---

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC
20549

FORM 10-Q

|x                      |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|---------------------- |  | ----------------------------------------------------------------------------------------
|                      
|                       |  | For the quarterly period ended June 30, 2003                                            
|                       |  |                                                                                         
|or                    
|                      
|o                      |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|                      
|Commission File Number
|0-25629               

CARROLS CORPORATION (Exact name of registrant as specified in its charter)

|Delaware                                                       |  | 16-0958146                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               |  |                                        
|968 James Street Syracuse, New York                            |  | 13203                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             

Registrants telephone number including area code: 
(315) 424-0513

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

|Yes x | No o
|----- | ----

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

|Yes o | No x
|----- | ----

The number of shares of the registrants
common stock outstanding as of August 11, 2003: 10 shares

---

PART I

ITEM 1 - FINANCIAL INFORMATION

CARROLS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands of dollars)

|                                                                                                           |  | June 30, 2003 |         | December 31, 2002 |  
|---------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ----------------- | -
|                                                                                                           |  |               |         |                   |  
|                                                                                                           |  | (unaudited)   |         |                   |  
|ASSETS                                                                                                     |  |               |         |                   |  
|Current assets:                                                                                            |  |               |         |                   |  
|Cash and cash equivalents                                                                                  |  | $             | 2,565   |                   | $
|Trade and other receivables, net of reserves of $ 128 at each date                                         |  |               | 1,696   |                   |  
|Inventories                                                                                                |  |               | 4,942   |                   |  
|Prepaid rent                                                                                               |  |               | 2,315   |                   |  
|Prepaid expenses and other current assets                                                                  |  |               | 4,124   |                   |  
|Refundable income taxes                                                                                    |  |               | 269     |                   |  
|Deferred income taxes                                                                                      |  |               | 9,454   |                   |  
|                                                                                                           |  |               |         |                   |  
|Total current assets                                                                                       |  |               | 25,365  |                   |  
|Property and equipment, at cost less accumulated depreciation of      $154,653 and $146,782,
respectively  |  |               | 207,466 |                   |  
|Franchise rights, at cost less accumulated amortization of $48,466     and $47,109, respectively           |  |               | 88,318  |                   |  
|Intangible assets, at cost less accumulated amortization of $10,086     and $10,062, respectively (Note
2) |  |               | 122,351 |                   |  
|Other assets                                                                                               |  |               | 8,718   |                   |  
|                                                                                                           |  |               |         |                   |  
|Total assets                                                                                               |  | $             | 452,218 |                   | $
|                                                                                                           |  |               |         |                   |  

The accompanying notes are an integral part of these financial statements.

2

CARROLS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) (in thousands of dollars)

|                                                                                        |  | June 30, 2003 |         | December 31, 2002 |  
|--------------------------------------------------------------------------------------- |  | ------------- | ------- | ----------------- | -
|                                                                                        |  |               |         |                   |  
|                                                                                        |  | (unaudited)   |         |                   |  
|LIABILITIES and STOCKHOLDERS EQUITY                                                    |  |               |         |                   |  
|Current liabilities:                                                                    |  |               |         |                   |  
|Accounts payable                                                                        |  | $             | 14,748  |                   | $
|Accrued interest                                                                        |  |               | 1,842   |                   |  
|Accrued payroll, related taxes and benefits                                             |  |               | 12,288  |                   |  
|Other liabilities                                                                       |  |               | 16,043  |                   |  
|Current portion of long-term debt                                                       |  |               | 15,860  |                   |  
|                                                                                        |  |               |         |                   |  
|Total current liabilities                                                               |  |               | 60,781  |                   |  
|Long-term debt, net of current portion                                                  |  |               | 321,173 |                   |  
|Deferred income  sale/leaseback of real estate                                         |  |               | 8,759   |                   |  
|Accrued postretirement benefits                                                         |  |               | 2,777   |                   |  
|Deferred income taxes                                                                   |  |               | 1,726   |                   |  
|Other liabilities (Note 4)                                                              |  |               | 28,557  |                   |  
|                                                                                        |  |               |         |                   |  
|Total liabilities                                                                       |  |               | 423,773 |                   |  
|Stockholders equity:                                                                   |  |               |         |                   |  
|Common stock, par value $1; authorized 1,000 shares, issued and outstanding  10 shares |  |               |        |                   |  
|Additional paid-in capital                                                              |  |               | 24,485  |                   |  
|Accumulated earnings                                                                    |  |               | 3,960   |                   |  
|                                                                                        |  |               |         |                   |  
|Total stockholders equity                                                              |  |               | 28,445  |                   |  
|                                                                                        |  |               |         |                   |  
|Total liabilities and stockholders equity                                              |  | $             | 452,218 |                   | $
|                                                                                        |  |               |         |                   |  

The accompanying notes are an integral part of these financial statements.

3

CARROLS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2003 AND 2002 (in thousands of
dollars)

|                                      |  | 2003        |         | 2002 |  
|------------------------------------- |  | ----------- | ------- | ---- | -
|                                      |  |             |         |      |  
|                                      |  | (unaudited) |        
|Revenues:                             |  |             |         |      |  
|Restaurant sales                      |  | $           | 165,263 |      | $
|Franchise royalty revenues and fees   |  |             | 358     |      |  
|                                      |  |             |         |      |  
|Total revenues                        |  |             | 165,621 |      |  
|Costs and expenses:                   |  |             |         |      |  
|Cost of sales                         |  |             | 45,385  |      |  
|Restaurant wages and related expenses |  |             | 49,780  |      |  
|Other restaurant operating expenses   |  |             | 32,235  |      |  
|Advertising expense                   |  |             | 7,736   |      |  
|General and administrative            |  |             | 8,938   |      |  
|Depreciation and amortization         |  |             | 10,466  |      |  
|                                      |  |             |         |      |  
|Total operating expenses              |  |             | 154,540 |      |  
|                                      |  |             |         |      |  
|Income from operations                |  |             | 11,081  |      |  
|Interest expense                      |  |             | 6,467   |      |  
|                                      |  |             |         |      |  
|Income before income taxes            |  |             | 4,614   |      |  
|Provision for income taxes            |  |             | 1,893   |      |  
|                                      |  |             |         |      |  
|Net income                            |  | $           | 2,721   |      | $
|                                      |  |             |         |      |  

The accompanying notes are an integral part of these financial statements.

4

CARROLS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (in thousands of
dollars)

|                                      |  | 2003        |         | 2002 |  
|------------------------------------- |  | ----------- | ------- | ---- | -
|                                      |  |             |         |      |  
|                                      |  | (unaudited) |        
|Revenues:                             |  |             |         |      |  
|Restaurant sales                      |  | $           | 317,165 |      | $
|Franchise royalty revenues and fees   |  |             | 696     |      |  
|                                      |  |             |         |      |  
|Total revenues                        |  |             | 317,861 |      |  
|Costs and expenses:                   |  |             |         |      |  
|Cost of sales                         |  |             | 87,819  |      |  
|Restaurant wages and related expenses |  |             | 96,824  |      |  
|Other restaurant operating expenses   |  |             | 63,669  |      |  
|Advertising expense                   |  |             | 15,005  |      |  
|General and administrative            |  |             | 18,212  |      |  
|Depreciation and amortization         |  |             | 20,233  |      |  
|                                      |  |             |         |      |  
|Total operating expenses              |  |             | 301,762 |      |  
|                                      |  |             |         |      |  
|Income from operations                |  |             | 16,099  |      |  
|Interest expense                      |  |             | 12,992  |      |  
|                                      |  |             |         |      |  
|Income  before income taxes           |  |             | 3,107   |      |  
|Provision for income taxes (Note 3)   |  |             | 1,321   |      |  
|                                      |  |             |         |      |  
|Net income                            |  | $           | 1,786   |      | $
|                                      |  |             |         |      |  

The accompanying notes are an integral part of these financial statements.

5

CARROLS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (in thousands of
dollars)

|                                                                                    |  | 2003        |         | 2002 |  
|----------------------------------------------------------------------------------- |  | ----------- | ------- | ---- | -
|                                                                                    |  |             |         |      |  
|                                                                                    |  | (unaudited) |        
|Cash flows provided from operating activities:                                      |  |             |         |      |  
|Net income                                                                          |  | $           | 1,786   |      | $
|Adjustments to reconcile net income to net cash provided from operating activities: |  |             |         |      |  
|Loss on disposal of property and equipment                                          |  |             |        |      |  
|Depreciation and amortization                                                       |  |             | 20,233  |      |  
|Deferred income taxes                                                               |  |             | 825     |      |  
|Change in operating assets and liabilities                                          |  |             | (2,096  | )    |  
|                                                                                    |  |             |         |      |  
|Net cash provided from operating activities                                         |  |             | 20,748  |      |  
|                                                                                    |  |             |         |      |  
|Cash flows used for investing activities:                                           |  |             |         |      |  
|Capital expenditures:                                                               |  |             |         |      |  
|New restaurant development                                                          |  |             | (12,170 | )    |  
|Restaurant remodeling                                                               |  |             | (2,549  | )    |  
|Other restaurant expenditures                                                       |  |             | (3,822  | )    |  
|Corporate and restaurant information systems                                        |  |             | (976    | )    |  
|                                                                                    |  |             |         |      |  
|Total capital expenditures                                                          |  |             | (19,517 | )    |  
|Properties purchased for sale-leaseback                                             |  |             |        |      |  
|Proceeds from sales of non-operating properties                                     |  |             | 2,670   |      |  
|                                                                                    |  |             |         |      |  
|Net cash used for investing activities                                              |  |             | (16,847 | )    |  
|                                                                                    |  |             |         |      |  
|Cash flows used for financing activities:                                           |  |             |         |      |  
|Payments on revolving credit facility, net                                          |  |             | (19,800 | )    |  
|Principal payments on term loans                                                    |  |             | (2,750  | )    |  
|Payments on other notes payable, net                                                |  |             | (519    | )    |  
|Principal payments on capital leases                                                |  |             | (244    | )    |  
|Proceeds from sale-leaseback transactions                                           |  |             | 19,439  |      |  
|                                                                                    |  |             |         |      |  
|Net cash used for financing activities                                              |  |             | (3,874  | )    |  
|                                                                                    |  |             |         |      |  
|Increase in cash and cash equivalents                                               |  |             | 27      |      |  
|Cash and cash equivalents, beginning of period                                      |  |             | 2,538   |      |  
|                                                                                    |  |             |         |      |  
|Cash and cash equivalents, end of period                                            |  | $           | 2,565   |      | $
|                                                                                    |  |             |         |      |  

The accompanying notes are an integral part of these financial statements.

6

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (in thousands of dollars)

|1. | Statement of Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The accompanying unaudited consolidated financial statements as of June 30, 2003 and for the three and six months ended June 30, 2003 and 2002 have been prepared without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission, and do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America for complete statements.  In
the opinion of management, all normal and recurring adjustments necessary for a fair presentation of such financial statements have been included.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The results of operations for the three and six months ended June 30, 2003 and 2002 are not necessarily indicative of the results to be expected for the full year.                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual
results could differ from those estimates.                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The consolidated financial statements include the accounts of Carrols Corporation and its majority owned subsidiaries (Carrols or the Company).  All material
intercompany balances, transactions and profits have been eliminated.                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2002 contained in our 2002
Annual Report on Form 10-K.  The December 31, 2002 balance sheet data is derived from these audited financial statements.                                                                                                                                                                                                                                                                           

7

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands of dollars)

|2. | Intangible Assets                                                              
|-- | -------------------------------------------------------------------------------
|   |                                                                                
|   | Intangible assets, net of accumulated amortization, consisted of the following:

|                                                                       |  |   | June 30,  2003 |  | December 31, 2002 |        
|---------------------------------------------------------------------- |  | - | -------------- |  | ----------------- | -------
|                                                                       |  |   |                |  |                   |        
|Goodwill, net of accumulated amortization of $9,902 at both dates      |  | $ | 121,345        |  | $                 | 121,345
|Trademarks, net of accumulated amortization of $ 36 at both dates      |  |   | 226            |  |                   | 228    
|Other, net of accumulated amortization of $ 148 and $123, respectively |  |   | 780            |  |                   | 805    
|                                                                       |  |   |                |  |                   |        
|                                                                       |  | $ | 122,351        |  | $                 | 122,378
|                                                                       |  |   |                |  |                   |        

| | Intangible assets, net of accumulated amortization, applicable to our business segments consisted of the following:
| | -------------------------------------------------------------------------------------------------------------------

|               |  | June 30, 2003 |         | December 31, 2002 |  
|-------------- |  | ------------- | ------- | ----------------- | -
|               |  |               |         |                   |  
|Burger King    |  | $             | 1,497   |                   | $
|Pollo Tropical |  |               | 57,381  |                   |  
|Taco Cabana    |  |               | 63,473  |                   |  
|               |  |               |         |                   |  
|               |  | $             | 122,351 |                   | $
|               |  |               |         |                   |  



|3. | Income Taxes                                                                                            
|-- | --------------------------------------------------------------------------------------------------------
|   |                                                                                                         
|   | The income tax provision for the six months ended June 30, 2003 and 2002 was comprised of the following:

|         |  | 2003 |       | 2002 |  
|-------- |  | ---- | ----- | ---- | -
|         |  |      |       |      |  
|Current  |  | $    | 496   |      | $
|Deferred |  |      | 825   |      |  
|         |  |      |       |      |  
|         |  | $    | 1,321 |      | $
|         |  |      |       |      |  

| | The difference between the expected tax provision, resulting from application of the federal statutory income tax rate to pretax income, and the reported income tax provision
results principally from state taxes and non-deductible amortization of certain franchise rights.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands of dollars)

|4. | Other Liabilities                                                                             
|-- | ----------------------------------------------------------------------------------------------
|   |                                                                                               
|   | Other long-term liabilities at June 30, 2003 and December 31, 2002 consisted of the following:

|                            |  | June 30, 2003 |        | December 31, 2002 |  
|--------------------------- |  | ------------- | ------ | ----------------- | -
|                            |  |               |        |                   |  
|Unearned purchase discounts |  | $             | 12,042 |                   | $
|Accrued occupancy costs     |  |               | 8,545  |                   |  
|Other                       |  |               | 7,970  |                   |  
|                            |  |               |        |                   |  
|                            |  | $             | 28,557 |                   | $
|                            |  |               |        |                   |  



|5. | Stock-Based Compensation Disclosures Required by SFAS No. 148                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS 123) permits entities to recognize as an expense over the vesting period the
fair value of all stock-based awards on the date of grant.  Alternatively, SFAS 123 allows entities to continue to apply the provisions of Accounting Principles Bulletin No. 25 and provide pro forma net income disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS 123 has been applied.  The Company has elected to continue applying the provisions of APB 25 and provide the pro forma disclosure provisions of SFAS 123.  Had compensation
cost been determined based upon the fair value of the stock options at grant date consistent with the method of SFAS 123, the Companys pro-forma net income would have been $1,643 and $5,029 for the six months ended June 30, 2003 and 2002,
respectively.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|6. | Business Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company is engaged in the restaurant industry, with three restaurant concepts:  Burger King, operating as a franchisee, Pollo Tropical and Taco Cabana, both Company-owned
concepts.  The Companys Burger King restaurants are all located in the United States, primarily in the Northeast, Southeast and Midwest.  Pollo Tropical is a regional quick-casual restaurant chain featuring grilled marinated chicken
and authentic made from scratch side dishes.  Pollo Tropicals core markets are located in south and central Florida.  Taco Cabana is a regional quick-casual restaurant chain featuring Mexican style food, including
flame-grilled beef and chicken fajitas, quesadillas and other Mexican dishes.  Taco Cabanas core markets are primarily in Texas.                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Other column includes corporate related items not allocated to reportable segments, and for income from operations, principally corporate depreciation and
amortization.  Other assets consist primarily of franchise rights and  intangible assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

9

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (in thousands of dollars)

|                                             |  | Burger King |         | Pollo Tropical |   | Taco Cabana |  | Other |        | Consolidated |  
|-------------------------------------------- |  | ----------- | ------- | -------------- | - | ----------- |  | ----- | ------ | ------------ | -
|                                             |  |             |         |                |   |             |  |       |        |              |  
|Three Months Ended:                          |  |             |         |                |   |             |  |       |        |              |  
|June 30, 2003:                               |  |             |         |                |   |             |  |       |        |              |  
|Revenues                                     |  | $           | 91,783  |                | $ | 27,042      |  | $     | 46,796 |              | $
|Cost of sales                                |  |             | 23,547  |                |   | 8,135       |  |       | 13,703 |              |  
|Restaurant wages and related expenses        |  |             | 29,107  |                |   | 7,192       |  |       | 13,481 |              |  
|Depreciation and amortization                |  |             | 6,386   |                |   | 1,018       |  |       | 1,994  |              |  
|Income (loss) from operations                |  |             | 4,482   |                |   | 3,500       |  |       | 4,167  |              |  
|Capital expenditures, excluding acquisitions |  |             | 1,929   |                |   | 945         |  |       | 5,409  |              |  
|June 30, 2002:                               |  |             |         |                |   |             |  |       |        |              |  
|Revenues                                     |  | $           | 102,283 |                | $ | 25,352      |  | $     | 45,738 |              | $
|Cost of sales                                |  |             | 27,237  |                |   | 7,648       |  |       | 13,520 |              |  
|Restaurant wages and related expenses        |  |             | 30,946  |                |   | 6,376       |  |       | 13,102 |              |  
|Depreciation and amortization                |  |             | 6,404   |                |   | 753         |  |       | 1,668  |              |  
|Income (loss) from operations                |  |             | 6,647   |                |   | 4,808       |  |       | 5,160  |              |  
|Capital expenditures, excluding acquisitions |  |             | 6,116   |                |   | 5,018       |  |       | 3,906  |              |  
|Six Months Ended:                            |  |             |         |                |   |             |  |       |        |              |  
|June 30, 2003:                               |  |             |         |                |   |             |  |       |        |              |  
|Revenues                                     |  | $           | 175,725 |                | $ | 53,774      |  | $     | 88,362 |              | $
|Cost of sales                                |  |             | 45,650  |                |   | 16,405      |  |       | 25,764 |              |  
|Restaurant wages and related expenses        |  |             | 57,249  |                |   | 14,016      |  |       | 25,559 |              |  
|Depreciation and amortization                |  |             | 12,260  |                |   | 2,017       |  |       | 3,865  |              |  
|Income (loss) from operations                |  |             | 3,658   |                |   | 7,657       |  |       | 6,875  |              |  
|Capital expenditures, excluding acquisitions |  |             | 5,174   |                |   | 3,719       |  |       | 9,648  |              |  
|June 30, 2002:                               |  |             |         |                |   |             |  |       |        |              |  
|Revenues                                     |  | $           | 192,792 |                | $ | 50,406      |  | $     | 87,982 |              | $
|Cost of sales                                |  |             | 51,151  |                |   | 15,271      |  |       | 25,836 |              |  
|Restaurant wages and related expenses        |  |             | 59,924  |                |   | 12,520      |  |       | 25,788 |              |  
|Depreciation and amortization                |  |             | 12,803  |                |   | 1,541       |  |       | 3,359  |              |  
|Income (loss) from operations                |  |             | 7,744   |                |   | 9,069       |  |       | 9,065  |              |  
|Capital expenditures, excluding acquisitions |  |             | 10,889  |                |   | 5,725       |  |       | 6,505  |              |  
|Total Assets :                               |  |             |         |                |   |             |  |       |        |              |  
|At June 30, 2003                             |  | $           | 200,172 |                | $ | 30,349      |  | $     | 66,351 |              | $
|At December 31, 2002                         |  | $           | 213,094 |                | $ | 33,117      |  | $     | 68,880 |              | $

10

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (in thousands of dollars)

|7. | Other Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | During the fourth quarter of 2001, management made the decision to close seven Taco Cabana restaurants in the Phoenix, Arizona market and discontinue restaurant development underway in that
market.  This decision resulted in a charge to other expense of $8.8 million in the fourth quarter of 2001, comprised of $7.1 million in asset impairments, primarily leasehold improvements, $1.0 million in future occupancy costs and $0.7
million in other exit costs estimated to be incurred over a two-year period. The Company closed one restaurant in December 2001 and the remaining six restaurants in February 2002.  Through June 30, 2003, the Company has paid $0.8 million in
lease liabilities for the closed restaurants and $0.8 million in other exit costs.  At June 30, 2003, the Company had $0.6 million in lease liability reserves and $0.3 million in other exit cost reserves related to these restaurants.

11

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (in thousands of dollars)

|8. | Guarantor Financial Statements                                                                                                                                                                                      
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                     
|   | The $170 million senior subordinated notes of the Company are guaranteed by certain of the Companys subsidiaries (Guarantor Subsidiaries), all of which are wholly-owned by
the Company.  These subsidiaries are:



| | Carrols Realty Holdings     
| | ----------------------------
| | Carrols Realty I Corp.      
| | Carrols Realty II Corp.     
| | Carrols J.G. Corp.          
| | Quanta Advertising Corp.    
| | Pollo Franchise, Inc.       
| | Pollo Operations, Inc.      
| | Taco Cabana, Inc.           
| | TP Acquisition Corp.        
| | T.C. Management, Inc.       
| | Taco Cabana Management, Inc.
| | Get Real, Inc.              
| | Texas Taco Cabana, L.P.     



| | The following supplemental financial information sets forth on a condensed consolidating basis, consolidating balance sheets, statements of operations and statements of cash
flows for the Parent Company (Carrols Corporation) only, Guarantor Subsidiaries and for the Company as of June 30, 2003 and December 31, 2002 and for the three-month and six-month periods ended June 30, 2003 and 2002.  Debt and goodwill
allocated to subsidiaries are presented on an accounting push-down basis.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | During the quarter ended June 30, 2003, the Parent Company entered into an agreement, retroactive to January 1, 2002, to charge interest to the Guarantor Subsidiaries.  The retroactive
interest recorded in the second quarter of 2003 was $14,097.                                                                                                                                                                                                                                                 

12

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONSOLIDATING BALANCE SHEET June 30,
2003 (in thousands of dollars) (unaudited)

|                                               |  | Parent Company Only |         | Guarantor Subsidiaries |   | Combined Total |  
|---------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | -------------- | -
|                                               |  |                     |         |                        |   |                |  
|ASSETS                                         |  |                     |         |                        |   |                |  
|Current Assets:                                |  |                     |         |                        |   |                |  
|Cash and cash equivalents                      |  | $                   | 831     |                        | $ | 1,734          |  
|Trade and other receivables, net               |  |                     | 386     |                        |   | 1,310          |  
|Inventories                                    |  |                     | 3,427   |                        |   | 1,515          |  
|Prepaid rent                                   |  |                     | 1,292   |                        |   | 1,023          |  
|Prepaid expenses and other current assets      |  |                     | 1,149   |                        |   | 2,975          |  
|Refundable income taxes                        |  |                     | 269     |                        |   |               |  
|Deferred income taxes                          |  |                     | 9,454   |                        |   |               |  
|                                               |  |                     |         |                        |   |                |  
|Total current assets                           |  |                     | 16,808  |                        |   | 8,557          |  
|Property and equipment, net                    |  |                     | 111,087 |                        |   | 96,379         |  
|Franchise rights, net                          |  |                     | 88,318  |                        |   |               |  
|Intangible assets, net                         |  |                     | 1,498   |                        |   | 120,853        |  
|Intercompany receivable (payable)              |  |                     | 171,014 |                        |   | (171,014       | )
|Other assets                                   |  |                     | 6,801   |                        |   | 1,917          |  
|                                               |  |                     |         |                        |   |                |  
|Total assets                                   |  | $                   | 395,526 |                        | $ | 56,692         |  
|                                               |  |                     |         |                        |   |                |  
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |                     |         |                        |   |                |  
|Current Liabilities:                           |  |                     |         |                        |   |                |  
|Accounts payable                               |  | $                   | 8,791   |                        | $ | 5,957          |  
|Accrued interest                               |  |                     | 1,842   |                        |   |               |  
|Accrued payroll, related taxes and benefits    |  |                     | 7,443   |                        |   | 4,845          |  
|Other liabilities                              |  |                     | 7,074   |                        |   | 8,969          |  
|Current portion of long-term debt              |  |                     | 15,596  |                        |   | 264            |  
|                                               |  |                     |         |                        |   |                |  
|Total current liabilities                      |  |                     | 40,746  |                        |   | 20,035         |  
|Long-term debt, net of current portion         |  |                     | 320,398 |                        |   | 775            |  
|Deferred income, sale/leaseback of real estate |  |                     | 5,909   |                        |   | 2,850          |  
|Accrued postretirement benefits                |  |                     | 2,777   |                        |   |               |  
|Deferred income taxes                          |  |                     | 1,726   |                        |   |               |  
|Other liabilities                              |  |                     | 15,982  |                        |   | 12,575         |  
|                                               |  |                     |         |                        |   |                |  
|Total liabilities                              |  |                     | 387,538 |                        |   | 36,235         |  
|Stockholders equity                           |  |                     | 7,988   |                        |   | 20,457         |  
|                                               |  |                     |         |                        |   |                |  
|Total liabilities and stockholders equity     |  | $                   | 395,526 |                        | $ | 56,692         |  
|                                               |  |                     |         |                        |   |                |  

13

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONSOLIDATING BALANCE SHEET December
31, 2002 (in thousands of dollars)

|                                               |  | Parent Company Only |         | Guarantor Subsidiaries |   | Combined Total |  
|---------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | -------------- | -
|                                               |  |                     |         |                        |   |                |  
|ASSETS                                         |  |                     |         |                        |   |                |  
|Current Assets:                                |  |                     |         |                        |   |                |  
|Cash and cash equivalents                      |  | $                   | 715     |                        | $ | 1,823          |  
|Trade and other receivables, net               |  |                     | 351     |                        |   | 955            |  
|Inventories                                    |  |                     | 3,761   |                        |   | 1,479          |  
|Prepaid rent                                   |  |                     | 1,229   |                        |   | 998            |  
|Prepaid expenses and other current assets      |  |                     | 1,539   |                        |   | 2,843          |  
|Refundable income taxes                        |  |                     | 1,253   |                        |   |               |  
|Deferred income taxes                          |  |                     | 9,454   |                        |   |               |  
|                                               |  |                     |         |                        |   |                |  
|Total current assets                           |  |                     | 18,302  |                        |   | 8,098          |  
|Property and equipment, net                    |  |                     | 119,522 |                        |   | 104,268        |  
|Franchise rights, net                          |  |                     | 90,620  |                        |   |               |  
|Intangible assets, net                         |  |                     | 1,523   |                        |   | 120,855        |  
|Intercompany receivable (payable)              |  |                     | 174,863 |                        |   | (174,863       | )
|Other assets                                   |  |                     | 7,832   |                        |   | 2,557          |  
|                                               |  |                     |         |                        |   |                |  
|Total assets                                   |  | $                   | 412,662 |                        | $ | 60,915         |  
|                                               |  |                     |         |                        |   |                |  
|                                               |  |                     |         |                        |   |                |  
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |                     |         |                        |   |                |  
|Current Liabilities:                           |  |                     |         |                        |   |                |  
|Accounts payable                               |  | $                   | 10,344  |                        | $ | 5,755          |  
|Accrued interest                               |  |                     | 1,415   |                        |   |               |  
|Accrued payroll, related taxes and benefits    |  |                     | 10,036  |                        |   | 5,094          |  
|Other liabilities                              |  |                     | 6,498   |                        |   | 7,917          |  
|Current portion of long-term debt              |  |                     | 12,006  |                        |   | 293            |  
|                                               |  |                     |         |                        |   |                |  
|Total current liabilities                      |  |                     | 40,299  |                        |   | 19,059         |  
|Long-term debt, net of current portion         |  |                     | 347,720 |                        |   | 895            |  
|Deferred income, sale/leaseback of real estate |  |                     | 4,755   |                        |   | 1,132          |  
|Accrued postretirement benefits                |  |                     | 2,585   |                        |   |               |  
|Deferred income taxes                          |  |                     | 901     |                        |   |               |  
|Other liabilities                              |  |                     | 16,486  |                        |   | 13,086         |  
|                                               |  |                     |         |                        |   |                |  
|Total liabilities                              |  |                     | 412,746 |                        |   | 34,172         |  
|                                               |  |                     |         |                        |   |                |  
|Stockholders equity                           |  |                     | (84     | )                      |   | 26,743         |  
|                                               |  |                     |         |                        |   |                |  
|Total liabilities and stockholder's equity     |  | $                   | 412,662 |                        | $ | 60,915         |  
|                                               |  |                     |         |                        |   |                |  

14

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONSOLIDATING STATEMENT OF
OPERATIONS Three Months Ended June 30, 2003 (in thousands of dollars) (unaudited)

|                                      |  | Parent Company Only |         | Guarantor Subsidiaries |   | Combined Total |  
|------------------------------------- |  | ------------------- | ------- | ---------------------- | - | -------------- | -
|                                      |  |                     |         |                        |   |                |  
|Revenues:                             |  |                     |         |                        |   |                |  
|Restaurant sales                      |  | $                   | 91,783  |                        | $ | 73,480         |  
|Franchise royalty revenues and fees   |  |                     |        |                        |   | 358            |  
|                                      |  |                     |         |                        |   |                |  
|Total revenues                        |  |                     | 91,783  |                        |   | 73,838         |  
|                                      |  |                     |         |                        |   |                |  
|Costs and expenses:                   |  |                     |         |                        |   |                |  
|Cost of sales                         |  |                     | 23,547  |                        |   | 21,838         |  
|Restaurant wages and related expenses |  |                     | 29,107  |                        |   | 20,673         |  
|Other restaurant operating expenses   |  |                     | 18,923  |                        |   | 13,312         |  
|Advertising expense                   |  |                     | 4,113   |                        |   | 3,623          |  
|General and administrative            |  |                     | 4,915   |                        |   | 4,023          |  
|Depreciation and amortization         |  |                     | 7,240   |                        |   | 3,226          |  
|                                      |  |                     |         |                        |   |                |  
|Total operating expenses              |  |                     | 87,845  |                        |   | 66,695         |  
|                                      |  |                     |         |                        |   |                |  
|Income from operations                |  |                     | 3,938   |                        |   | 7,143          |  
|Interest expense                      |  |                     | 6,393   |                        |   | 74             |  
|Intercompany allocations              |  |                     | (20,391 | )                      |   | 20,391         |  
|                                      |  |                     |         |                        |   |                |  
|Income (loss) before income taxes     |  |                     | 17,936  |                        |   | (13,322        | )
|Provision (benefit) for income taxes  |  |                     | 5,586   |                        |   | (3,693         | )
|                                      |  |                     |         |                        |   |                |  
|Net income (loss)                     |  | $                   | 12,350  |                        | $ | (9,629         | )
|                                      |  |                     |         |                        |   |                |  

15

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONSOLIDATING STATEMENT OF
OPERATIONS Three Months Ended June 30, 2002 (in thousands of dollars) (unaudited)

|                                      |  | Parent Company Only |         | Guarantor Subsidiaries |   | Combined Total | 
|------------------------------------- |  | ------------------- | ------- | ---------------------- | - | -------------- | 
|                                      |  |                     |         |                        |   |                | 
|Revenues:                             |  |                     |         |                        |   |                | 
|Restaurant sales                      |  | $                   | 102,283 |                        | $ | 70,742         | 
|Franchise royalty revenues and fees   |  |                     |        |                        |   | 348            | 
|                                      |  |                     |         |                        |   |                | 
|Total revenues                        |  |                     | 102,283 |                        |   | 71,090         | 
|                                      |  |                     |         |                        |   |                | 
|Costs and expenses:                   |  |                     |         |                        |   |                | 
|Cost of sales                         |  |                     | 27,237  |                        |   | 21,168         | 
|Restaurant wages and related expenses |  |                     | 30,946  |                        |   | 19,263         | 
|Other restaurant operating expenses   |  |                     | 20,496  |                        |   | 11,976         | 
|Advertising expense                   |  |                     | 4,393   |                        |   | 2,772          | 
|General and administrative            |  |                     | 6,160   |                        |   | 3,522          | 
|Depreciation and amortization         |  |                     | 7,199   |                        |   | 2,678          | 
|                                      |  |                     |         |                        |   |                | 
|Total operating expenses              |  |                     | 96,431  |                        |   | 61,379         | 
|                                      |  |                     |         |                        |   |                | 
|Income from operations                |  |                     | 5,852   |                        |   | 9,711          | 
|Interest expense                      |  |                     | 6,873   |                        |   | 79             | 
|Intercompany allocations              |  |                     | (1,736  | )                      |   | 1,736          | 
|                                      |  |                     |         |                        |   |                | 
|Income before income taxes            |  |                     | 715     |                        |   | 7,896          | 
|Provision for income taxes            |  |                     | 476     |                        |   | 2,830          | 
|                                      |  |                     |         |                        |   |                | 
|Net income                            |  | $                   | 239     |                        | $ | 5,066          | 
|                                      |  |                     |         |                        |   |                | 

16

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONSOLIDATING STATEMENT OF
OPERATIONS Six Months Ended June 30, 2003 (in thousands of dollars) (unaudited)

|                                      |  | Parent Company Only |         | Guarantor Subsidiaries |   | Combined Total |  
|------------------------------------- |  | ------------------- | ------- | ---------------------- | - | -------------- | -
|                                      |  |                     |         |                        |   |                |  
|Revenues:                             |  |                     |         |                        |   |                |  
|Restaurant sales                      |  | $                   | 175,725 |                        | $ | 141,440        |  
|Franchise royalty revenues and fees   |  |                     |        |                        |   | 696            |  
|                                      |  |                     |         |                        |   |                |  
|Total revenues                        |  |                     | 175,725 |                        |   | 142,136        |  
|                                      |  |                     |         |                        |   |                |  
|Costs and expenses:                   |  |                     |         |                        |   |                |  
|Cost of sales                         |  |                     | 45,650  |                        |   | 42,169         |  
|Restaurant wages and related expenses |  |                     | 57,249  |                        |   | 39,575         |  
|Other restaurant operating expenses   |  |                     | 38,412  |                        |   | 25,257         |  
|Advertising expense                   |  |                     | 8,012   |                        |   | 6,993          |  
|General and administrative            |  |                     | 10,484  |                        |   | 7,728          |  
|Depreciation and amortization         |  |                     | 13,926  |                        |   | 6,307          |  
|                                      |  |                     |         |                        |   |                |  
|Total operating expenses              |  |                     | 173,733 |                        |   | 128,029        |  
|                                      |  |                     |         |                        |   |                |  
|Income from operations                |  |                     | 1,992   |                        |   | 14,107         |  
|Interest expense                      |  |                     | 12,859  |                        |   | 133            |  
|Intercompany allocations              |  |                     | (22,127 | )                      |   | 22,127         |  
|                                      |  |                     |         |                        |   |                |  
|Income (loss) before income taxes     |  |                     | 11,260  |                        |   | (8,153         | )
|Provision (benefit) for income taxes  |  |                     | 3,188   |                        |   | (1,867         | )
|                                      |  |                     |         |                        |   |                |  
|Net income (loss)                     |  | $                   | 8,072   |                        | $ | (6,286         | )
|                                      |  |                     |         |                        |   |                |  

17

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONSOLIDATING STATEMENT OF
OPERATIONS Six Months Ended June 30, 2002 (in thousands of dollars) (unaudited)

|                                      |  | Parent Company Only |         | Guarantor Subsidiaries |   | Combined Total | 
|------------------------------------- |  | ------------------- | ------- | ---------------------- | - | -------------- | 
|                                      |  |                     |         |                        |   |                | 
|Revenues:                             |  |                     |         |                        |   |                | 
|Restaurant sales                      |  | $                   | 192,792 |                        | $ | 137,670        | 
|Franchise royalty revenues and fees   |  |                     |        |                        |   | 718            | 
|                                      |  |                     |         |                        |   |                | 
|Total revenues                        |  |                     | 192,792 |                        |   | 138,388        | 
|                                      |  |                     |         |                        |   |                | 
|Costs and expenses:                   |  |                     |         |                        |   |                | 
|Cost of sales                         |  |                     | 51,151  |                        |   | 41,107         | 
|Restaurant wages and related expenses |  |                     | 59,924  |                        |   | 37,873         | 
|Other restaurant operating expenses   |  |                     | 40,655  |                        |   | 23,553         | 
|Advertising expense                   |  |                     | 8,394   |                        |   | 5,659          | 
|General and administrative            |  |                     | 12,121  |                        |   | 7,162          | 
|Depreciation and amortization         |  |                     | 14,387  |                        |   | 5,409          | 
|                                      |  |                     |         |                        |   |                | 
|Total operating expenses              |  |                     | 186,632 |                        |   | 120,763        | 
|                                      |  |                     |         |                        |   |                | 
|Income from operations                |  |                     | 6,160   |                        |   | 17,625         | 
|Interest expense                      |  |                     | 13,819  |                        |   | 164            | 
|Intercompany allocations              |  |                     | (3,472  | )                      |   | 3,472          | 
|                                      |  |                     |         |                        |   |                | 
|Income (loss) before income taxes     |  |                     | (4,187  | )                      |   | 13,989         | 
|Provision (benefit) for income taxes  |  |                     | (1,278  | )                      |   | 5,039          | 
|                                      |  |                     |         |                        |   |                | 
|Net income (loss)                     |  | $                   | (2,909  | )                      | $ | 8,950          | 
|                                      |  |                     |         |                        |   |                | 

18

CONSOLIDATING STATEMENT OF CASH FLOWS NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Six Months Ended June 30, 2003 (in
thousands of dollars) (unaudited)

|                                                                                           |  | Parent Company Only |         | Guarantor Subsidiaries |   | Combined Total |  
|------------------------------------------------------------------------------------------ |  | ------------------- | ------- | ---------------------- | - | -------------- | -
|                                                                                           |  |                     |         |                        |   |                |  
|Cash flows provided from (used for) operating activities:                                  |  |                     |         |                        |   |                |  
|Net income (loss)                                                                          |  | $                   | 8,072   |                        | $ | (6,286         | )
|Adjustments to reconcile net income (loss) to net cash provided from operating activities: |  |                     |         |                        |   |                |  
|Depreciation and amortization                                                              |  |                     | 13,926  |                        |   | 6,307          |  
|Deferred income taxes                                                                      |  |                     | 825     |                        |   |               |  
|Changes in operating assets and liabilities                                                |  |                     | (653    | )                      |   | (1,443         | )
|                                                                                           |  |                     |         |                        |   |                |  
|Net cash provided from (used for) operating activities                                     |  |                     | 22,170  |                        |   | (1,422         | )
|                                                                                           |  |                     |         |                        |   |                |  
|Cash flow used for investing activities:                                                   |  |                     |         |                        |   |                |  
|Capital expenditures:                                                                      |  |                     |         |                        |   |                |  
|New restaurant development                                                                 |  |                     | (1,613  | )                      |   | (10,557        | )
|Restaurant remodeling                                                                      |  |                     | (2,402  | )                      |   | (147           | )
|Corporate and restaurant information systems                                               |  |                     | (774    | )                      |   | (202           | )
|Other capital expenditures                                                                 |  |                     | (1,159  | )                      |   | (2,663         | )
|                                                                                           |  |                     |         |                        |   |                |  
|Total capital expenditures                                                                 |  |                     | (5,948  | )                      |   | (13,569        | )
|Proceeds from sales of non-operating properties                                            |  |                     |        |                        |   | 2,670          |  
|                                                                                           |  |                     |         |                        |   |                |  
|Net cash used for investing activities                                                     |  |                     | (5,948  | )                      |   | (10,899        | )
|                                                                                           |  |                     |         |                        |   |                |  
|Cash flows provided from (used for) financing activities:                                  |  |                     |         |                        |   |                |  
|Proceeds from revolving credit facility, net                                               |  |                     | (19,800 | )                      |   |               |  
|Principal payments on term loans                                                           |  |                     | (2,750  | )                      |   |               |  
|Payments on other notes payable, net                                                       |  |                     | (519    | )                      |   |               |  
|Principal payments on capital leases                                                       |  |                     | (95     | )                      |   | (149           | )
|Proceeds from sale leaseback transactions                                                  |  |                     | 7,058   |                        |   | 12,381         |  
|                                                                                           |  |                     |         |                        |   |                |  
|Net cash provided from (used for) financing activities                                     |  |                     | (16,106 | )                      |   | 12,232         |  
|                                                                                           |  |                     |         |                        |   |                |  
|Net increase (decrease) in cash and cash equivalents                                       |  |                     | 116     |                        |   | (89            | )
|Cash and cash equivalents, beginning of year                                               |  |                     | 715     |                        |   | 1,823          |  
|                                                                                           |  |                     |         |                        |   |                |  
|Cash and cash equivalents, end of period                                                   |  | $                   | 831     |                        | $ | 1,734          |  
|                                                                                           |  |                     |         |                        |   |                |  

19

CARROLS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONSOLIDATING STATEMENT OF CASH
FLOWS Six Months Ended June 30, 2002 (in thousands of dollars) (unaudited)

|                                                                                           |  | Parent Company Only |         | Guarantor Subsidiaries |   | Combined Total |  
|------------------------------------------------------------------------------------------ |  | ------------------- | ------- | ---------------------- | - | -------------- | -
|                                                                                           |  |                     |         |                        |   |                |  
|Cash flows provided from operating activities:                                             |  |                     |         |                        |   |                |  
|Net income (loss)                                                                          |  | $                   | (2,909  | )                      | $ | 8,950          |  
|Adjustments to reconcile net income (loss) to net cash provided from operating activities: |  |                     |         |                        |   |                |  
|Loss on disposal of property and equipment                                                 |  |                     | 10      |                        |   | 24             |  
|Depreciation and amortization                                                              |  |                     | 14,387  |                        |   | 5,409          |  
|Deferred income taxes                                                                      |  |                     | 2,129   |                        |   |               |  
|Changes in operating assets and liabilities                                                |  |                     | 1,312   |                        |   | (2,021         | )
|                                                                                           |  |                     |         |                        |   |                |  
|Net cash provided from operating activities                                                |  |                     | 14,929  |                        |   | 12,362         |  
|                                                                                           |  |                     |         |                        |   |                |  
|Cash flow used for investing activities:                                                   |  |                     |         |                        |   |                |  
|Capital expenditures:                                                                      |  |                     |         |                        |   |                |  
|New restaurant development                                                                 |  |                     | (1,547  | )                      |   | (8,346         | )
|Restaurant remodeling                                                                      |  |                     | (6,573  | )                      |   | (1,666         | )
|Corporate and information systems                                                          |  |                     | (325    | )                      |   | (263           | )
|Other restaurant expenditures                                                              |  |                     | (2,769  | )                      |   | (2,218         | )
|                                                                                           |  |                     |         |                        |   |                |  
|Total capital expenditures                                                                 |  |                     | (11,214 | )                      |   | (12,493        | )
|Purchased properties for sale/leaseback                                                    |  |                     | (925    | )                      |   |               |  
|                                                                                           |  |                     |         |                        |   |                |  
|Net cash used for investing activities                                                     |  |                     | (12,139 | )                      |   | (12,493        | )
|                                                                                           |  |                     |         |                        |   |                |  
|Cash flows used for financing activities:                                                  |  |                     |         |                        |   |                |  
|Payments on revolving credit facility, net                                                 |  |                     | (2,400  | )                      |   |               |  
|Principal payments on term loans                                                           |  |                     | (4,250  | )                      |   |               |  
|Payments on other notes payable, net                                                       |  |                     | (479    | )                      |   |               |  
|Principal payments on capital leases                                                       |  |                     | (160    | )                      |   | (128           | )
|Proceeds from sale/leaseback transactions                                                  |  |                     | 5,080   |                        |   |               |  
|                                                                                           |  |                     |         |                        |   |                |  
|Net cash used for financing activities                                                     |  |                     | (2,209  | )                      |   | (128           | )
|                                                                                           |  |                     |         |                        |   |                |  
|Net increase (decrease) in cash and cash equivalents                                       |  |                     | 581     |                        |   | (259           | )
|Cash and cash equivalents, beginning of year                                               |  |                     | 921     |                        |   | 1,484          |  
|                                                                                           |  |                     |         |                        |   |                |  
|Cash and cash equivalents, end of period                                                   |  | $                   | 1,502   |                        | $ | 1,225          |  
|                                                                                           |  |                     |         |                        |   |                |  

20

ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Certain statements included in this
Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q which are not statements of historical fact are intended to be, and are hereby identified as,
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Without limiting the foregoing, the words believe,
anticipate, plan, expect, estimate, intend, and other similar expressions are intended to identify forward-looking statements. The Company cautions readers that forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by
such forward-looking statements. Such factors include, among others, the following: the success or failure of the Company in implementing its current business and operational strategies; availability, terms and access to capital and customary trade
credit; availability of restaurant supplies and distribution of product; general economic and business conditions; competition; changes in the Companys business strategy; labor relations; the outcome of pending or yet-to-be instituted legal
proceedings; and labor and employee benefit costs. The Company undertakes no obligation to publicly update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.



Overview



We are one of the largest restaurant companies in the U. S. operating 530 restaurants in 16 states at June 30, 2003. We are
the largest Burger King franchisee in the world, and have operated Burger King restaurants since 1976. We also operate two regional Hispanic restaurant chains, Taco Cabana and Pollo Tropical, which operate or franchise more than 200 restaurants. At
June 30, 2003, we operated 351 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. Our Burger King restaurant sales were $175.7 million in the first six months of 2003, or 55.4% of total restaurant sales.



We have expanded and diversified our operations during the
past five years with the acquisition of two regional Hispanic restaurant chains. Our Hispanic restaurant brands, which include Taco Cabana and Pollo Tropical, collectively operate or franchise more than 200 restaurants. In 1998, we acquired Pollo
Tropical Inc., a restaurant chain featuring grilled marinated chicken and authentic made from scratch side dishes, for a cash purchase price of approximately $95 million. Since the acquisition, we have expanded this concept by over 65%
by opening 24 new Pollo Tropical restaurants. At June 30, 2003, we operated 60 company owned Pollo Tropical restaurants in Florida and franchised 23 Pollo Tropical restaurants, 19 of which are in Puerto Rico. Total Pollo Tropical sales from Company
operated restaurants were $53.3 million in the first six months of 2003.



21

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



In December 2000, we acquired Taco Cabana Inc., a restaurant chain featuring Mexican style food including flame-grilled beef and chicken fajitas,
quesadillas, and fresh flour tortillas, for a total purchase price of approximately $155 million. At June 30, 2003, we operated 119 company owned Taco Cabana restaurants located in Texas and Oklahoma and franchised 10 Taco Cabana restaurants. Since
the acquisition we have opened fifteen new Taco Cabana restaurants and have closed thirteen restaurants, including seven restaurants in the Phoenix, Arizona market, of which six were closed in the first quarter of 2002. Total Taco Cabana sales from
Company operated restaurants were $88.2 million in the first six months of 2003.



We use a 52-53 week fiscal year ending on the Sunday closest to December 31. All references herein to the fiscal years ended December 30, 2001 and December 29, 2002 will be referred to as the fiscal years ended
December 31, 2001 and 2002, respectively. Also, all references herein to the six months ended June 29, 2003 will be referred to as the six months ended June 30, 2003. The fiscal years ended December 31, 2003, 2002 and 2001 each contain 52 weeks.



Significant Accounting Policies



Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of financial statements. The following is a brief discussion of the more significant accounting policies and methods used by the Company.



The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to make assumptions and estimates that can have a material impact on our results of operations. Sales recognition at company-operated restaurants is straightforward as
customers pay for products at the time of sale and inventory turns over very quickly. Payments to vendors for products sold in the restaurants are generally settled within 30 days. The earnings reporting process is covered by our system of internal
controls, and generally does not require significant management estimates and judgments. However, estimates and judgments are inherent in the assessment and recording of accrued occupancy costs, insurance liabilities, legal obligations, income taxes
and the valuation of goodwill for impairment. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts
would be reported using different assumptions.



We make
estimates of accrued occupancy costs pertaining to closed restaurant locations on an ongoing basis. These estimates require assessment and continuous evaluation of a number of factors such as the remaining contractual period under our lease
obligations, the amount of sublease income, if any, we are able to realize on a particular property and estimates of other costs such as property taxes. Differences between actual future events and prior estimates could result in adjustments to
these accrued costs.



22

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



We are self-insured for most workers compensation, general liability and medical insurance claims. We record insurance liabilities based on
historical and industry trends, which are continually monitored, and adjust accruals as warranted by changing circumstances. Since there are many estimates and assumptions involved in recording these insurance liabilities, differences between actual
future events and prior estimates and assumptions could result in adjustments to these liabilities.



In the normal course of business, we must make estimates of potential future legal obligations and liabilities, which require the use of managements
judgment. Management may also use outside legal advice to assist in the estimating process. However, the ultimate outcome of various legal issues could be different than management estimates and adjustments to income could be required.



We record income tax liabilities utilizing known obligations and estimates
of potential obligations. We are required to record a valuation allowance if the value of estimated deferred tax assets are different from those recorded. This would include making estimates and judgments on future taxable income, the consideration
of feasible tax planning strategies and existing facts and circumstances. When the amount of deferred tax assets to be realized is different from that recorded, the asset balance and income statement would reflect the change in the period such
determination is made.



We must evaluate our recorded goodwill
for impairment under SFAS 142 Goodwill and Other Intangible Assets on an ongoing basis. We have elected to conduct our annual impairment review of goodwill and intangible assets at December 31. Our review at December 31, 2002 indicated
there has been no goodwill impairment as of that date. This annual evaluation requires us to make estimates and assumptions regarding the fair value of our reporting units. These estimates may differ from actual future events.



Recent Accounting Pronouncements



In June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS 143, Accounting for Asset Retirement Obligations. This new standard, effective for 2003, requires entities to recognize the fair value of an asset retirement obligation in the period that it is incurred if a reasonable
estimate of fair value can be made. The adoption of SFAS 143 has had no material impact on our financial statements.



In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, which nullifies Emerging Issues Task
Force 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). The provisions of SFAS 146 are effective for exit or
disposal activities initiated after December 31, 2002. Previously issued financial statements cannot be restated under SFAS 146.



23

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



We have adopted FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34 (FIN 45). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. FIN 45 also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition
and measurement provisions were applicable to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 has had no material impact on our financial statements.



Results of Operations



Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002.



The following table sets forth, for the three months ended June 30, 2003 and 2002, selected operating results as a
percentage of total restaurant sales:



|                                                |  | 2003  |   |  |  |  | 2002  |  
|----------------------------------------------- |  | ----- | - |  |  |  | ----- | -
|Restaurant sales:                               |  |       |   |  |  |  |       |  
|Burger King                                     |  | 55.5  | % |  |  |  | 59.1  | %
|Pollo Tropical                                  |  | 16.2  | % |  |  |  | 14.5  | %
|Taco Cabana                                     |  | 28.3  | % |  |  |  | 26.4  | %
|                                                |  |       |   |  |  |  |       |  
|                                                |  | 100.0 | % |  |  |  | 100.0 | %
|                                                |  |       |  
|Costs and expenses:                             |  |       |   |  |  |  |       |  
|Cost of sales                                   |  | 27.5  | % |  |  |  | 28.0  | %
|Restaurant wages and related expenses           |  | 30.1  | % |  |  |  | 29.1  | %
|Other restaurant expenses including advertising |  | 24.2  | % |  |  |  | 22.8  | %
|General and administrative                      |  | 5.4   | % |  |  |  | 5.6   | %
|Depreciation and amortization                   |  | 6.3   | % |  |  |  | 5.7   | %
|                                                |  |       |   |  |  |  |       |  
|Income from restaurant operations               |  | 6.5   | % |  |  |  | 8.8   | %
|                                                |  |       |   |  |  |  |       |  



Since June 30, 2002 we
have opened eight new Burger King restaurants, closed sixteen Burger King restaurants, opened six new Pollo Tropical restaurants, opened eight Taco Cabana restaurants and closed three Taco Cabana restaurants.



24

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



Restaurant Sales  Total restaurant sales for the second quarter of 2003 decreased 4.5% to $165.3 million from $173.0 million in the second
quarter of 2002. Burger King restaurant sales decreased $10.5 million, or 10.3%, to $91.8 million in the second quarter of 2003 due primarily to a sales decrease at our comparable Burger King restaurants of 10.5%. This decrease was due primarily to
reduced customer traffic relative to promotions in the prior year. Sales at our comparable Burger King restaurants increased 4.9% in the second quarter of 2002. Pollo Tropical restaurant sales increased $1.7 million, or 6.7%, to $26.8 million in the
second quarter of 2003 due to the opening of six additional restaurants since the end of the second quarter of 2002. Sales at our comparable Pollo Tropical restaurants in the second quarter of 2003, however, decreased 2.1% reflecting comparable
store declines in South Florida of 2.9% due to the cannibalizing effect of our newer restaurants. Comparable Pollo Tropical restaurant sales in Orlando, however, increased 4.3% during the second quarter of 2003. Taco Cabana restaurant sales were
$46.7 million in the second quarter of 2003 compared to $45.6 million in 2002. A sales decrease at our comparable Taco Cabana restaurants of 5.5% in the second quarter of 2003 was offset by the net addition of five Taco Cabana restaurants since the
end of the second quarter of 2002. Sales at our comparable Taco Cabana restaurants increased 3.2% in the second quarter of 2002.



Operating Costs and Expenses  Cost of sales (food and paper costs), as a percentage of total restaurant sales, decreased to 27.5% in the
second quarter of 2003 from 28.0% in 2002. Burger King cost of sales, as a percentage of Burger King restaurant sales, decreased to 25.7% in the second quarter of 2003 from 26.6% in the second quarter of 2002 due to higher rebates, lower chicken
commodity prices and to a lesser extent, the effects of menu price increases in the fourth quarter of 2002. Pollo Tropical cost of sales, as a percentage of Pollo Tropical restaurant sales, decreased slightly to 30.4% in the second quarter of 2003
from 30.5% in 2002 due to higher rebates and lower chicken commodity prices in 2003, substantially offset by lower gross margins on new menu items introduced since June 30, 2002. Taco Cabana cost of sales, as a percentage of Taco Cabana restaurant
sales, decreased to 29.3% in the second quarter of 2003 from 29.6% in 2002 due to lower beef and cheese commodity prices in 2003 and higher rebates.



Restaurant wages and related expenses, as a percentage of total restaurant sales, increased to 30.1% in the second quarter of 2003 from 29.0% in 2002.
Burger King restaurant wages and related expenses, as a percentage of Burger King restaurant sales, increased to 31.7% in the second quarter of 2003 from 30.3% in 2002 due to the effect of lower sales volumes on fixed labor costs and higher workers
compensation costs. These factors were partially offset by restaurant productive labor efficiencies in the second quarter of 2003. Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo Tropical restaurant sales, increased to
26.9% in the second quarter of 2003 from 25.3% in 2002 due to the effect of lower sales volumes on fixed labor costs and higher medical insurance costs. Taco Cabana restaurant wages and related expenses, as a percentage of Taco Cabana restaurant
sales, increased slightly to 28.9% in the second quarter of 2003 from 28.7% in 2002 due to the effect of lower sales volumes on fixed labor costs offset partially by labor efficiencies in 2003.



25

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



Other restaurant operating expenses (which includes advertising) as a percentage of total restaurant sales, increased to 24.2% in the second quarter of
2003 from 22.8% in 2002. Burger King other restaurant operating expenses, as a percentage of Burger King restaurant sales, increased to 25.0% in the second quarter of 2003 from 24.3% in 2002 due to higher utility costs from increases in natural gas
prices and the effect of lower sales volumes on fixed costs including occupancy. Pollo Tropical other restaurant operating expenses, as a percentage of Pollo Tropical restaurant sales, increased to 22.0% in the second quarter of 2003 from 18.9% in
2002. This increase was due to higher utility costs, higher advertising costs due to the timing of promotions, higher liability insurance costs, higher occupancy costs due to the sale/leaseback of four Pollo Tropical properties in 2003 and the
effect of lower sales volumes on fixed costs. Taco Cabana other restaurant operating expenses, as a percentage of Taco Cabana restaurant sales, increased to 23.7% in the second quarter of 2003 from 21.4% in 2002 due to higher advertising costs, in
part to the timing of promotions compared to the prior year, higher utility costs and the effect of lower sales volumes on fixed costs.



General and administrative expenses decreased $0.7 million in the second quarter of 2003 from the second quarter of the prior year, and as a percentage of
total restaurant sales, decreased to 5.4% in the second quarter of 2003 from 5.6% in 2002 due to decreased administrative bonus levels.



EBITDA  Earnings before interest, taxes and depreciation and amortization (EBITDA) decreased to $21.5 million in the second
quarter of 2003 from $25.4 million in the second quarter of 2002. As a percentage of total revenues, EBITDA margins decreased to 13.0% in the second quarter of 2003 from 14.7% in 2002 as a result of the factors discussed above. See Reconciliation of
Non-GAAP Financial Measures on page 30.



Depreciation and
Amortization  Depreciation and amortization increased $0.6 million in the second quarter of 2003 from 2002 due primarily to additional depreciation from our capital expenditures of $50.0 million since the end of the second quarter of 2002.



Interest Expense  Interest expense decreased $0.5
million to $6.5 million in the second quarter of 2003 due primarily to lower average debt balances in the second quarter of 2003, and to a lesser extent, lower interest rates on our floating rate debt. The average effective interest rate on all debt
was 7.1% for the second quarter of 2003 compared to 7.4% in 2002.



Income Taxes  The provision for income taxes for the second quarter of 2003 was derived using an estimated annual effective income tax rate for 2003 of 42.5%. This rate is higher than the Federal statutory tax rate of 35% due
to state franchise taxes and non-deductible amortization of certain franchise rights.



Net Income As a result of the foregoing, net income for the second quarter of 2003 decreased to $2.7 million from $5.3 million in the second quarter of 2002.



26

MANAGEMENTS DISCUSSION AND ANALYSIS OF



FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002.



The following table sets forth, for the six months
ended June 30, 2003 and 2002, selected operating results as a percentage of total restaurant sales:



|                                                |  | 2003  |   |  |  |  | 2002  |  
|----------------------------------------------- |  | ----- | - |  |  |  | ----- | -
|Restaurant sales:                               |  |       |   |  |  |  |       |  
|Burger King                                     |  | 55.4  | % |  |  |  | 58.3  | %
|Pollo Tropical                                  |  | 16.8  | % |  |  |  | 15.1  | %
|Taco Cabana                                     |  | 27.8  | % |  |  |  | 26.6  | %
|                                                |  |       |   |  |  |  |       |  
|                                                |  | 100.0 | % |  |  |  | 100.0 | %
|Costs and expenses:                             |  |       |   |  |  |  |       |  
|Cost of sales                                   |  | 27.7  | % |  |  |  | 27.9  | %
|Restaurant wages and related expenses           |  | 30.5  | % |  |  |  | 29.7  | %
|Other restaurant expenses including advertising |  | 24.8  | % |  |  |  | 23.6  | %
|General and administrative                      |  | 5.7   | % |  |  |  | 5.8   | %
|Depreciation and amortization                   |  | 6.4   | % |  |  |  | 6.0   | %
|                                                |  |       |   |  |  |  |       |  
|Income from restaurant operations               |  | 4.9   | % |  |  |  | 7.0   | %
|                                                |  |       |   |  |  |  |       |  



Restaurant
Sales  Total restaurant sales for the first six months of 2003 decreased 4.0% to $317.2 million from $330.5 million in 2002. Burger King restaurant sales decreased $17.1 million, or 8.9%, to $175.7 million in the first six months of 2003
from $192.8 million in 2002 due to a sales decline at our comparable Burger King restaurants of 9.0% for the first six months of 2003. Pollo Tropical restaurant sales increased $3.4 million, or 6.8%, to $53.3 million in the first six months of 2003
due to the opening of six additional restaurants since the end of the second quarter of 2002. Sales at our comparable Pollo Tropical restaurants in the first six months of 2003 decreased 0.8%. Taco Cabana restaurant sales increased slightly to $88.2
million in the first six months of 2003 from $87.8 million in 2002. A sales decrease at our comparable Taco Cabana restaurants of 5.1% in the first six months of 2003 was offset by the net addition of five Taco Cabana restaurants since the end of
the second quarter of 2002. Sales at our comparable Taco Cabana restaurants increased 2.4% in the first six months of 2002.



27

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



Operating Costs and Expenses  Cost of sales (food and paper costs), as a percentage of total restaurant sales, decreased to 27.7% in the
first six months in 2003 from 27.9% in 2002. Burger King cost of sales, as a percentage of Burger King restaurant sales, decreased to 26.0% in the first six months of 2003 from 26.5% in 2002 due to higher rebates and improvements in restaurant food
cost controls, offset in part by higher promotional sales discounts in 2003. Pollo Tropical cost of sales, as a percentage of Pollo Tropical restaurant sales, increased to 30.8% in the first six months of 2003 from 30.6% in 2002 due to lower gross
margins on new menu items introduced during the last eighteen months, offset in part by higher rebates and lower chicken commodity prices in 2003. Taco Cabana cost of sales, as a percentage of Taco Cabana restaurant sales, decreased to 29.2% in the
first six months of 2003 from 29.4% in 2002 due to lower beef and cheese commodity prices in 2003 and higher rebates.



Restaurant wages and related expenses, as a percentage of total restaurant sales, increased to 30.5% in the first six months of 2003 from 29.7% in 2002.
Burger King restaurant wages and related expenses, as a percentage of Burger King restaurant sales, increased to 32.6% in the first six months of 2003 from 31.1% in 2002 due to the effect of lower sales volumes on fixed labor costs and higher
workers compensation costs. These factors were offset in part by restaurant productive labor efficiencies in the first six months of 2003. Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo Tropical restaurant sales,
increased to 26.3% in the first six months of 2003 from 25.1% in 2002 due to the effect of increases in fixed labor costs on slightly lower sales volumes and higher medical insurance costs. Taco Cabana restaurant wages and related expenses, as a
percentage of Taco Cabana restaurant sales, decreased to 29.0% in the first six months of 2003 from 29.4% in 2002 due to labor efficiencies in 2003 and the closure of six lower volume Taco Cabana restaurants in the Phoenix, Arizona market in the
first quarter of 2002.



Other restaurant operating expenses
(which includes advertising), as a percentage of total restaurant sales, increased to 24.8% in the first six months of 2003 from 23.6% in 2002. Burger King other restaurant operating expenses, as a percentage of Burger King restaurant sales,
increased to 26.4% in the first six months of 2003 from 25.4% in 2002 due to higher utility costs from increases in natural gas prices and the effect of lower sales volumes on fixed costs including occupancy. Pollo Tropical other restaurant
operating expenses, as a percentage of Pollo Tropical restaurant sales, increased to 21.0% in the first six months of 2003 from 19.4% in 2002 due to higher utility costs, higher advertising costs due to the timing of promotions and higher occupancy
costs due to the sale/leaseback of four Pollo Tropical properties in 2003. Taco Cabana other restaurant operating expenses, as a percentage of Taco Cabana restaurant sales, increased to 23.8% in the first six months of 2003 from 21.8% in 2002. This
increase was due to higher advertising costs, in part to the timing of promotions compared to the prior year, higher utility costs and the effect of lower sales volumes on fixed costs.



28

MANAGEMENTS DISCUSSION AND ANALYSIS OF



FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



General and administrative expenses decreased $1.1 million to $18.2
million in the first six months of 2003 compared to 2002 due to decreased administrative bonus levels. As a percentage of total restaurant sales, general and administrative expenses decreased slightly to 5.7% in the first six months of 2003 from
5.8% in 2002.



EBITDA  Earnings before interest,
taxes and depreciation and amortization (EBITDA) decreased to $36.3 million in the first six months of 2003 from $43.6 million in 2002. As a percentage of total revenues, EBITDA margins decreased to 11.5% in the first six months of 2003
compared to 13.2% in 2002 as a result of the factors discussed above. See Reconciliation of Non-GAAP Financial Measures on page 30.



Depreciation and Amortization  Depreciation and amortization increased $0.4 million in the first six months of 2003 from 2002 due to
additional depreciation from our capital expenditures of $50.0 million since the end of the second quarter of 2002.



Interest Expense  Interest expense decreased $1.0 million to $13.0 million in the first six months of 2003 from $14.0 million in 2002 due
primarily to lower average debt balances in 2003, and to a lesser extent, lower effective interest rates on our floating rate debt. The average effective interest rate on all debt was 7.1% for the first six months of 2003 compared to 7.3% in 2002.



Income Taxes  The provision for income taxes for
the first six months of 2002 was derived using an estimated effective income tax rate for 2003 of 42.5%. This rate is higher than the Federal statutory tax rate of 35% due to state franchise taxes and non-deductible amortization of certain franchise
rights.



Net Income As a result of the foregoing,
net income decreased to $1.8 million for the first six months of 2003 from $6.0 million in 2002.



29

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



Reconciliation of Non-GAAP Financial Measures



EBITDA is presented because we believe it is a useful financial indicator for measuring the ability to service and/or incur indebtedness. However, EBITDA
should not be considered as an alternative to net income as a measure of operating results or to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. A reconciliation of EBITDA to net income for the
periods discussed above is as follows:



|Three months ended June 30:                         |  | 2003 |        | 2002
|--------------------------------------------------- |  | ---- | ------ | ----
|EBITDA                                              |  | $    | 21,547 |     
|Less:         Depreciation and amortization expense |  |      | 10,466 |     
|Interest
expense                                    |  |      | 6,467  |     
|Provision for
income taxes                          |  |      | 1,893  |     
|                                                    |  |      |        |     
|Net income                                          |  | $    | 2,721  |     
|                                                    |  |      |        |     
|                                                    |  |     
|Six months ended June 30:                           |  |      |        |     
|EBITDA                                              |  | $    | 36,332 |     
|Less:         Depreciation and amortization expense |  |      | 20,233 |     
|Interest
expense                                    |  |      | 12,992 |     
|Provision for
income taxes                          |  |      | 1,321  |     
|                                                    |  |      |        |     
|Net income                                          |  | $    | 1,786  |     
|                                                    |  |      |        |     



Liquidity and Capital Resources



We do not have significant receivables or inventory and
receive trade credit based upon negotiated terms in purchasing food products and other supplies. We are able to operate with a substantial working capital deficit because:



| |  |  | restaurant operations are primarily conducted on a cash basis;
| | - |  | --------------------------------------------------------------

| |  |  | rapid turnover results in a limited investment in inventories; and
| | - |  | ------------------------------------------------------------------

| |  |  | cash from sales is usually received before related accounts for food, supplies and payroll become due.
| | - |  | ------------------------------------------------------------------------------------------------------



Our cash requirements arise primarily from:



| |  |  | the need to finance the opening and equipping of new restaurants;
| | - |  | -----------------------------------------------------------------

| |  |  | ongoing capital reinvestment in our existing restaurants; and
| | - |  | -------------------------------------------------------------

| |  |  | servicing our debt
| | - |  | ------------------



30

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



Our operations in the first six months of 2003 generated approximately $20.7 million in cash, compared with $27.3 million in the first six months of
2002.



In the first six months of 2003, we sold fifteen
properties for $19.4 million in sale/leaseback transactions and sold four non-operating properties for $2.7 million. Proceeds from these sales were used to reduce debt. In the first six months of 2002, we sold five properties for $5.1 million in
sale/leaseback transactions and used the proceeds from these sales to reduce debt.



Capital expenditures represent a major investment of cash for us and were $19.5 million and $23.7 million in the first six months of 2003 and 2002, respectively. Expenditures for new restaurant development were $12.2
million and $9.9 million in the first six months of 2003 and 2002, respectively. Our capital expenditures also include remodeling costs and capital maintenance projects for the ongoing reinvestment and enhancement of our restaurants and totaled $6.4
million and $13.2 million in the first six months of 2003 and 2002, respectively.



In 2003, we anticipate total capital expenditures of approximately $35 million to $40 million, excluding the cost of any acquisitions that we may make. These amounts include approximately $22 million to $26 million
for the construction of new restaurants and related real estate applicable to our three restaurant concepts as follows: $4 million to $5 million for Burger King, $16 million to $18 million for Taco Cabana and $2 million to $3 million for Pollo
Tropical. We anticipate capital expenditures to remodel our existing restaurants for our three restaurant concepts to be approximately $3 million to $4 million in 2003. Capital maintenance expenditures in 2003 for ongoing reinvestment in our three
restaurant concepts are anticipated to approximate $8 million to $9 million; with approximately $3 million to $4 million applicable to our Burger King restaurants, $2 million for Pollo Tropical and $3 million for Taco Cabana.



At June 30, 2003, we had total indebtedness of $337.0 million comprised of
$170.0 million of unsecured 9.5% Senior Subordinated Notes due 2008, total borrowings under our senior credit facility of $164.7 million and other debt, primarily capital leases, of $2.3 million. Our senior credit facility provides for a $70 million
term loan A facility, an $80 million term loan B facility and a $100 million revolving credit facility. At June 30, 2003, $131.7 million was outstanding under the term loan A and B facilities and $56.8 million was available for borrowings under our
revolving credit facility, after reserving $10.2 million for letters of credit guaranteed by the facility.



Interest payments under our senior subordinated notes and other existing debt obligations represent significant liquidity requirements for us. We believe
cash generated from our operations and availability under our revolving credit facility will provide sufficient cash availability to cover our working capital needs, capital expenditures, planned development and debt service requirements for the
next twelve months.



31

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)



Inflation



The inflationary factors that have historically affected our results of operations include increases in food and paper costs, labor and other operating
expenses. Wages paid in our restaurants are impacted by changes in the Federal or state minimum hourly wage rates, and accordingly, changes in those rates directly affect our cost of labor. The restaurant industry and we typically attempt to offset
the effect of inflation, at least in part, through periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will be able to offset such inflationary cost increases in the future.



ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS



There were no material changes from the information presented in Item 7A
of the Companys Annual Report on Form 10-K for the year ended December 31, 2002, which is hereby incorporated by reference, with respect to the Companys market risk sensitive instruments.



ITEM 4  CONTROLS AND PROCEDURES



In designing and evaluating the Companys disclosure controls and
procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended (the Exchange Act), management recognized that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurances of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We believe
that our disclosure controls and procedures provide such reasonable assurances.



As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective. There were no significant changes in the Companys internal controls or in other factors that could
significantly affect these controls, nor any significant deficiencies or material weaknesses in such controls requiring corrective actions, subsequent to the date of their evaluation.



32

PART II  OTHER INFORMATION



Item 1.    Legal Proceedings



On November 16, 1998, the Equal Employment Opportunity Commission (EEOC) filed suit in the United States
District Court for the Northern District of New York (the Court), under Title VII of the Civil Rights Act of 1964, as amended, against the Company. The complaint alleges that the Company has engaged in a pattern and practice of unlawful
discrimination, harassment and retaliation against former and current female employees of the Company over the course of many years. At present, the EEOC has identified approximately 400 individuals it believes represent the class of claimants. The
EEOC is seeking monetary and injunctive relief from the Company.



On June 18, 2002, we served the EEOC with a Motion for Summary Judgment (the Motion). The EEOC responded on July 23, 2002 by opposing the Motion and serving a Cross Motion on us for a continuance in order to conduct additional
discovery for the purpose of further responding to the Motion. On November 20, 2002, the court denied the Motion, but granted us the right to re-file the Motion after completion of additional limited discovery by the EEOC and remanded the case to
the Magistrate to resolve open discovery issues and establish discovery deadlines. Pursuant to the Magistrates orders, depositions are to be completed by October 7, 2003 and our renewed motion is to be filed on or before January 22, 2004. It
is anticipated that the briefing on the Motion should be completed in the first quarter of 2004, at which time the Motion will be filed with the Court for determination.



It is not possible to predict whether we will prevail on the Motion, which subject to possible appeals by the EEOC, would
effectively end the case. If we do not prevail on the Motion, there will likely be additional discovery and the case will proceed to trial. It is too early to make an evaluation of the likelihood of an unfavorable outcome or estimate of the amount
or range of potential loss. Consequently, it is not possible to predict what adverse impact, if any, this case could have on our financial condition or results of operations and cash flows. We intend to continue to contest the case vigorously and
believe it is without merit.



We are a party to various other
litigation matters incidental to the conduct of our business. We do not believe that the outcome of any of these matters will have a material adverse effect on our financial condition or results of operations and cash flows.



Item 2.    Changes in Securities and Use of Proceeds



None



Item 3.    Default Upon Senior Securities



None



33

PART II  OTHER INFORMATION  (Continued)



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



None



Item 5.    Other Information



None



Item 6.    Exhibits and Reports on Form 8K



a.  The following exhibits are filed as part of
this report.





Exhibit No.31.1

Chief Executive Officers Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Chief Financial Officers Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Chief Executive Officers Certificate Pursuant to U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Chief Financial Officers Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




b.  Report on Form 8-K



Form 8-K dated May
19, 2003 reporting the Registrants results of operations for the first quarter of 2003.



34

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.





|                      |  | CARROLS CORPORATION                              
|--------------------- |  | -------------------------------------------------
|                      | 
|Date: August 13, 2003 |  | /S/    ALAN VITULI(Signature)                    
|                      |  | Alan Vituli                                      
|                      |  | Chairman of the Board and Chief Executive Officer





|                      | 
|--------------------- | 
|Date: August 13, 2003 | 
|                      | 
|                      | 







35