as if
the Company had accounted for its employee stock options under the fair value
method of the statement.

F-16

A summary of the Company's stock option activity and related information
for the fiscal years ended February 2, 2002 February 3, 2001 and January 29,
2000 is as follows:

<Table>
<Caption>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
-------------- ----------------
(IN THOUSANDS)

Outstanding as of January 30, 1999.......................... 941 $3.96
Granted..................................................... 271 3.21
Exercised................................................... (21) 2.75
Forfeited................................................... (73) 4.34
-----
Outstanding as of January 29, 2000.......................... 1,118 3.78
Granted..................................................... 229 2.78
Exercised................................................... (49) 2.86
Forfeited................................................... (109) 3.71
-----
Outstanding as of February 3, 2001.......................... 1,189 3.55
Granted..................................................... -- --
Exercised................................................... -- --
Forfeited................................................... (752) 3.54
-----
Outstanding as of February 2, 2002.......................... 437 3.61
===== =====
</Table>

The weighted-average fair values of stock options granted during fiscal
years 2001 and 2000 were $1.76 and $1.93, respectively.

The following table summarizes information about the Company's stock
options outstanding as of February 2, 2002:

<Table>
<Caption>
WEIGHTED WEIGHTED-AVERAGE
AVERAGE REMAINING
GRANT OPTIONS OPTIONS EXERCISE CONTRACTUAL
PRICE RANGE OUTSTANDING EXERCISABLE PRICE LIFE (YEARS)
----------- ----------- ----------- -------- ----------------

$2.60 to $3.28............................... 170,668 103,668 $2.89 6.8
$3.63 to $4.25............................... 225,332 185,082 3.90 5.3
$5.50 to $5.88............................... 41,000 41,000 5.77 4.4
------- -------
Total...................................... 437,000 329,750
======= =======
</Table>

13. EMPLOYEE BENEFIT PLANS:

The Company provides benefits to qualified employees through a defined
contribution profit sharing plan. Contributions under this plan are made
annually in amounts determined by the Company's Board of Directors. No
discretionary contributions to this plan were made in fiscal years 2002, 2001 or
2000.

Effective January 1, 1993, the profit sharing plan was amended pursuant to
section 401(k) of the Internal Revenue Code enabling eligible employees to
contribute up to 15% of their annual compensation to the plan, with the Company
matching 50% of such contributions during fiscal years 2000, 2001 and through
March, 2001, of fiscal year 2002, up to 6% of the employee's annual
compensation. Effective April 1, 2001 the Company matched 25% of such
contributions up to 3% of the employee's compensation. Matching contributions
from the Company for fiscal years 2002, 2001 and 2000 were $94,000, $311,000 and
$320,000, respectively. The Company does not offer any additional post
retirement and post-employment benefits to its employees.

In March 1998, the Company adopted a Supplemental Executive Retirement Plan
(the "SERP") to provide additional retirement benefits, payable in a lump sum,
to certain executive officers. The SERP is an unfunded plan; however, the
Company intends to use the cash surrender value of keyman life insurance
policies purchased by the Company to fund its obligations under the plan. As of
February 2, 2002 and February 3, 2001, cash

F-17

surrender values of $587,119 and $431,203, respectively, were recorded as assets
on the accompanying Consolidated Balance Sheets. As of February 2, 2002 and
February 3, 2001 plan obligations of $102,664 and $232,882, respectively, were
recorded as liabilities on the accompanying Consolidated Balance Sheets.

14. COMMITMENTS AND CONTINGENCIES:

As of February 3, 2002, the Company was contingently liable for outstanding
letters of credit amounting to $4,058,721.

The Company has certain environmental contingencies related to the ongoing
costs to comply with federal, state and local environmental laws and
regulations, including costs for assessment, compliance, remediation and certain
capital expenditures related to its gasoline operations. In the ordinary course
of business, the Company is involved in environmental assessment and remediation
activities with respect to releases of regulated substances from existing and
previously operated retail gasoline facilities, including locations the Company
has sold. The Company accrues its estimate of all costs to be incurred for
assessment and remediation for known releases. In February 1997, the Company
adopted SOP No. 96-1, "Environmental Remediation Liabilities", which provides
guidance on specific accounting issues related to the recognition, measurement
and disclosure of environmental remediation liabilities. These accruals are
adjusted if and when new information becomes known. Due to the nature of such
releases, the actual costs of assessment and remediation may vary significantly
from year to year. As of February 2, 2002 and February 3, 2001, the Company had
recorded an accrual of $11,137,000 and $8,707,000, respectively, for such costs.
The Company is entitled to reimbursement of a portion of the remediation
expenditures from various state environmental trust funds based upon compliance
with the terms and conditions of such funds. As of February 2, 2002 and February
3, 2001, the Company had recorded a reimbursement receivable of $11,495,000 and
$10,575,000, respectively. For the fiscal years ended February 2, 2002, February
3, 2001 and January 29, 2000, the Company recorded a provision for environmental
expenses of $3,289,000, $656,000 and $474,000, respectively.

The Company is party to an agreement, through September 2005, which
provides for the wholesale supply of various grocery items. Under the supply
agreement, the Company is obligated to purchase annually a minimum amount of
merchandise. Management believes that the annual purchase level is readily
achievable over the term of the agreement. Prices to be charged by the supplier
must be competitive.

In fiscal year 1999, the Company entered into a long-term supply and
branding agreement with Chevron Products Company to brand certain high-volume
retail gasoline locations. The agreement obligates the Company to purchase a
minimum volume of gasoline over a ten-year period. Management believes that the
purchase volume can be met over the term of the agreement. In addition, the
agreement provides for the Company to be reimbursed for costs incurred in the
conversion of equipment and display facilities.

In March 1999, the Company signed an agreement with Procter & Gamble. The
agreement calls for the Company to exclusively sell Millstone brand coffee
blends through February 2004. The agreement requires the purchase of a minimum
quantity of coffee. Management expects to meet the required level of purchases.

In March 2001, the Company signed an agreement with The Coca-Cola Company
to display and sell Coca Cola(R) products in all Company-operated stores. The
term of this agreement is through December 2006. The agreement has specific
display and purchase requirements. If current purchase and merchandising trends
continue, the Company would not fulfill these requirements. However, The
Coca-Cola Company has the option to extend the contract term to provide the
Company more time to comply with the stated requirements.

F-18

to assume the Agreement. On February 4, 2002, judgment was entered in favor of
NED for $960,194. Neither party appealed. NED has filed with U.S. District Court
for the State of Connecticut a motion for prejudgment interest and attorney's
fees. This motion is pending. The Company has recognized in the accompanying
financial statements for fiscal year 2002 a $1.7 million provision for the
judgment and related expenses. As a result of the Company's bankruptcy, the
United States Bankruptcy Court for the Southern District of New York and the
U.S. District Court for the State of Connecticut are determining NED's status as
a secured or unsecured creditor.

On December 20, 2001, Frank Colaccino ("Colaccino"), the former Chief
Executive Officer of the Company, whose employment with the Company was
terminated in August of 1994, Richard M. Osborne ("Osborne") and William Lannon
(collectively, the "Delaware Plaintiffs") filed a complaint, Colaccino et al. v.
Dairy Mart Convenience Stores, Inc., C.A. No. 19322 NC, against the Company in
the Court of Chancery of the State of Delaware (the "Delaware Action"), which
alleged, among other things, that there had not been a meeting of stockholders
since May, 2000. The Delaware Plaintiffs sought an order compelling the Company
to hold an annual meeting of stockholders and to elect directors at the proposed
meeting. The Delaware Action is effectively stayed because the parties have
agreed to extend the Company's time to answer the complaint without assigning a
date for further hearing and have also agreed that the Delaware Plaintiffs would
only pursue the Delaware Action in the event all outstanding issues among the
parties are not resolved in the Colaccino Action (described in the paragraph
immediately following this paragraph).

In the ordinary course of business, the Company is party to various other
actions which the Company believes are routine in nature and incidental to the
operation of its business. The Company believes that the outcome of the
proceedings to which the Company currently is party will not have a material
adverse effect upon its future results of operations or financial condition.
F-19

15. LIABILITIES SUBJECT TO COMPROMISE:

Liabilities Subject to Compromise refer to Debtors' liabilities incurred
prior to the commencement of the Chapter 11 Cases. These amounts represent the
Company's estimate of known or potential pre-petition claims to be resolved in
connection with the Chapter 11 Cases. Such claims remain subject to future
adjustments. Adjustments may result from (1) negotiations; (2) actions of the
Bankruptcy Court; (3) further developments with respect to disputed claims; (4)
rejection of executory contracts and unexpired leases; (5) the determination as
to the value of any collateral security claims; (6) proofs of claim; or (7)
other events. Payment terms for these amounts will be established in connection
with the Chapter 11 Cases. Liabilities subject to compromise consist of the
following:

Trade payables and other miscellaneous claims............ $ 46,423
Secured debt............................................. 19,060
Deferred vendor income................................... 14,687
Unsecured debentures..................................... 87,972
Unsecured notes.......................................... 240
Priority claims.......................................... 2,947
--------
Total.................................................. $171,329
========
</Table>

16. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION:

The Company's payment obligations under the Notes are guaranteed by certain
of the Company's subsidiaries ("Guarantor Subsidiaries"). The Notes are fully
and unconditionally guaranteed on an unsecured, senior subordinated, joint and
several basis by each of the Guarantor Subsidiaries. The following supplemental
financial information sets forth, on a consolidating basis, statements of
operations, balance sheets and statements of cash flows for the Company ("Parent
Company"), for the Guarantor Subsidiaries and for Financial Opportunities, Inc.
("FINOP"), the Company's non-guarantor subsidiary. Separate complete financial
statements of the respective Guarantor Subsidiaries would not provide additional
information which would be useful in assessing the financial condition of the
Guarantor Subsidiaries and are omitted accordingly.

Investment in subsidiaries is accounted for by the Parent Company on the
equity method for purposes of the supplemental consolidating presentation.
Earnings of the subsidiaries are, therefore, reflected in the Parent Company's
investment accounts and earnings. The principal elimination entries eliminate
the Parent Company's investments in subsidiaries and intercompany balances and
transactions.

F-20

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEAR ENDED FEBRUARY 2, 2002

(IN THOUSANDS)

<Table>
<Caption>
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------- ------------ ------------

Revenues (including excise taxes of
$36,449)............................ $ 127 $646,619 $ 156 $ -- $646,902
Cost of goods sold and expenses:
Cost of goods sold.................. -- 513,821 -- -- 513,821
Operating and administrative
expenses......................... 805 155,566 1,021 (692) 156,700
Impairment charges.................. -- 16,997 -- -- 16,997
Chapter 11 related restructuring
costs............................ -- 6,062 -- -- 6,062
Interest expense, net............... 14,584 273 188 -- 15,045
-------- -------- ------- ------- --------
15,389 692,719 1,209 (692) 708,625
-------- -------- ------- ------- --------
Loss before income taxes, equity in
loss of consolidated subsidiaries
and extraordinary item........... (15,262) (46,100) (1,053) -- (61,723)
Provision for income taxes............ -- (436) -- -- (436)
-------- -------- ------- ------- --------
Loss before equity in loss of
consolidated subsidiaries and
extraordinary item............... (15,262) (46,536) (1,053) 692 (62,159)
Equity in loss of consolidated
subsidiaries........................ (47,926) (361) -- 48,287 --
Extraordinary loss on early retirement
of debt............................. -- (1,029) -- -- (1,029)
-------- -------- ------- ------- --------
Net loss............................ $(63,188) $(47,926) $(1,053) $48,979 $(63,188)
======== ======== ======= ======= ========
</Table>

F-21

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET

AS OF FEBRUARY 2, 2002

(IN THOUSANDS)

<Table>
<Caption>
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------ ------------ ------------

ASSETS
Current assets:
Cash................................. $ 3,701 $ 5,520 $ 18 $ -- $ 9,239
Short-term investments............... -- -- 886 -- 886
Accounts and notes receivable, net... -- 17,709 498 -- 18,207
Inventory............................ -- 21,309 -- -- 21,309
Prepaid expenses and other current
assets............................ 7 3,124 -- -- 3,131
-------- -------- ------ --------- --------
Total current assets............ 3,708 47,662 1,402 -- 52,772
-------- -------- ------ --------- --------
Property and equipment, net............ -- 97,010 -- -- 97,010
Other assets, net...................... 2,202 12,067 119 -- 14,388
Investment in and advances to
subsidiaries......................... 145,108 780 -- (145,888) --
-------- -------- ------ --------- --------
Total assets.................... $151,018 $157,519 $1,521 $(145,888) $164,170
======== ======== ====== ========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term
obligations....................... $ 40,649 $ -- $ 710 $ -- $ 41,359
Accounts payable..................... 11,987 -- -- -- 11,987
Accrued expenses..................... 8,920 2,432 11 -- 11,363
Accrued interest..................... 3,582 10 20 -- 3,612
-------- -------- ------ --------- --------
Total current liabilities....... 65,138 2,442 741 -- 68,321
-------- -------- ------ --------- --------
Long-term obligations, less current
portion above........................ -- -- -- -- --
Other liabilities...................... -- 9,969 -- -- 9,969
Liabilities subject to compromise...... 171,329 -- -- -- 171,329
Stockholders' equity (deficit)......... (85,449) 145,108 780 (145,888) (85,449)
-------- -------- ------ --------- --------
Total liabilities and
stockholders' equity
(deficit)....................... $151,018 $157,519 $1,521 $(145,888) $164,170
======== ======== ====== ========= ========
</Table>

F-22

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED FEBRUARY 2, 2002

(IN THOUSANDS)

<Table>
<Caption>
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------- ------------ ------------

Net cash provided by (used for)
operating activities................ $(14,315) $6,756 $ 287 $ -- $(7,272)
Cash flows used for investing
activities:
Proceeds from sale of short-term
investments...................... -- -- 2,114 -- 2,114
Purchase of property and
equipment........................ -- (4,247) -- -- (4,247)
Proceeds from sale of property and
equipment........................ -- 1,648 -- -- 1,648
Investment in and advances to
subsidiaries..................... 2,934 (2,544) (390) -- --
-------- ------ ------- ------- -------
Net cash used for investing
activities..................... 2,934 (5,143) 1,724 -- (485)
-------- ------ ------- ------- -------
Cash flows from financing activities:
Borrowings on revolving loan, net... 2,100 3,474 -- -- 5,574
Borrowings (repayment) of long-term
obligations...................... 9,250 (1,086) (2,420) -- 5,744
Issuance of common stock............ 11 -- -- 11
-------- ------ ------- ------- -------
Net cash provided by financing
activities.......................... 11,361 2,388 (2,420) -- 11,329
-------- ------ ------- ------- -------
Increase (decrease) in cash........... (20) 4,001 (409) -- 3,572
Cash at beginning of year............. 3,721 1,519 427 -- 5,667
-------- ------ ------- ------- -------
Cash at end of year................... $ 3,701 $5,520 $ 18 $ -- $ 9,239
======== ====== ======= ======= =======
Supplemental disclosures:
Cash (paid) refunded during the
year --
Interest......................... $ (9,254) $ (490) $ (188) -- $(9,932)
Income taxes refunded, net....... 155 -- -- -- 155
</Table>

F-23

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEAR ENDED FEBRUARY 3, 2001

(IN THOUSANDS)

<Table>
<Caption>
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ----- ------------ ------------

Revenues (including excise taxes of
$42,054).............................. $ 220 $723,229 $222 $ -- $723,671
Cost of goods sold and expenses:
Cost of goods sold.................... -- 576,042 -- -- 576,042
Operating and administrative
expenses........................... 352 157,146 21 -- 157,519
Interest expense...................... 13,408 533 242 -- 14,183
-------- -------- ---- ------- --------
13,760 733,721 263 -- 747,744
-------- -------- ---- ------- --------
Loss before income taxes and equity in
loss of consolidated
subsidiaries....................... (13,540) (10,492) (41) -- (24,073)
Benefit (provision) from income taxes... 6,228 (11,625) 19 -- (5,378)
-------- -------- ---- ------- --------
Loss before equity in loss of
consolidated subsidiaries.......... (7,312) (22,117) (22) -- (29,451)
Equity in loss of consolidated
subsidiaries.......................... (22,139) (22) -- 22,161 --
-------- -------- ---- ------- --------
Net loss.............................. $(29,451) $(22,139) $(22) $22,161 $(29,451)
======== ======== ==== ======= ========
</Table>

F-24

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET

AS OF FEBRUARY 3, 2001

(IN THOUSANDS)

<Table>
<Caption>
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------ ------------ ------------

ASSETS
Current assets:
Cash................................. $ 3,721 $ 1,519 $ 427 $ -- $ 5,667
Short-term investments............... -- -- 3,000 -- 3,000
Accounts and notes receivable, net... 60 12,546 856 -- 13,462
Inventory............................ -- 24,424 -- -- 24,424
Prepaid expenses and other current
assets............................ 66 3,546 -- -- 3,612
-------- -------- ------ --------- --------
Total current assets.............. 3,847 42,035 4,283 -- 50,165
-------- -------- ------ --------- --------
Property and equipment, net............ -- 111,448 -- -- 111,448
Intangible assets, net................. -- 13,731 -- -- 13,731
Other assets, net...................... 1,809 12,921 643 -- 15,373
Investment in and advances to
subsidiaries......................... 118,966 1,699 244 (120,909) --
-------- -------- ------ --------- --------
Total assets...................... $124,622 $181,834 $5,170 $(120,909) $190,717
======== ======== ====== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations....................... $ 5,230 $ 813 $ -- $ -- $ 6,043
Accounts payable..................... 25,544 18,817 -- -- 44,361
Accrued expenses..................... 599 15,213 23 -- 15,835
Accrued interest..................... 3,564 -- 74 -- 3,638
-------- -------- ------ --------- --------
Total current liabilities......... 34,937 34,843 97 -- 69,877
-------- -------- ------ --------- --------
Long-term obligations, less current
portion above........................ 111,957 14,470 3,130 -- 129,557
Other liabilities...................... -- 13,555 -- -- 13,555
Stockholders' equity (deficit)......... (22,272) 118,966 1,943 (120,909) (22,272)
-------- -------- ------ --------- --------
Total liabilities and
stockholders' equity
(deficit)....................... $124,622 $181,834 $5,170 $(120,909) $190,717
======== ======== ====== ========= ========
</Table>

F-25

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED FEBRUARY 3, 2001

(IN THOUSANDS)

<Table>
<Caption>
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------- ------------ ------------

Net cash provided by (used for)
operating activities................ $(13,310) $13,291 $ 332 $-- $ 313
Cash flows from investing activities:
Purchase of and change in short-
term investments................. -- 155 (3,000) -- (2,845)
Purchase of property & equipment.... -- (17,398) -- -- (17,398)
Proceeds from sale of property &
equipment........................ -- 5,350 -- -- 5,350
Investment in and advances to
subsidiaries..................... 8,515 (8,572) 57 -- --
-------- ------- ------- -- --------
Net cash provided by (used for)
investing activities................ 8,515 (20,465) (2,943) -- (14,893)
-------- ------- ------- -- --------
Cash flows from financing activities:
Borrowings on revolving loan, net... 10,030 -- -- -- 10,030
Borrowings (repayment) of long-term
obligations...................... (2,030) 4,235 -- -- 2,205
Issuance of common stock............ 310 -- -- -- 310
-------- ------- ------- -- --------
Net cash provided by financing
activities.......................... 8,310 4,235 -- -- 12,545
-------- ------- ------- -- --------
Increase (decrease) in cash........... 3,515 (2,939) (2,611) -- (2,035)
Cash at beginning of year............. 206 4,458 3,038 -- 7,702
-------- ------- ------- -- --------
Cash at end of year................... $ 3,721 $ 1,519 $ 427 $-- $ 5,667
======== ======= ======= == ========
Supplemental disclosures:
Cash (paid) refunded during the
year --
Interest......................... $(13,264) $ (529) $ (242) -- $(14,035)
Income taxes refunded............ 139 -- -- -- 139
</Table>

F-26

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JANUARY 29, 2000

(IN THOUSANDS)

<Table>
<Caption>
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ----- ------------ ------------

Revenues (including excise taxes of
$34,865).............................. $ 444 $587,766 $341 $ -- $588,551
Cost of goods sold and expenses:
Cost of goods sold.................... -- 443,559 -- -- 443,559
Operating and administrative
expenses........................... 297 136,750 22 -- 137,069
Interest expense...................... 9,848 1,492 243 -- 11,583
-------- -------- ---- ------- --------
10,145 581,801 265 -- 592,211
-------- -------- ---- ------- --------
Income (loss) before income taxes and
equity in income (loss) of
consolidated subsidiaries.......... (9,701) 5,965 76 -- (3,660)
Benefit (provision) from income taxes... (769) 1,963 (30) -- 1,164
-------- -------- ---- ------- --------
Income (loss) before equity in income
(loss) of consolidated
subsidiaries....................... (10,470) 7,928 46 -- (2,496)
Equity in income of consolidated
subsidiaries....................... 7,974 46 -- (8,020) --
-------- -------- ---- ------- --------
Net income (loss).................. $ (2,496) $ 7,974 $ 46 $(8,020) $ (2,496)
======== ======== ==== ======= ========
</Table>

F-27

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET

AS OF JANUARY 29, 2000

(IN THOUSANDS)

<Table>
<Caption>
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------ ------------ ------------

ASSETS
Current assets:
Cash................................. $ 206 $ 4,458 $3,038 $ -- $ 7,702
Short-term investments............... -- 155 -- -- 155
Accounts and notes receivable, net... 3,526 16,199 774 -- 20,499
Inventory............................ -- 34,804 -- -- 34,804
Prepaid expenses and other current
assets............................ 71 1,633 -- -- 1,704
Deferred income taxes................ -- 2,393 -- -- 2,393
-------- -------- ------ --------- --------
Total current assets.............. 3,803 59,642 3,812 -- 67,257
-------- -------- ------ --------- --------
Property and equipment, net............ -- 113,338 -- -- 113,338
Intangible assets, net................. -- 14,582 -- -- 14,582
Other assets, net...................... 1,820 11,735 1,067 -- 14,622
Investment in and advances to
subsidiaries......................... 140,164 1,638 301 (142,103) --
-------- -------- ------ --------- --------
Total assets...................... $145,787 $200,935 $5,180 $(142,103) $209,799
======== ======== ====== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations....................... $ 2,008 $ 1,083 $ -- $ -- $ 3,091
Accounts payable..................... 28,056 22,860 -- -- 50,916
Accrued expenses..................... 119 11,493 39 -- 11,651
Accrued interest..................... 3,417 1 72 -- 3,490
-------- -------- ------ --------- --------
Total current liabilities......... 33,600 35,437 111 -- 69,148
-------- -------- ------ --------- --------
Long-term obligations, less current
portion above........................ 105,318 11,596 3,130 -- 120,044
Other liabilities...................... -- 13,738 -- -- 13,738
Stockholders' equity................... 6,869 140,164 1,939 (142,103) 6,869
-------- -------- ------ --------- --------
Total liabilities and
stockholders' equity............ $145,787 $200,935 $5,180 $(142,103) $209,799
======== ======== ====== ========= ========
</Table>

F-28

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JANUARY 29, 2000

(IN THOUSANDS)

<Table>
<Caption>
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------ ------------ ------------

Net cash provided by (used in)
operating activities................. $ (3,746) $10,141 $ 420 $ -- $ 6,815
Cash flows from investing activities:
Purchase of and change in short-term
investments....................... -- (14) 2,583 -- 2,569
Purchase of property and equipment... (1,859) (40,019) -- -- (41,878)
Proceeds from sale of property,
equipment and assets held for
sale.............................. -- 22,254 -- -- 22,254
Investment in and advances to
subsidiaries...................... 2,575 (2,610) 35 -- --
-------- ------- ------ ------- --------
Net cash (used in) provided by
investing activities................. 716 (20,389) 2,618 -- (17,055)
-------- ------- ------ ------- --------
Cash flows from financing activities:
Borrowings on revolving loan, net.... 4,096 -- -- -- 4,096
Borrowings (repayment) of long-term
obligations, net.................. (1,487) 11,858 -- -- 10,371
Issuance of common stock............. 108 -- -- -- 108
-------- ------- ------ ------- --------
Net cash provided by financing
activities........................... 2,717 11,858 -- -- 14,575
-------- ------- ------ ------- --------
Increase (decrease) in cash............ (313) 1,610 3,038 -- 4,335
Cash at beginning of year.............. 519 2,848 -- -- 3,367
-------- ------- ------ ------- --------
Cash at end of year.................... $ 206 $ 4,458 $3,038 $ -- $ 7,702
======== ======= ====== ======= ========
Supplemental disclosures:
Cash (paid) refunded during the
year --
Interest............................. $(10,070) $(1,493) $ (243) $ -- $(11,806)
Income taxes refunded................ 119 -- -- -- 119
</Table>

F-29

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)

17. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

Quarterly financial information is as follows:

<Table>
<Caption>
FISCAL QUARTER ENDED
------------------------------------------------
MAY 5, AUGUST, 4 NOVEMBER, 3 FEBRUARY 2,
FISCAL YEAR ENDED FEBRUARY 2, 2002 2001 2001 2001 2002
- ---------------------------------- -------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Revenues......................................... $161,737 $179,082 $167,944 $138,139
Gross profit..................................... 33,816 35,578 33,646 30,041
Net loss......................................... (7,733) (21,272) (10,502) (23,681)
Basic loss per share............................. (1.55) (4.25) (2.10) (4.73)
Diluted loss per share........................... (1.55) (4.25) (2.10) (4.73)
</Table>

<Table>
<Caption>
FISCAL QUARTER ENDED
------------------------------------------------
APRIL 29, JULY 29, OCTOBER 28, FEBRUARY 3,
FISCAL YEAR ENDED FEBRUARY 3, 2001 2000 2000 2000 2001
- ---------------------------------- --------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Revenues......................................... $172,934 $195,810 $180,723 $174,204
Gross profit..................................... 35,523 41,867 36,447 33,792
Net loss......................................... (2,881) 94 (4,148) (22,516)
Basic income (loss) per share(1)................. (.60) .02 (.83) (4.51)
Diluted income (loss) per share(1)............... (.60) .02 (.83) (4.51)
</Table>

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

(1) Earnings per share amounts for each quarter are required to be computed
independently. As a result, their sum does not equal the total year earnings
per share for diluted earnings per share in fiscal years 2002 and 2001.

18. OPERATING SEGMENT:

The Company operates in one segment based on the criteria established by
SFAS 131. That segment is the operating and franchising of convenience food
stores. Revenues from external customers are derived primarily from three major
categories -- merchandise, gasoline and food service. The Company's merchandise
sales are comprised of groceries, beverages, beer/wine, tobacco products, dairy
products, candy/snacks, non-food merchandise and services. Services include
lottery, ATMs and money orders. Food service sales are comprised of fountain,
coffee, fresh made sandwiches, deli products and branded quick serve restaurant
sales such as Mr. Hero, Taco Bell, and Subway.

The Company does not rely on any major customers as a source of revenue.
The Company's operations are concentrated in seven states in the Midwest and
Southeast part of the United States.

19. SUBSEQUENT EVENTS:

F-30

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Dairy Mart Convenience
Stores, Inc.:

We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Dairy Mart
Convenience Stores, Inc. and Subsidiaries (the Company) included in this Form
10-K and have issued our report thereon dated May 8, 2002 (except with respect
to the matters discussed in Notes 1, 8 and 19 as to which the date is June 28,
2002). Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

/s/ ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP

Cleveland, Ohio,
May 8, 2002.

F-31

SCHEDULE II

DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION AS OF SEPTEMBER 24, 2001)
VALUATION ACCOUNTS

<Table>
<Caption>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ ----------------------- ----------- ----------
ADDITIONS DEDUCTIONS
----------------------- -----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER AND ACCOUNTS END OF
DESCRIPTION PERIOD EXPENSES RECOVERIES WRITTEN-OFF PERIOD
----------- ------------ ---------- ---------- ----------- ----------

Reserve for Doubtful Accounts:
Fiscal Year Ended January 29, 2000.... 2,074,107 262,101 -- (272,869) 2,063,339
Fiscal Year Ended February 3, 2001.... 2,063,339 832,284 -- (594,289) 2,301,334
Fiscal Year Ended February 2, 2002.... 2,301,334 853,028 -- (540,572) 2,613,790
</Table>

F-32