<PAGE>


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

                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
     OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2003

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
     OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from .............to ............

Commission File Number 1-7013
                       ------

                             GRISTEDE'S FOODS, INC.
                             ----------------------
             (Exact Name of Registrant as Specified in its Charter)

          Delaware                                          13-1829183
(State or Other Jurisdiction of                          (I.R.S. Employer
Incorporation or Organization)                          Identification No.)

                  823 Eleventh Avenue, New York, New York 10019
                  ---------------------------------------------
                    (Address of Principal Executive Offices)

                                 (212) 956-5803
                                 --------------
              (Registrant's Telephone Number, Including Area Code)

                                       N/A
                                       ---
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes       No  X
    ---      ---

At October 15, 2003, registrant had issued and outstanding 19,636,574 shares of
common stock.

<PAGE>

                             GRISTEDE'S FOODS, INC.


PART I - FINANCIAL INFORMATION

   Item 1.    Financial Statements

                      Consolidated Balance Sheets as of
                               August 31, 2003 and December 1, 2002      Page 3

                      Consolidated Statements of Operations for
                               the 13 weeks and the 39 weeks ended
                               August 31, 2003 and September 1, 2002     Page 4

                      Consolidated Statements of Stockholders'
                               Equity for the 52 weeks ended
                               December 1, 2002 and the
                               39 weeks ended August 31, 2003            Page 5

                      Consolidated Statements of Cash Flows for
                               the 39 weeks ended August 31, 2003
                               and September 1, 2002                     Page 6

                      Notes to Consolidated Financial Statements         Page 7


   Item 2.  Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                    Page 13

   Item 3.  Quantitative and Qualitative Disclosures About Market Risk   Page 20

   Item 4.  Controls and Procedures                                      Page 20


PART II - OTHER INFORMATION                                              Page 21


                                       2
<PAGE>

Item 1
Financial Statements

                             GRISTEDE'S FOODS, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                  (Unaudited)
                                                                                                   August 31,           December 1,
                                                                                                      2003                  2002
                                                                                                 --------------       --------------
<S>                                                                                              <C>                  <C>
ASSETS

CURRENT ASSETS:
     Cash                                                                                        $     703,447        $     576,358
     Accounts receivable - net of allowance for doubtful accounts
        of $533,000 at August 31, 2003 and $481,000 at December 1, 2002                             11,673,982            7,659,552
     Inventories                                                                                    40,334,094           37,601,170
     Due from related parties - trade                                                                       --              251,665
     Prepaid expenses and other current assets                                                       1,217,084            2,825,984
                                                                                                 -------------        -------------

              Total current assets                                                                  53,928,607           48,914,729
                                                                                                 -------------        -------------

PROPERTY AND EQUIPMENT:
     Furniture, fixtures and equipment                                                              21,353,332           20,159,016
     Capitalized equipment leases                                                                   36,243,911           34,300,805
     Leaseholds and leasehold improvements                                                          63,269,528           59,323,240
                                                                                                 -------------        -------------
                                                                                                   120,866,771          113,783,061
     Less accumulated depreciation and amortization                                                 54,231,243           48,474,655
                                                                                                 -------------        -------------

              Net property and equipment                                                            66,635,528           65,308,406
                                                                                                 -------------        -------------

     Deposits and other assets                                                                       1,039,359            1,120,028
     Due from related party - trade                                                                         --            1,225,000
     Other assets                                                                                    3,250,552            4,043,978
                                                                                                 -------------        -------------

TOTAL                                                                                            $ 124,854,046        $ 120,612,141
                                                                                                 =============        =============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable, trade                                                                     $  38,504,462        $  33,438,962
     Accrued payroll, vacation and withholdings                                                      2,245,780            3,177,933
     Accrued expenses and other current liabilities                                                  2,113,123            2,343,654
     Due to affiliates - trade                                                                         442,380              398,913
     Capitalized lease obligations - current portion                                                 5,991,300            4,892,101
     Current portion of long term debt                                                               2,650,740            2,500,740
                                                                                                 -------------        -------------

              Total current liabilities                                                             51,947,785           46,752,303

     Long-term debt - noncurrent portion                                                            26,474,803           28,349,802
     Due to affiliates                                                                              21,002,779           14,842,437
     Capitalized lease obligations - noncurrent portion                                             12,489,787           14,945,257
     Deferred rent                                                                                   5,881,558            5,056,248
                                                                                                 -------------        -------------

              Total liabilities                                                                    117,796,712          109,946,047
                                                                                                 -------------        -------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
     Preferred stock, $50 Par, -shares authorized 500,000; none issued                                      --                   --
     Common stock, $0.02 par value - shares authorized 25,000,000; outstanding
          19,636,574 shares at August 31, 2003 and December 1, 2002                                    392,732              392,732
     Additional paid-in capital                                                                     17,567,310           14,136,674
     Retained deficit                                                                              (10,902,708)          (3,863,312)
                                                                                                 -------------        -------------

              Total stockholders' equity                                                             7,057,334           10,666,094
                                                                                                 -------------        -------------

TOTAL                                                                                            $ 124,854,046        $ 120,612,141
                                                                                                 =============        =============
</TABLE>

See notes to consolidated financial statements (unaudited).


                                       3
<PAGE>

                             GRISTEDE'S FOODS, INC.
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
    FOR THE 39 WEEKS AND 13 WEEKS ENDED AUGUST 31, 2003 AND SEPTEMBER 1, 2002


<TABLE>
<CAPTION>
                                                                     39 weeks          13 weeks         39 weeks        13 weeks
                                                                       ended             ended           ended            ended
                                                                     August 31,        August 31,     September 1,     September 1,
                                                                        2003             2003             2002             2002
                                                                   -------------    -------------     ------------    --------------
<S>                                                                <C>              <C>              <C>              <C>
Sales                                                              $ 210,284,763    $  64,698,051    $ 182,175,544    $  60,505,818
Cost of sales                                                        125,878,387       38,386,060      109,285,337       36,284,585
                                                                   -------------    -------------    -------------    -------------

Gross profit                                                          84,406,376       26,311,991       72,890,207       24,221,233

Net Insurance Proceeds - Northeast Blackout                           (1,911,115)      (1,911,115)              --               --

Store operating, general and administrative expenses                  71,354,920       23,299,006       57,764,780       20,170,495

Pre-store opening startup costs and store closing costs                  530,894           35,261          312,040          130,041

Bad Debt Expense                                                       1,693,436        1,657,436               --               --

Depreciation and amortization                                          7,173,988        2,414,819        5,902,418        2,032,828

Insurance proceeds - Terrorist Attacks                                        --               --         (587,300)        (487,300)

Write Off of King's Acquisition Costs                                    800,000          800,000               --               --

Litigation Settlement                                                  1,300,000        1,300,000               --               --

Non-store operating expenses:

    Administrative payroll and fringes                                 6,210,689        1,895,009        5,088,713        1,765,317
    General office expense                                             1,402,040          625,161        1,550,335          516,601
    Professional fees                                                    299,957           77,708          352,881           86,345
    Corporate expense                                                    200,754           78,733          159,799           54,284
                                                                   -------------    -------------    -------------    -------------

Total non-store operating expenses                                     8,113,440        2,676,611        7,151,728        2,422,547
                                                                   -------------    -------------    -------------    -------------

Operating income (loss)                                               (4,649,187)      (3,960,027)       2,346,541          (47,378)
                                                                   -------------    -------------    -------------    -------------

Other income (expense):

    Interest expense                                                  (2,393,337)        (782,902)      (2,136,709)        (730,555)
    Interest income                                                        3,128              779            4,413              669
                                                                   -------------    -------------    -------------    -------------

Total other income (expense) - net                                    (2,390,209)        (782,123)      (2,132,296)        (729,886)
                                                                   -------------    -------------    -------------    -------------

Income (loss) before income taxes                                     (7,039,396)      (4,742,150)         214,245         (777,264)

Provision for income taxes                                                    --               --           25,000               --
                                                                   -------------    -------------    -------------    -------------

Net income (loss)                                                  $  (7,039,396)   $  (4,742,150)   $     189,245    $    (777,264)
                                                                   =============    =============    =============    =============

Income (loss) per share, basic and diluted                                ($0.36)          ($0.24)           $0.01           ($0.04)
                                                                   =============    =============    =============    =============

Weighted average number of shares and
equivalents outstanding                                               19,636,574       19,636,574       19,636,574       19,636,574
                                                                   =============    =============    =============    =============
</TABLE>

See notes to consolidated financial statements (unaudited).


                                       4
<PAGE>

                             GRISTEDE'S FOODS, INC.
            UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     FOR THE 52 WEEKS ENDED DECEMBER 1, 2002
                   AND FOR THE 39 WEEKS ENDED AUGUST 31, 2003


<TABLE>
<CAPTION>
                                                                                    Additional                            Total
                                                          Common stock                Paid-In          Retained        Stockholders'
                                                     Shares          Amount           Capital          (deficit)          Equity
                                                  ------------    ------------     ------------      ------------      ------------
<S>                                                <C>            <C>                <C>             <C>               <C>
Balance at December 2, 2001                        19,636,574     $    392,732       14,136,674      $ (2,936,905)     $ 11,592,501

Net loss for the 52 weeks ended
   December 1, 2002                                        --               --               --          (926,407)         (926,407)
                                                   ----------     ------------     ------------      ------------      ------------

Balance at December 1, 2002                        19,636,574     $    392,732       14,136,674      $ (3,863,312)     $ 10,666,094
Capital Contribution                                                                  3,430,636                           3,430,636
Net loss for the 39 weeks
   ended August 31, 2003                                   --               --                         (7,039,396)       (7,039,396)
                                                   ----------     ------------     ------------      ------------      ------------

Balance at August 31, 2003                         19,636,574     $    392,732       17,567,310      $(10,902,708)     $  7,057,334
                                                   ==========     ============     ============      ============      ============
</TABLE>

See notes to consolidated financial statements (unaudited).


                                       5
<PAGE>

                             GRISTEDE'S FOODS, INC.
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
      FOR THE THIRTY NINE WEEKS ENDED AUGUST 31, 2003 AND SEPTEMBER 1, 2002


<TABLE>
<CAPTION>
                                                                                                    39 weeks             39 weeks
                                                                                                     ended                ended
                                                                                                   August 31,          September 1,
                                                                                                      2003                 2002
                                                                                                 -------------        --------------
<S>                                                                                              <C>                  <C>
Cash flows from operating activities:

   Net income (loss)                                                                             $  (7,039,396)       $     189,245

   Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:

     Depreciation and amortization                                                                   7,173,988            5,902,418
     Write Off of Kings Acquisition Costs                                                              800,000
     Change in allowance for bad debts                                                                  51,827               52,169
     Changes in operating assets and liabilities:

       Accounts receivable                                                                          (4,066,257)          (1,073,246)
       Inventory                                                                                    (2,732,924)          (2,519,035)
       Due from related parties - trade                                                              1,476,665             (384,094)
       Prepaid expenses and other current assets                                                     1,608,900             (414,156)
       Other assets                                                                                   (862,688)            (737,061)
       Accounts payable, trade                                                                       5,065,500            2,448,292
       Accrued payroll, vacation and withholdings                                                     (932,154)             849,390
       Accrued expenses and other current liabilities                                                 (132,937)            (271,881)
       Due to related parties - trade                                                                   43,468              297,599
       Deferred rent                                                                                   825,311              544,283
       Current and other assets acquired via capital lease                                              84,681                   --
                                                                                                 -------------        -------------

         Net cash provided by operating activities                                                   1,363,984            4,883,923
                                                                                                 -------------        -------------

Cash flows from investing activities:
   Capital expenditures                                                                             (5,805,943)          (5,639,418)
                                                                                                 -------------        -------------

         Net cash used in investing activities                                                      (5,805,943)          (5,639,418)
                                                                                                 -------------        -------------

Cash flows from financing activities:

    Repayments of bank loan                                                                         (1,724,999)            (692,308)
    Proceeds from bank loan                                                                                 --            5,300,000
    Repayment of capitalized lease obligations                                                      (3,296,930)          (2,929,614)
    Capital Contribution                                                                             3,430,636                   --
    Advances from (repayments to) affiliates                                                         6,160,341             (838,626)
                                                                                                 -------------        -------------

         Net cash provided by financing activities                                                   4,569,048              839,452
                                                                                                 -------------        -------------

Net increase in cash                                                                                   127,089               83,957

Cash, begining of period                                                                               576,358              475,873
                                                                                                 -------------        -------------

Cash, end of period                                                                              $     703,447        $     559,830
                                                                                                 =============        =============

Supplemental disclosures of cash flow information:

    Cash paid for interest                                                                       $   2,517,202        $   2,175,792
    Cash paid (refunded) for taxes                                                               $      23,590        $     (79,516)


Supplemental schedule of non cash financing activity:
    Assets acquired under capitalized lease obligations                                          $   1,940,659        $   3,598,845
</TABLE>

See notes to consolidated financial statements (unaudited).


                                       6
<PAGE>

                             GRISTEDE'S FOODS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business -

The Company's corporate predecessor was originally incorporated in 1956 in New
York under the name Designcraft Industries, Inc., and was engaged in the jewelry
business until 1992, when the Company commenced its supermarket operations. The
Company became a public company in 1968, listed its common stock on the American
Stock Exchange in 1972, and reincorporated in Delaware in 1985. The Company
changed its name to Sloan's Supermarkets, Inc. in September 1993 and to
Gristede's Sloans, Inc. in November 1997. The Company changed its name to
Gristede's Foods, Inc. in August 1999 to reflect its strategy of changing its
"Sloan's" banner locations to "Gristede's" subsequent to a store remodeling.

On November 10, 1997, 29 supermarkets that were owned by John A. Catsimatidis,
the Company's majority stockholder, Chairman of the Board and CEO (such 29
supermarkets hereinafter referred to as the "Food Group") were merged into the
Company's existing 15 supermarkets. The transaction was accounted for as an
acquisition of the Company by the Food Group pursuant to Emerging Issues Task
Force 90-13 as a result of the Food Group obtaining control of the Company after
the transaction. The assets and liabilities of the Food Group were recorded at
their historical cost. The Company's assets and liabilities were recorded at
their fair value to the extent acquired. Consideration for the transaction was
based on an aggregate of $36,000,000 in market value of the Company's common
stock and the assumption of $4,000,000 of liabilities. 16,504,298 shares of
common stock were issued on the date of the acquisition based on a market price
of $2.18 per share.

The Company operates a total of 49 stores; 40 supermarkets and three
free-standing pharmacies in Manhattan, New York, three supermarkets in
Westchester County, New York, and one supermarket in each of Brooklyn, New York,
Bronx, New York and Long Island, New York. All of the supermarkets and
pharmacies are leased and operated under the "Gristede's" banner.

The Company also owns City Produce Operating Corp., a company which operates a
warehouse and distribution facility on leased premises in the Bronx, New York.

Basis of presentation - The unaudited consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). In the opinion of management,
the information furnished reflects all adjustments (consisting of normal
recurring adjustments), which are necessary for a fair statement of the results
of operations and financial position of the Company for the interim period. The
interim figures are not necessarily indicative of the results to be expected for
the fiscal year.

Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.

Quarter End - The Company operates using the conventional retail 52/53-week
fiscal year. The fiscal quarter ends on the Sunday closest to the end of the
quarter. The Company's fiscal year ends on the Sunday closest to November 30.

Inventory - Inventories are valued principally at the lower of cost or market
with cost determined under the retail first in, first out (FIFO) method.

Property and Equipment and Depreciation - Property and equipment is stated at
cost. Depreciation of furniture, fixtures and equipment is computed by the
straight-line method over the estimated useful lives of the assets.


                                       7
<PAGE>

Leases and Amortization - The Company charges the cost of noncancelable
operating lease payments and beneficial leaseholds to operations on a
straight-line basis over the lives of the leases.

Provision for income taxes - Income taxes reflect Federal and State alternative
minimum tax only, as all regular income taxes have been offset by utilization of
the Company's net operating loss carry forward.

Income (loss) per share - Per share data are based on the weighted average
number of shares of common stock and equivalents outstanding during each
quarter. Income (loss) per share is computed by the treasury stock method; basic
and diluted income per share are the same.

The Company's Annual Report on Form 10-K for the 52 week period ended
December 1, 2002 contains information which should be read in conjunction
herewith.

2. RELATED PARTY TRANSACTIONS

Under a management agreement dated November 10, 1997, Namdor Inc., one of the
Company's subsidiaries, performed consulting and managerial services for a
supermarket owned by a corporation controlled by John A. Catsimatidis. In
consideration of such services, Namdor Inc., was entitled to receive, on a
quarterly basis, a cash payment of one and one-quarter percent (1.25%) of all
sales of inventory and merchandise made at, in or from the managed supermarket.
For the 13 weeks and the 39 weeks ended August 31, 2003, there were no amounts
for such services included in income.

The Company leases the following locations from an affiliate, Red Apple Real
Estate, Inc., a company wholly owned by John A. Catsimatidis: a portion of its
warehouse and distribution facility comprising 25,000 square feet, its office
facilities and all or a portion of ten store locations. During the 13 weeks and
the 39 weeks ended August 31, 2003 the Company paid $739,480 and $2,334,019
respectively, to Red Apple Real Estate, Inc., for rent and real estate taxes
under such leases. The leases are triple net whereby the tenant pays all real
estate taxes, insurance and maintenance.

Certain of the Company's supermarkets have entered into capital and operating
leases with an affiliate, Red Apple Lease Corporation, a corporation wholly
owned by John A. Catsimatidis. These leases are primarily for store operating
equipment. Obligations under these leases at August 31, 2003 were $2,888,145.
These leases require that monthly payments of $76,790 be made to Red Apple Lease
Corporation through March 2007.

Certain of the Company's supermarkets have entered into capital leases with an
affiliate, United Acquisition Leasing Corp., a company wholly owned by John A.
Catsimatidis. These leases are primarily for store equipment. Obligations under
these leases at August 31, 2003 were $4,059,386. These leases require that
monthly payments of $100,525 be made to United Acquisition Leasing Corp. with
various expirations through February 2008.

Amounts due to affiliates, primarily United Acquisition Corp., a corporation
indirectly wholly owned by John A. Catsimatidis represent liabilities in
connection with the 1997 merger and additional advances made to the Company by
United Acquisition Corp. since the merger. These affiliates have agreed not to
demand payment of these liabilities in the next year. Accordingly, the liability
has been classified as noncurrent. As part of post-closing adjustments in
connection with the 1997 merger, approximately $3,600,000 that is due from
certain of the Company's affiliates has been offset against the amounts due to
United Acquisition Corp. The net amount due to affiliates at August 31, 2003 was
$21,002,779, of which $18,300,000 was subordinated to the Company's banks. The
liability presently does not bear interest. However, the Company's credit
agreement with its banks permits the Company to pay interest on such
subordinated debt provided the Company has a positive net income.


                                       8
<PAGE>

In October 2002, the Company and Gristede's NY LLC, an affiliate of the Company,
acquired the fixtures, leasehold improvements and store leases of three stores
from the Great Atlantic & Pacific Tea Company for a total purchase price of
$5,500,000. The affiliate has leased the acquired assets to the Company. Such
stores had been closed for more than six months prior to the transaction.
Obligations under these capital leases at August 31, 2003 were $4,617,862 and
require monthly payments of $79,156 through February 2008 and a balloon payment
of $1,629,156 at such time.

In addition, in connection with the foregoing, Gristede's NY LLC, received a
term loan of $5,000,000 from Commerce Bank, N.A., which loan is guaranteed by
Gristede's Foods NY, Inc. (a wholly-owned subsidiary of Namdor, Inc.), and the
Company's subsidiaries Namdor Inc. and City Produce Operating Corp., and secured
by a pledge of all of the capital stock of Gristede's Foods NY, Inc.

Due from related parties - trade, represents amounts due from an affiliated
company for merchandise shipped from the Company's subsidiary City Produce
Operating Corp., in the ordinary course of business, as well as management fees
receivable for administrative and managerial services performed for the
affiliated company by the Company. Amounts receivable from the affiliate were
guaranteed by a company controlled by John A. Catsimatidis. During the 39 and 13
weeks ended August 31, 2003, merchandise sales to the affiliate were
approximately $163,000 and $0 respectively. During the quarter ended August 31,
2003, amounts due from the affiliate were repaid by another affiliate pursuant
to its guarantee. The full collection of all amounts due from the affiliate
totaling $1,639,000, was accounted for as a non-cash bad debt expense, offset by
an equal capital contribution reflected as additional paid-in capital.

On February 6, 1998, the Company agreed to purchase substantially all of the
assets and assumed certain of the liabilities of a supermarket located at 1644
York Avenue, New York City, that was owned by a corporation controlled by John
Catsimatidis. On March 1, 2000 the Company and the affiliate determined to
restructure the transaction by rescinding the purchase effective as of February
6, 1998, and entered into an operating agreement which gives the Company full
control of th.e supermarket and the right to operate the supermarket for the
account of the Company. The operating agreement presently terminates on December
1, 2004, but the term shall be extended for additional one year periods unless
either party gives notice of termination not later than 90 days prior to the end
of the then current term of the agreement. Under the operating agreement, the
Company shall pay to the affiliate $1.00 per annum, plus such other
consideration as may be approved by the Company's directors (excluding John
Catsimatidis). Pursuant to the operating agreement the Company or any designee
of the Company, also has the option until December 31, 2005 to purchase the
supermarket for $2,778,000, which price is the fair market price of the
supermarket established on October 11, 1999 by the Company's directors
(excluding John Catsimatidis).

In May 2000, another affiliate and the Company entered into a similar operating
agreement for a store owned by the affiliate. As consideration, the affiliate
receives the nominal amount of $1 per annum, plus such other consideration as
may be approved by the Company's directors (excluding John Catsimatidis). The
operating agreement presently terminates on May 10, 2004, but the term shall be
extended for additional one year periods unless either party gives notice of
termination not later than 90 days prior to the end of the then current term of
the agreement. Pursuant to the operating agreement, the Company, or any designee
of the Company, also has the option until December 31, 2005 to purchase the
supermarket for the fair market price of the supermarket as established by the
Company's directors (excluding John Catsimatidis) using a valuation criterion
similar to that issued for valuing the store at 1644 York Avenue, New York City.
It is management's opinion that the fair market value of this store is
approximately $3 million.

The affiliates' intention in entering into these two operating agreements where
the Company enjoys full benefits of ownership for the nominal consideration of
$1 per annum per store was to effect post closing adjustments in connection with
the Food Group acquisition. If the option to purchase the supermarkets is
exercised, the excess of the purchase price over the net book value of the
assets will be reflected as a charge to equity.


                                       9
<PAGE>

The Company uses the services of an affiliate Red Apple Medical, a corporation
wholly-owned by John Catsimatidis, as an agent for self-insurance purposes. All
employee medical claims are submitted to a third party administrator who
processes claims to be remitted through a controlled account. Such amounts are
reimbursed by the Company to the agent. No fees have been paid to this entity
for the fiscal years 2002 or 2003 to date.

3. COSTS RELATING TO ATTEMPTED KINGS ACQUISITION

The Company has made efforts to acquire Kings Super Markets, Inc., a chain of 27
stores, mainly located in Northern New Jersey, from its UK parent Marks &
Spencer, plc. ("M&S"). On July 17, 2003, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing that it was commencing a $150
million offering of senior notes to acquire Kings, pay transaction costs,
refinance certain of the Company's indebtedness, and for general corporate
purposes. The Company's investment bankers received preliminary commitments for
a substantial majority of the required funds. Subsequently, the Company revised
its purchase offer to include a combination of cash and notes. This was declined
by M&S, who took Kings off the market. The Company continues to express an
interest in acquiring Kings, and remains in discussions with a number of
potential funding sources to fund additional cash to complete a cash
transaction. No assurance can be given that this acquisition will be
consummated.

Through the quarter ending August 31, 2003, the Company has incurred costs
(primarily professional fees) in the total amount of $1,651,000. Of this total
amount: (i) $851,000 has been capitalized and is included in other assets on the
accompanying balance sheet, of which $523,000 is reimbursable to the Company by
its affiliate United Acquisition Corp. ("UAC"). Should the transaction be
unsuccessful, the $851,000 deferred costs will be charged to operations.
Reimbursements from UAC will be accounted for as a capital contribution
reflected as additional paid-in capital; and (ii) during the quarter ended
August 31, 2003, $800,000 of previously capitalized costs were charged to
operations as it was determined such costs did not have future value. Of such
costs, $491,000 were reimbursable and paid for by UAC, and have been accounted
for as a capital contribution and reflected as additional paid-in capital.

4. IMPACT OF NORTHEAST BLACKOUT OF AUGUST 14-15, 2003

The Company suffered significant losses of perishable inventory during the
Northeast Blackout of August 14-15, 2003. To a lesser extent, there were also
property repair and damage losses, and related expenses. The Company's inventory
is insured for its retail selling price, and property is insured for its new
replacement cost. The Company has filed claims for these losses and related
expenses with its insurance carriers and expects to recover at least
approximately $5.9 million. The minimum associated inventory costs and related
expenses are approximately $4 million, resulting in a minimum expected net
insurance gain of approximately $1.9 million, which has been recorded in the
quarter ended August 31, 2003. The Company is expecting payment for the claim in
the upcoming fiscal year.

5. PROPOSED SETTLEMENT OF DELIVERY WORKER'S LITIGATION

As further detailed in Part II , Legal Proceedings herein, although all of the
conditions precedent to such proposed settlement have not yet been met, an
affiliate of the Company, controlled by John A. Catsimatidis, paid into escrow
$1.3 million on October 16, 2003, which is the initial payment that is payable
under the proposed settlement upon satisfaction of all of the conditions
precedent. This was recorded as a litigation settlement expense of the Company
for the quarter ended August 31, 2003, with an offsetting equal capital
contribution reflected as additional paid-in capital. While the court has
approved the proposed settlement as fair, all of the conditions precedent for
implementation have not yet been met and cannot be assured at this time,
including the fact that the Company's banks have not yet approved the granting
of a subordinated security interest to the plaintiffs in certain of the
Company's assets to secure the payments of the settlement amount, security
documents have not yet been executed and the court has not entered a final
judgment in the matter. The balance of the proposed settlement amount will be
due in equal installments of $650,000 on the first and second anniversary of the
initial payment, without interest. Any amount paid on behalf of the Company will
be accounted as a capital contribution and reflected as additional paid-in
capital. When the conditions precedent to the proposed settlement have all been
met, the Company will record the balance of the settlement liabilities.
Additionally, recoveries from a $400,000 security bond posted by Great American
/ Baur shall be solely for the Company's benefit.


                                       10
<PAGE>

6. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141
eliminates the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001 and modifies the application of the
purchase accounting method effective for transactions that are completed after
June 30, 2001. SFAS 142 eliminates the requirement to amortize goodwill and
intangible assets having indefinite useful lives but requires that they be
assessed at least annually for impairment. Intangible assets that have finite
lives will continue to be amortized over their useful lives. The adoption of
SFAS 141 and 142 did not have a material effect on the Company's financial
position or operations.

In October 2001, the FASB issued Statement of Financial Accounting Standards
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). SFAS No. 144 addresses the accounting and reporting for the impairment or
disposal of long-lived assets. The statement provides a single accounting model
for long-lived assets to be disposed of. New criteria must be met to classify
the asset as an asset held-for-sale. This statement also focuses on reporting
the effects of a disposal of a segment of business. This statement is effective
for fiscal years beginning after December 15, 2001. The Company adopted SFAS 144
as of December 2, 2002, and the adoption did not have a material impact on the
Company's financial position or results of operations.

In April 2002, Statement of Financial Accounting Standards, No. 145, "Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS 145") was issued. SFAS 145 rescinds SFAS 4 and 64,
which required gains and losses from extinguishment of debt to be classified as
extraordinary items. SFAS also rescinds SFAS 44 since the provisions of the
Motor Carrier Act of 1980 are complete. SFAS 145 also amends SFAS 13 eliminating
inconsistencies in certain sale-leaseback transactions. The provisions of SFAS
145 are effective for fiscal years beginning after May 15, 2002. Any gain or
loss on extinguishment of debt that was classified as an extraordinary item in
prior periods presented shall be reclassified to interest expense. The adoption
of SFAS 145 did not have a material effect on the Company's financial position
or results of operations.

Statement of Financial Accounting Standards, No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), was issued in July
2002. SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS 146 supercedes EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. This pronouncement did not have a material effect on
the Company's financial position or results of operations.

On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation -Transition and
Disclosure" ("SFAS 148"). This standard amends SFAS No. 123, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require more frequent and
prominent disclosures in financial statements of the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of SFAS
148 are effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. SFAS 148 did
not have a material impact on the Company's results of operations, financial
position or cash flows, and the Company has adopted the disclosure provisions of
SFAS 148 as of March 3, 2003, as required.

In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45").
FIN 45 requires the recognition of a liability for certain guarantee obligations
issued or modified after December 31, 2002. It also clarifies disclosure
requirements to be made by a guarantor for certain guarantees. The disclosure
provisions of FIN 45 are effective for fiscal years ending after December 15,
2002. FIN 45 did not have a material impact on the Company's results of
operations, financial position or cash flows, and the Company has adopted the
disclosure provisions of FIN 45 as of December 2, 2002.


                                       11
<PAGE>

On January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. FIN 46 did not have a material impact on the Company's results of
operations, financial position or cash flows, and the Company has adopted the
disclosure provisions of FIN 46 as of December 2, 2002.

In February 2003, the Emerging Issues Task Force ("EITF") addressed EITF
Statement No. 02-16 ("EITF 02-16"), "Accounting by a Reseller for Cash
Consideration Received From a Vendor." EITF 02-16 provides accounting guidance
on how a reseller should characterize consideration given by a vendor and when
to recognize and how to measure that consideration in its income statement. EITF
02-16 is effective for all agreements entered into after December 31, 2002. The
Company has evaluated the provisions of EITF 02-16 and determined that this
statement did not have a material effect on its consolidated financial
statements.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. The new guidance amends SFAS 133 for decisions made: (a) as part of the
Derivatives Implementation Group process that effectively required amendments to
SFAS 133, (b) in connection with other Board projects dealing with financial
instruments, and (c) regarding implementation issues raised in relation to the
application of the definition of a derivative, particularly regarding the
meaning of an "underlying" and the characteristics of a derivative that contains
financing components. The amendments set forth in SFAS 149 improve financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. SFAS 149 is generally effective for contracts entered
into or modified after June 30, 2003 (with a few exceptions) and for hedging
relationships designated after June 30, 2003. The guidance is to be applied
prospectively. The adoption of SFAS 149 did not have a material impact on the
Company's financial position or results of operations.

In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("SFAS 150"). SFAS 150 improves the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity. The new
Statement requires that those instruments be classified as liabilities in
statements of financial position. The adoption of SFAS 150 did not have a
material impact on the Company's financial position or results of operations.

7. ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company complies with Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). This statement
defines a fair value based method whereby compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Under SFAS No. 123,
companies are encouraged, but are not required, to adopt the fair value method
of accounting for employee stock-based transactions. The Company accounts for
such transactions under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, but discloses pro forma net income (loss) as if
the Company had applied the SFAS No. 123 method of accounting.

Pro forma information, assuming the Company had accounted for its employee stock
options granted under the fair value method prescribed by SFAS No. 123, as
amended by Financial Accounting Standards Board Statement No. 148, "Accounting
for Stock Based Compensation - Transition and Disclosure, an Amendment of FASB
Statement No. 123" is presented below. The fair value of each option grant is
estimated on the date of each grant using the Black-Scholes option-pricing
model. There were no stock options granted in fiscal 2003 or in fiscal 2002. The
fair value generated by the Black-Scholes model may not be indicative of the
future benefit, if any, that may be received by the option holder.


                                       12
<PAGE>


<TABLE>
<CAPTION>
                                                        39 Weeks Ended            13 Weeks Ended
                                                            ($000s)                  ($000s)
                                                     --------------------      --------------------
                                                     8/31/03       9/1/02      8/31/03       9/1/02
                                                     -------       ------      -------       ------
<S>                                                  <C>            <C>        <C>           <C>
Net income/(loss):                                   $(7,039)       $189       $(4,742)      $(777)
Less:  stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects                       2            2            1            1
                                                         -            -            -            -

Pro forma net income/(loss)                          $(7,041)       $187       $(4,743)      $(778)
                                                     =======        ====       =======       =====

Earnings (loss) per share:

Basic, as reported                                    $(0.36)       $0.01       $(0.24)      $(0.04)
Basic, pro forma                                      $(0.36)       $0.01       $(0.24)      $(0.04)
Diluted, as reported                                  $(0.36)       $0.01       $(0.24)      $(0.04)
Diluted, pro forma                                    $(0.36)       $0.01       $(0.24)      $(0.04)
</TABLE>

This pro forma information may not be representative of the amounts to expected
in future years as the fair value method of accounting prescribed by SFAS No.
123 has not been applied to options granted prior to fiscal 1996.


                                       13
<PAGE>

                     GRISTEDE'S FOODS, INC. AND SUBSIDIARIES

PART I

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS FOR THE 39 WEEKS AND THE 13 WEEKS ENDED AUGUST 31, 2003
         AND SEPTEMBER 1, 2002


Critical Accounting Policies

Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 of the Notes to the Consolidated Financial
Statements includes a summary of the significant accounting policies and methods
used in the preparation of our consolidated financial statements. The following
is a brief discussion of the more significant accounting policies and methods
used by the Company.

General

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
most significant estimates and assumptions relate to the recoverability of
internally developed software costs, fixed assets and other intangibles,
inventories, realization of deferred income taxes and the adequacy of allowances
for doubtful accounts. Actual amounts could differ significantly from these
estimates.

Accounts Receivable

We continuously monitor collections and payments from our customers, third party
and vendor receivables and maintain a provision for estimated credit losses
based upon our historical experience and any specific collection issues that we
have identified. While such credit losses have historically been within our
expectations and the provisions established, we cannot guarantee that we will
continue to experience the same credit loss rates that we have in the past.

Inventories

We value our inventory at the lower of cost or market with cost determined under
the retail method. We regularly review inventory quantities on hand and record a
provision for excess and obsolete inventory where appropriate based primarily on
our historical shrink and spoilage rates.

Intangibles and Other Long-Lived Assets

Property, plant and equipment, intangible and certain other long-lived assets
are amortized over their useful lives. Useful lives are based on management's
estimates of the period that the assets will generate revenue. Intangible assets
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.

Accrued Self-Insurance

Insurance expense for employee-related health care benefits are estimated using
historical experience.


                                       14
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, as a percentage of sales, components of our
Results of Operations:

<TABLE>
<CAPTION>
                                                               39 weeks            39 weeks          13 weeks             13 weeks
                                                                ended               ended              ended               ended
                                                               8/31/03              9/1/02            8/31/03              9/1/02
                                                               -------              ------            -------              ------
<S>                                                          <C>                 <C>                <C>                 <C>
Sales                                                              100.0               100.0              100.0               100.0
Cost of sales                                                       59.9                60.0               59.3                60.0
                                                             -----------         -----------        -----------         -----------
Gross profit                                                        40.1                40.0               40.7                40.0
Store operating, general and
    administrative expenses                                         33.9                31.7               36.0                33.3
Pre-store opening startup costs                                      0.3                 0.2                0.1                 0.2
Depreciation and amortization                                        3.4                 3.2                3.7                 3.4
Insurance and grant proceeds                                        -0.9                -0.3               -3.0                -0.8
Non-store operating expense                                          3.9                 3.9                4.1                 4.0
Bad debt expense                                                     0.8                 0.0                2.6                 0.0

Litigation settlement                                                0.6                 0.0                2.0                 0.0
Write off Kings acquisition costs                                    0.4                 0.0                1.2                 0.0
                                                             -----------         -----------        -----------         -----------

Operating income (loss)                                             -2.2                 1.3               -6.1                -0.1
Other income (expense)                                              -1.1                -1.2               -1.2                -1.2
                                                             -----------         -----------        -----------         -----------
Income (loss) from operations before
   income taxes                                                     -3.3                 0.1               -7.3                -1.3
Provisions for income taxes                                          0.0                 0.0                0.0                 0.0
                                                             -----------         -----------        -----------         -----------
Net income (loss)                                                   -3.3                 0.1               -7.3                -1.3
                                                             -----------         -----------        -----------         -----------
</TABLE>

Sales were $210,284,763 and $64,698,051 for the 39 weeks and 13 weeks ended
August 31, 2003, respectively, as compared to $182,175,544 and $60,505,818 for
the 39 weeks and 13 weeks ended September 1, 2002, respectively. The increase in
sales for the 2003 periods primarily resulted from new stores opened during the
fourth quarter of fiscal 2002 and the first two quarters of fiscal 2003.

Same store sales declined 2.2% and 6.7% for the 39 weeks and 13 weeks ended
August 31, 2003, respectively, as compared to the 39 weeks and 13 weeks ended
September 1, 2002. The decline in same store sales during the 2003 periods was
attributable to promotional pricing by a competitor, decrease in sales of
certain product categories due to unseasonably cool and wet summer, and the
August 14, 2003 Northeast blackout. Same store sales are calculated using stores
that were open for business both in the current period and in the same period
last year.

Gross profit was $84,406,376 or 40.1% of sales and $26,311,991 or 40.7% of sales
for the 39 weeks and 13 weeks ended August 31, 2003, respectively, as compared
to $72,890,207 or 40.0% of sales and $24,221,233 or 40.0% of sales for the 39
weeks and 13 weeks ended September 1, 2002, respectively. The increase in gross
profit as a percentage of sales during the 2003 periods was primarily due to
increased sales of perishables, which have higher gross margins, and an overall
improvement in margins.


                                       15
<PAGE>

Store operating, general and administrative expenses were $71,354,920 or 33.9%
of sales and $23,299,006 or 36.0% of sales for the 39 weeks and 13 weeks ended
August 31, 2003, respectively, as compared $57,764,780 or 31.7% of sales and
$20,170,495 or 33.3% of sales for the 39 weeks and 13 weeks ended September 1,
2002, respectively. Store operating, general and administrative expenses
increased as a percentage of sales during the 2003 periods mainly due to
occupancy costs of the newly opened stores, and higher real estate taxes.

Pre-store opening startup costs and store closing costs were $530,894 and
$35,261 for the 39 weeks and 13 weeks ended August 31, 2003 as compared to
$312,040 and $130,041 for the 39 weeks and 13 weeks ended September 1, 2002,
respectively. During the 39 weeks ended August 31, 2003, four new stores were
opened. No new stores were opened during the 13 weeks ended August 13, 2003.
There were no new stores opened during both comparable 2002 periods. One store
was remodeled during both the 39 weeks and 13 weeks ended August 31, 2003, and 7
stores and 4 stores were remodeled during the comparable 2002 periods,
respectively. New stores have higher pre-store openings costs than remodeled
stores.

Non-store operating expenses were $8,113,440 or 3.9% of sales and $2,676,611 or
4.1% of sales for the 39 weeks and 13 weeks ended August 31, 2003, respectively,
as compared with $7,151,728 or 3.9% of sales and $2,422,547 or 4.0% of sales for
the 39 weeks and for the 13 weeks ended September 1, 2002, respectively.
Administrative payroll and fringes were 3.0% and 2.9% of sales for the 39 weeks
and 13 weeks ended August 31, 2003, respectively, as compared to 2.8% and 2.9%
of sales for the 39 weeks and 13 weeks ended September 1, 2002, respectively.
The increase as a percentage of sales during the 39 weeks ended August 31, 2003,
primarily reflects the addition of supervisory personnel in anticipation of
acquiring Kings Super Markets and also owing to additional business generated by
the new stores. General office expenses were 0.7% and 1.0% of sales for the 39
weeks and 13 weeks ended August 31, 2003, respectively, and 0.9% of sales for
both the 39 weeks and 13 weeks ended September 1, 2002. Professional fees were
0.1% of sales for each of the 39 weeks and 13 weeks periods for both 2003 and
2002. Corporate expenses were also 0.1% of sales for each of the 39 weeks and 13
weeks periods for both 2003 and 2002.

During the 13 weeks ended August 31, 2003, amounts due from related party -
trade were repaid by an affiliate controlled by John A. Catsimatidis, pursuant
to its guarantee of such obligations. The full collection of this receivable was
accounted for as a $1,639,000 non-cash bad debt expense offset by an equal
contribution to additional paid-in capital.

As further detailed in Part II , Legal Proceedings herein, although all of the
conditions precedent to such proposed settlement have not yet been met, an
affiliate of the Company, controlled by John A. Catsimatidis, paid into escrow
$1.3 million on October 16, 2003, which is the initial payment that is payable
under the proposed settlement upon satisfaction of all of the conditions
precedent. This was recorded as a litigation settlement expense of the Company
for the quarter ended August 31, 2003, with an offsetting equal capital
contribution reflected as additional paid-in capital. While the court has
approved the proposed settlement as fair, all of the conditions precedent for
implementation have not yet been met and cannot be assured at this time,
including the fact that the Company's banks have not yet approved the granting
of a subordinated security interest to the plaintiffs in certain of the
Company's assets to secure the payments of the settlement amount, security
documents have not yet been executed and the court has not entered a final
judgment in the matter. The balance of the proposed settlement amount will be
due in equal installments of $650,000 on the first and second anniversary of the
initial payment, without interest. Any amount paid on behalf of the Company will
be accounted as a capital contribution and reflected as additional paid-in
capital. When the conditions precedent to the proposed settlement have all been
met, the Company will record the balance of the settlement liabilities.
Additionally, recoveries from a $400,000 security bond posted by Great American
/ Baur shall be solely for the Company's benefit.


                                       16
<PAGE>

During the 39 weeks and 13 weeks ended August 31, 2003, $800,000 of previously
capitalized costs in connection with efforts by the Company to acquire Kings
Super Markets, Inc. was charged to operations as it was determined that such
costs did not have future value. Of such costs, $491,000 was reimbursable and
paid by the affiliate United Acquisition Corp. during the quarter and has been
accounted for as a contribution to additional paid-in capital. At August 31,
2003, $851,000 of costs to acquire Kings remain capitalized (of which costs,
$523,000 is reimbursable by United Acquisition Corp.) and is included in other
assets on the accompanying balance sheet.

Depreciation and amortization expense was $7,173,988 or 3.4% of sales and
$2,414,819 or 3.7% of sales for the 39 weeks and 13 weeks ended August 31, 2003,
respectively, as compared to $5,902,418 or 3.2% of sales and $2,032,828 or 3.4%
of sales for the 39 weeks and 13 weeks ended September 1, 2002, respectively.
The increase in depreciation and amortization expense was primarily the result
of capital expenditures incurred in connection with our new store program.

Interest expense was $2,393,337 and $782,902 or 1.1% and 1.2% of sales for the
39 weeks and 13 weeks ended August 31, 2003 as compared to $2,136,709 and
$730,555 or 1.2% of sales for both the 39 weeks and 13 weeks ended September 1,
2002.

As a result of the items reviewed above, loss before provision for income
taxes were ($7,039,396) and ($4,742,150) for the 39 weeks and 13 weeks ended
August 31, 2003, respectively, as compared to income (loss) of $214,245 and
($777,264) for the 39 weeks and 13 weeks ended September 1, 2002, respectively.


Liquidity and Capital Resources

Liquidity:

         Our consolidated financial statements indicate that at August 31, 2003
current assets exceed current liabilities by $1,980,822 and stockholders' equity
was $7,057,334. Management believes that cash flows generated from operations,
supplemented by financing from our bank facility, third party leasing companies
and/or additional financing from the Company's majority shareholder, will be
sufficient to pay our debts as they may come due, provide for our capital
expenditure program and meet our other cash requirements.

Debt and Debt Service:

         Effective October 2001, our credit agreement with a group of banks was
amended and increased to an aggregate total of $32,500,000, consisting of a
$15,500,000 term loan and a $17,000,000 revolving line of credit. As of August
31, 2003, our credit facility, as amended, provides for (i) a maturity date of
November 28, 2004 for the revolving line of credit, and December 3, 2006 for the
term loan, at which time all amounts outstanding thereunder are due, (ii)
certain financial covenants, and (iii) amortization of the term loan in monthly
amortizations totaling $2,000,000, $2,300,000, $2,600,000, $2,900,000 and
$3,200,000, respectively, in each year during its term, and a $2,500,000 balloon
payment at maturity.

         Borrowings under our credit facility bear interest at a spread over
either the prime rate of the bank acting as agent for the group of banks or a
LIBOR rate, with the spread dependent on the ratio of our funded debt to EBITDA
ratio, as defined in our credit facility. The average interest rate on amounts
outstanding under our credit facility during the quarter ended August 31, 2003
was 4.43% per annum.

         Our credit facility contains covenants, representations and events of
default typical of credit agreements, including financial covenants which
require us to meet, among other things, a minimum tangible net worth, debt
service coverage ratios and fixed charge coverage ratios, and which limit
transactions with affiliates. Our credit facility is secured by equipment,
inventories and accounts receivable.


                                       17
<PAGE>

         The Company's majority shareholder, through affiliates, has contributed
$21,002,779 through August 31, 2003, in the form of unsecured non-interest
bearing loans, of which $18,300,000 is subordinated to the Company's banks. The
liability presently does not bear interest. However, the Company's credit
agreement with its banks permits the Company to pay interest on such
subordinated debt provided the Company has a positive net income.

         The Company has available affiliate leasing lines of credit sufficient
to lease finance equipment for its ongoing store remodeling and expansion
program.

Capital Expenditures:

         Capital expenditures were $7.7 million for the 39 weeks ended
August 31, 2003, including property acquired under capital leases, as compared
to $9.2 million for the 39 weeks ended September 1, 2002.

         We have not incurred any material commitments for capital expenditures,
although we anticipate spending approximately $8 -10 million, inclusive of new
capital leases on our store remodeling and expansion program in fiscal 2003.
Such amount is subject to adjustment based on the availability of funds.

Cash Flow:

         Cash provided by operating activities amounted to $1,363,984 for the 39
weeks ended August 31, 2003 as compared to $4,883,923 for the 39 weeks ended
September 1, 2002. The change in cash flow from operating activities was
primarily due to an increase in accounts payable, an increase in accounts
receivable related to insurance recoveries, and an increase in inventory,
primariliy due to new stores opened in the period. Net cash used for investing
activities was $5,805,943 in 2003 as compared to $5,639,418 in 2002. Cash
provided by financing activities was $4,569,048 for the 39 weeks ended August
31, 2003 as compared to $839,452 for the 39 weeks ended September 1, 2002
reflecting contributions to additional paid-in capital and additional proceeds
provided by an affiliate of the Company, offset by repayments of bank loans and
capital leases.

Recent Accounting Pronouncements:

In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 141 eliminates the pooling-of-interests method of accounting
for business combinations initiated after June 30, 2001 and modifies the
application of the purchase accounting method effective for transactions that
are completed after June 30, 2001. SFAS 142 eliminates the requirement to
amortize goodwill and intangible assets having indefinite useful lives but
requires that they be assessed at least annually for impairment. Intangible
assets that have finite lives will continue to be amortized over their useful
lives. The adoption of SFAS 141 and 142 did not have a material effect on the
Company's financial position or operations.

In October 2001, the FASB issued Statement of Financial Accounting
Standards 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"). SFAS No. 144 addresses the accounting and reporting for the
impairment or disposal of long-lived assets. The statement provides a single
accounting model for long-lived assets to be disposed of. New criteria must be
met to classify the asset as an asset held-for-sale. This statement also focuses
on reporting the effects of a disposal of a segment of business. This statement
is effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS 144 as of December 2, 2002, and the adoption did not have a
material impact on the Company's financial position or results of operations.

In April 2002, Statement of Financial Accounting Standards, No. 145, "Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS 145") was issued. SFAS 145 rescinds SFAS 4 and 64,
which required gains and losses from extinguishment of debt to be classified as
extraordinary items. SFAS also rescinds SFAS 44 since the provisions of the
Motor Carrier Act of 1980 are complete. SFAS 145 also amends SFAS 13 eliminating
inconsistencies in certain sale-leaseback transactions. The provisions of SFAS
145 are effective for fiscal years beginning after May 15, 2002. Any gain or
loss on extinguishment of debt that was classified as an extraordinary item in
prior periods presented shall be reclassified to interest expense. The adoption
of SFAS 145 did not have a material effect on the Company's financial position
or results of operations.


                                       18
<PAGE>

Statement of Financial Accounting Standards, No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), was issued in July
2002. SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS 146 supercedes EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. This pronouncement did not have a material effect on
the Company's financial position or results of operations.

On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation -Transition and
Disclosure" ("SFAS 148"). This standard amends SFAS No. 123, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require more frequent and
prominent disclosures in financial statements of the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of SFAS
148 are effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. SFAS 148 did
not have a material impact on the Company's results of operations, financial
position or cash flows, and the Company has adopted the disclosure provisions of
SFAS 148 as of March 3, 2003, as required.

In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45").
FIN 45 requires the recognition of a liability for certain guarantee obligations
issued or modified after December 31, 2002. It also clarifies disclosure
requirements to be made by a guarantor for certain guarantees. The disclosure
provisions of FIN 45 are effective for fiscal years ending after December 15,
2002. FIN 45 did not have a material impact on the Company's results of
operations, financial position or cash flows, and the Company has adopted the
disclosure provisions of FIN 45 as of December 2, 2002.

On January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. FIN 46 did not have a material impact on the Company's results of
operations, financial position or cash flows, and the Company has adopted the
disclosure provisions of FIN 46 as of December 2, 2002.

In February 2003, the Emerging Issues Task Force ("EITF") addressed EITF
Statement No. 02-16 ("EITF 02-16"), "Accounting by a Reseller for Cash
Consideration Received From a Vendor." EITF 02-16 provides accounting guidance
on how a reseller should characterize consideration given by a vendor and when
to recognize and how to measure that consideration in its income statement. EITF
02-16 is effective for all agreements entered into after December 31, 2002. The
Company evaluated the provisions of EITF 02-16 and determined that this
statement did not have a material effect on its consolidated financial
statements.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. The new guidance amends SFAS 133 for decisions made: (a) as part of the
Derivatives Implementation Group process that effectively required amendments to
SFAS 133, (b) in connection with other Board projects dealing with financial
instruments, and (c) regarding implementation issues raised in relation to the
application of the definition of a derivative, particularly regarding the
meaning of an "underlying" and the characteristics of a derivative that contains
financing components. The amendments set forth in SFAS 149 improve financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. SFAS 149 is generally effective for contracts entered
into or modified after June 30, 2003 (with a few exceptions) and for hedging
relationships designated after June 30, 2003. The guidance is to be applied
prospectively. The adoption of SFAS 149 did not have a material impact on the
Company's financial position or results of operations.


                                       19
<PAGE>

In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("SFAS 150"). SFAS 150 improves the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity. The new
Statement requires that those instruments be classified as liabilities in
statements of financial position. The adoption of SFAS 150 did not have a
material impact on the Company's financial position or results of operations.

Forward-looking information:

           This report and documents incorporated by reference contain both
  historical and "forward-looking statements" within the meaning of the Private
  Securities Litigation Reform Act of 1995. Words such as "anticipates",
  "believes", "expects", "intends", "future", and similar expressions identify
  forward-looking statements. Any such "forward-looking" statements in this
  report reflect the Company's current views with respect to future events and
  financial performance, and are subject to a variety of factors that could
  cause the actual results or performance to differ materially from historical
  results or from the anticipated results or performance expressed or implied by
  such forward-looking statements. Because of such factors, there can be no
  assurance that the actual results or developments anticipated by the Company
  will be realized or, even if substantially realized, that they will have the
  anticipated results. The risks and uncertainties that may affect the Company's
  business include, but are not limited to: economic conditions, governmental
  regulations, technological advances, pricing and competition, acceptance by
  the marketplace of new products, retention of key personnel, the sufficiency
  of financial resources to sustain and expand the Company's operations, and
  other factors described in this report and in prior filings with the
  Securities and Exchange Commission. Readers should not place undue reliance on
  such forward-looking statements, which speak only as of the date hereof, and
  should be aware that except as may be otherwise legally required of the
  Company, the Company undertakes no obligation to publicly revise any such
  forward-looking statements to reflect events or circumstances that may arise
  after the date hereof. A more detailed description of some of the risk factors
  is set forth in the Company`s Annual Report on Form 10-K, dated December 1,
  2002.

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flow of the Company due to
adverse changes in financing rates. The Company is exposed to market risk in the
area of interest rates. This exposure is directly related to its term loan and
borrowing activities under the working capital facility. The Company does not
currently maintain any interest rate hedging arrangements due to the reasonable
risk that near-term interest rates will not rise significantly. The Company is
continuously evaluating this risk and will consider implementing interest rate
hedging arrangements when deemed appropriate.

ITEM 4.      CONTROLS AND PROCEDURES

(a) Based on an evaluation of the Company's disclosure controls and procedures
as of the end of the quarter ended August 31, 2003, each of John Catsimatidis,
Chairman and Chief Executive Officer of the Company, and Kishore Lall, Executive
Vice President and Chief Financial Officer of the Company, have concluded that
the Company's disclosure controls and procedures were effective.

Notwithstanding the foregoing, a control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that it will
detect or uncover failures within the Company to disclose material information
otherwise required to be set forth in the Company's periodic reports.

(b) There has not been any significant change in the Company's internal controls
over financial reporting that occurred during the most recently completed fiscal
quarter that has materially affected, or is reasonably likely to materially
affect the Company's internal controls over financial reporting.


                                       20
<PAGE>

                     GRISTEDE'S FOODS INC. AND SUBSIDIARIES


                           PART II - OTHER INFORMATION


Item 1.      Legal Proceedings

Ansoumana v. Great Atlantic & Pacific Tea Company, Inc. d/b/a/ A&P, Shopwell
Inc. - d/b/a Food Emporium, Gristede's Operating Corp, Duane Reade, Inc.,
Charlie Bauer, individually and d/b/a B&B Delivery Service a/k/a Citi Express,
Scott Weinstein and Steven Pilavan, ind. and d/b/a Hudson Delivery Service Inc.,
Chelsea Trucking, Inc. a/k/a Hudson York.

On January 13, 2000, plaintiffs commenced a class action lawsuit in the U.S.
District Court for the Southern District of New York (hereinafter referred to as
the "Ansoumana Action"). Their complaint alleged violations of the Fair Labor
Standards Act and the New York Labor Law. Plaintiffs are claiming damages for
the differential between the amount they were paid by the Great American
Delivery Service Company and what the minimum wage was in each specific year
dating back to 1994. To date, about 35 to 40 delivery workers have opted into
the class action.

Specifically, the Company was one of the parties sued in this litigation by
delivery workers claiming they were not being paid the minimum wage. The
delivery workers are employees of the Great American Delivery Company (formerly
known as B&B Delivery Service or Citi Express)("Great American"), not employees
of the Company. The Company was under contract with Great American to deliver
groceries to the Company's customers.

In its answer, the Company denied the allegations and cross-claimed against the
delivery service co-defendants Weinstein and Baur, based upon their own
negligence, theories of contribution and contractual indemnity.

When allegations of underpayment first emerged, the Company, on August 2, 2000,
entered into a new contract with Great American. This contract was entered into
in order to assure the Company that these delivery workers would be properly and
legally paid for their services. The legal hourly wages referred to in the
contract were discussed with the New York Attorney General's Office.

On July 23, 2001, the Company terminated its contract with Great American
because Great American breached the terms of the contract. Based upon that
termination, Great American commenced a breach of contract action in Supreme
Court, Nassau County, against the Company and obtained a preliminary injunction
compelling the Company to retain Great American as its delivery service
contractor.

Thereafter, Great American was found to be in contempt of several orders and
added as a party-defendant by motion to amend the complaint in the Ansoumana
Action. In response to those proceedings, Great American filed for bankruptcy.
Hence, the breach of contract action commenced by Great American against the
Company was stayed. The Company transferred the case to the United States
Bankruptcy Court in the Eastern District of New York. Great American's
bankruptcy petition was dismissed. Great American's breach of contract action
commenced in Nassau County has been stayed pending a resolution of the Ansoumana
Action. Nevertheless, Great American posted a $400,000 bond in the breach of
contract action pending in Nassau County to obtain a preliminary injunction and
the Company intends to recoup these monies from Great American.


                                       21
<PAGE>

In August 2003 the Company entered into a stipulation and agreement of
settlement, pursuant to which the Company will be obligated to pay $2,600,000
plus up to $650,000 in legal fees. The full amount of the proposed settlement
will be shared approximately 50/50 by the Company and an affiliate controlled by
John A. Catsimatidis. Payment of the legal fees is due in the same percentage
installments commencing the later of (i) November 28, 2003, or (ii) 10 days
after the court approves the payment of attorneys fees and costs. While the
court has approved the proposed settlement as fair, all of the conditions
precedent for implementation have not yet been met and cannot be assured at this
time, including the fact that the Company's banks have not yet approved the
granting of a subordinated security interest to the plaintiffs in certain of the
Company's assets to secure the payments of the settlement amount, security
documents have not yet been executed and the court has not entered a final
judgment in the matter.

Since all of the conditions precedent have not been met, the initial payment of
$1.3 million (50%) on October 16, 2003, was made by an affiliate, controlled by
John A. Catsimatidis, on behalf of the Company. This was recorded as a
litigation settlement expense of the Company for the quarter ended August 31,
2003, with an offsetting equal capital contribution reflected as additional
paid-in capital. The balance of the proposed settlement amount will be due in
equal installments of $650,000 on the first and second anniversary of the
initial payment, without interest. Future amounts paid on behalf of the Company
will be accounted as a capital contribution and reflected as additional paid-in
capital. Additionally, recoveries from a $400,000 security bond posted by Great
American / Baur shall be solely for the Company's benefit.


Item 2.      Change in Securities And Use of Proceeds

             None.

Item 3.      Defaults Upon Senior Securities

             None.

Item 4.      Submission of Matters to a Vote of Security Holders

             None.

Item 5.      Other Information

             None.

Item 6.      Exhibits and Reports on Form 8-K

             (a) Exhibits filed with this Form 10-Q

             Exhibit 31.1  Certification of Chief Executive Officer pursuant to
                           Section 302 of the Sarbanes-Oxley Act of 2002

             Exhibit 31.2  Certification of the Chief Financial Officer pursuant
                           to Section 302 of the Sarbanes-Oxley Act of 2002

             Exhibit 32.1  Certifications of Chief Executive Officer and Chief
                           Financial Officer pursuant to 18 U.S.C. Section 1350,
                           as adopted pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002

             (b) Reports on Form 8-K

             A report on Form 8-K was filed on July 17, 2003, containing
             Items 7 and 9, relating to an offering by the Company of
             securities in connection with a proposed acquisition of Kings
             Super Markets, Inc, together with unaudited pro forma
             condensed financial information.


                                       22
<PAGE>

                                   SIGNATURES

Pursuant to the requirements 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.

                                                 Gristede's Foods, Inc.

                                        By:      /s/ John A. Catsimatidis
                                                 ------------------------

                                                 John A. Catsimatidis
                                                 Chairman of the Board and
                                                 Chief Executive Officer


Dated: October 31, 2003


                                        By:      /s/ Kishore Lall
                                                 ----------------

                                                 Kishore Lall
                                                 Executive Vice President and
                                                 Chief Financial Officer


Dated: October 31, 2003


                                       23