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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 September 27, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------

Commission File Number: 001-33174





CARROLS
RESTAURANT GROUP, INC.

(Exact name of Registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 16-1287774                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|968 James Street Syracuse, New York                            |  | 13203                               
|(Address of principal executive office)                        |  | (Zip Code)                          

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

Commission File Number: 001-06553





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





Carrols Corporation meets the conditions set forth in General Instruction H(1) and is therefore filing this form with reduced disclosure
format pursuant to General Instruction H(2).

Indicate by check mark whether either of the registrants (1) have 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 were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.    Yes  x    No   ̈



Indicate by check mark whether the registrants have submitted
electronically and posted on their Corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers or smaller reporting
companies. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                               |  |                                                  |  |                           |  |  
|------------------------------ |  | ------------------------------------------------ |  | ------------------------- |  | -
|Carrols Restaurant Group, Inc. |  |                                                  |  |                          
|Large accelerated filer        |  |  ̈                                                |  | Accelerated filer         |  | x
|                               |  |                                                  | 
|Non-accelerated filer          |  | (Do not check if a smaller reporting company)   ̈ |  | Smaller reporting company |  |  ̈
|                               |  |                                                  | 
|Carrols Corporation            |  |                                                  |  |                           |  |  
|Large accelerated filer        |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                               |  |                                                  | 
|Non-accelerated filer          |  | (Do not check if a smaller reporting company)  x |  | Smaller reporting company |  |  ̈

Indicate by check mark whether either of the registrants are shell companies (as
defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

As of October 30, 2009, Carrols Restaurant Group, Inc. had 21,594,145 shares of its common stock, $.01 par value, outstanding. As of
October 30, 2009, all outstanding equity securities of Carrols Corporation, which consisted of 10 shares of its common stock, were owned by Carrols Restaurant Group, Inc.









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CARROLS RESTAURANT GROUP, INC. AND CARROLS CORPORATION

FORM 10-Q

QUARTER ENDED SEPTEMBER 27, 2009



|        |  |                                                                                                       |  |     
|------- |  | ----------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                       |  | Page
|PART I  |  | FINANCIAL INFORMATION                                                                                 |  |     
|        |  |                                                                                                      
|Item 1  |  | Carrols Restaurant Group, Inc. and Subsidiary - Consolidated Financial Statements (unaudited):        |  |     
|        |  |                                                                                                      
|        |  | Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008                            |  | 3   
|        |  |                                                                                                      
|        |  | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 |  | 4   
|        |  |                                                                                                      
|        |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and
2008           |  | 5   
|        |  |                                                                                                      
|        |  | Notes to Consolidated Financial Statements                                                            |  | 6   
|        |  |                                                                                                      
|        |  | Carrols Corporation and Subsidiaries - Consolidated Financial Statements (unaudited):                 |  |     
|        |  |                                                                                                      
|        |  | Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008                            |  | 17  
|        |  |                                                                                                      
|        |  | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 |  | 18  
|        |  |                                                                                                      
|        |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and
2008           |  | 19  
|        |  |                                                                                                      
|        |  | Notes to Consolidated Financial Statements                                                            |  | 20  
|        |  |                                                                                                      
|Item 2  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                 |  | 40  
|        |  |                                                                                                      
|Item 3  |  | Quantitative and Qualitative Disclosures About Market Risk                                            |  | 54  
|        |  |                                                                                                      
|Item 4  |  | Controls and Procedures                                                                               |  | 55  
|        |  |                                                                                                      
|PART II |  | OTHER INFORMATION                                                                                     |  |     
|        |  |                                                                                                      
|Item 1  |  | Legal Proceedings                                                                                     |  | 55  
|        |  |                                                                                                      
|Item 1A |  | Risk Factors                                                                                          |  | 55  
|        |  |                                                                                                      
|Item 2  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                           |  | 55  
|        |  |                                                                                                      
|Item 3  |  | Default Upon Senior Securities                                                                        |  | 55  
|        |  |                                                                                                      
|Item 4  |  | Submission of Matters to a Vote of Security Holders                                                   |  | 55  
|        |  |                                                                                                      
|Item 5  |  | Other Information                                                                                     |  | 55  
|        |  |                                                                                                      
|Item 6  |  | Exhibits                                                                                              |  | 55  



2



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PART IFINANCIAL INFORMATION

ITEM 
1INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CARROLS RESTAURANT GROUP, INC. AND
SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars, except share and per share amounts)

(Unaudited)



|                                                                                                                                            |  |                   |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                            |  | September 30,2009 |         |   | December 31,2008 |  
|ASSETS                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Current assets:                                                                                                                             |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                   |  | $                 | 3,306   |   |                  | $ | 3,399   |  
|Trade and other receivables                                                                                                                 |  |                   | 5,293   |   |                  |   | 5,622   |  
|Inventories                                                                                                                                 |  |                   | 5,467   |   |                  |   | 5,588   |  
|Prepaid rent                                                                                                                                |  |                   | 2,983   |   |                  |   | 2,998   |  
|Prepaid expenses and other current assets                                                                                                   |  |                   | 4,751   |   |                  |   | 6,738   |  
|Deferred income taxes                                                                                                                       |  |                   | 4,873   |   |                  |   | 4,890   |  
|                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total current assets                                                                                                                        |  |                   | 26,673  |   |                  |   | 29,235  |  
|Property and equipment, net                                                                                                                 |  |                   | 197,081 |   |                  |   | 195,376 |  
|Franchise rights, net (Note 4)                                                                                                              |  |                   | 74,518  |   |                  |   | 76,870  |  
|Goodwill (Note 4)                                                                                                                           |  |                   | 124,934 |   |                  |   | 124,934 |  
|Intangible assets, net                                                                                                                      |  |                   | 578     |   |                  |   | 675     |  
|Franchise agreements, at cost less accumulated amortization of $5,715 and $5,729, respectively                                              |  |                   | 5,900   |   |                  |   | 5,826   |  
|Deferred income taxes                                                                                                                       |  |                   | 5,415   |   |                  |   | 6,697   |  
|Other assets                                                                                                                                |  |                   | 9,228   |   |                  |   | 10,585  |  
|                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total assets                                                                                                                                |  | $                 | 444,327 |   |                  | $ | 450,198 |  
|                                                                                                                                            |  |                   |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                        |  |                   |         |   |                  |   |         |  
|Current liabilities:                                                                                                                        |  |                   |         |   |                  |   |         |  
|Current portion of long-term debt (Note 5)                                                                                                  |  | $                 | 15,081  |   |                  | $ | 12,093  |  
|Accounts payable                                                                                                                            |  |                   | 17,332  |   |                  |   | 18,789  |  
|Accrued interest                                                                                                                            |  |                   | 3,232   |   |                  |   | 7,742   |  
|Accrued payroll, related taxes and benefits                                                                                                 |  |                   | 19,943  |   |                  |   | 15,431  |  
|Accrued income taxes payable                                                                                                                |  |                   | 3,001   |   |                  |   | 2,099   |  
|Accrued real estate taxes                                                                                                                   |  |                   | 4,979   |   |                  |   | 3,803   |  
|Other liabilities                                                                                                                           |  |                   | 11,494  |   |                  |   | 10,848  |  
|                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                                                                   |  |                   | 75,062  |   |                  |   | 70,805  |  
|Long-term debt, net of current portion (Note 5)                                                                                             |  |                   | 265,232 |   |                  |   | 289,202 |  
|Lease financing obligations (Note 9)                                                                                                        |  |                   | 10,865  |   |                  |   | 14,859  |  
|Deferred incomesale-leaseback of real estate                                                                                               |  |                   | 42,802  |   |                  |   | 43,447  |  
|Accrued postretirement benefits (Note 8)                                                                                                    |  |                   | 1,494   |   |                  |   | 1,697   |  
|Other liabilities (Note 7)                                                                                                                  |  |                   | 21,670  |   |                  |   | 21,729  |  
|                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total liabilities                                                                                                                           |  |                   | 417,125 |   |                  |   | 441,739 |  
|Commitments and contingencies (Note 11)                                                                                                     |  |                   |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                       |  |                   |         |   |                  |   |         |  
|Preferred stock, par value $.01; authorized 20,000,000 shares, issued and outstandingnone                                                  |  |                   |        |   |                  |   |        |  
|Voting common stock, par value $.01; authorized 100,000,000 shares, issued and outstanding - 21,594,145 and 21,592,462 shares,
respectively |  |                   | 216     |   |                  |   | 216     |  
|Additional paid-in capital                                                                                                                  |  |                   | 1,403   |   |                  |   | 348     |  
|Retained earnings                                                                                                                           |  |                   | 23,760  |   |                  |   | 6,072   |  
|Accumulated other comprehensive income (Note 13)                                                                                            |  |                   | 1,964   |   |                  |   | 1,964   |  
|Treasury stock, at cost                                                                                                                     |  |                   | (141    | ) |                  |   | (141    | )
|                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                  |  |                   | 27,202  |   |                  |   | 8,459   |  
|                                                                                                                                            |  |                   |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                  |  | $                 | 444,327 |   |                  | $ | 450,198 |  
|                                                                                                                                            |  |                   |         |   |                  |   |         |  

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



3



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(In thousands of
dollars, except share and per share amounts)

(Unaudited)



|                                                                                                                            |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | ------------------------------ | ---- | - | ---------- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                            |  | Three months endedSeptember 30, |            | Nine months endedSeptember 30, |     
|                                                                                                                            |  | 2009                            |            |                                | 2008 |   | 2009       |  |   | 2008       |  
|Revenues:                                                                                                                   |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Restaurant sales                                                                                                            |  | $                               | 200,802    |                                |      | $ | 208,698    |  | $ | 605,326    |   |  | $ | 614,422    |  
|Franchise royalty revenues and fees                                                                                         |  |                                 | 364        |                                |      |   | 366        |  |   | 1,117      |   |  |   | 1,077      |  
|                                                                                                                            |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Total revenues                                                                                                              |  |                                 | 201,166    |                                |      |   | 209,064    |  |   | 606,443    |   |  |   | 615,499    |  
|                                                                                                                            |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Costs and expenses:                                                                                                         |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Cost of sales                                                                                                               |  |                                 | 57,662     |                                |      |   | 63,558     |  |   | 175,284    |   |  |   | 185,130    |  
|Restaurant wages and related expenses (including stock-based compensation expense of $51, $57, $156 and $171,
respectively) |  |                                 | 59,109     |                                |      |   | 59,786     |  |   | 176,896    |   |  |   | 179,090    |  
|Restaurant rent expense                                                                                                     |  |                                 | 12,383     |                                |      |   | 11,714     |  |   | 37,217     |   |  |   | 34,765     |  
|Other restaurant operating expenses                                                                                         |  |                                 | 29,841     |                                |      |   | 32,433     |  |   | 88,541     |   |  |   | 93,326     |  
|Advertising expense                                                                                                         |  |                                 | 7,974      |                                |      |   | 7,826      |  |   | 23,552     |   |  |   | 24,874     |  
|General and administrative (including stock-based compensation expense of $296, $438, $899 and $1,290,
respectively)        |  |                                 | 12,766     |                                |      |   | 12,893     |  |   | 38,682     |   |  |   | 39,605     |  
|Depreciation and amortization                                                                                               |  |                                 | 8,080      |                                |      |   | 8,124      |  |   | 23,833     |   |  |   | 24,223     |  
|Impairment and other lease charges (Note 3)                                                                                 |  |                                 | 46         |                                |      |   | 53         |  |   | 400        |   |  |   | 155        |  
|Other income (Note 14)                                                                                                      |  |                                 | (220       | )                              |      |   |           |  |   | (799       | ) |  |   | (119       | )
|                                                                                                                            |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Total costs and expenses                                                                                                    |  |                                 | 187,641    |                                |      |   | 196,387    |  |   | 563,606    |   |  |   | 581,049    |  
|                                                                                                                            |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Income from operations                                                                                                      |  |                                 | 13,525     |                                |      |   | 12,677     |  |   | 42,837     |   |  |   | 34,450     |  
|Interest expense                                                                                                            |  |                                 | 4,834      |                                |      |   | 6,861      |  |   | 14,908     |   |  |   | 21,418     |  
|Gain on extinguishment of debt (Note 5)                                                                                     |  |                                 |           |                                |      |   |           |  |   |           |   |  |   | (180       | )
|                                                                                                                            |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Income before income taxes                                                                                                  |  |                                 | 8,691      |                                |      |   | 5,816      |  |   | 27,929     |   |  |   | 13,212     |  
|Provision for income taxes (Note 6)                                                                                         |  |                                 | 3,094      |                                |      |   | 2,136      |  |   | 10,241     |   |  |   | 4,829      |  
|                                                                                                                            |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Net income                                                                                                                  |  | $                               | 5,597      |                                |      | $ | 3,680      |  | $ | 17,688     |   |  | $ | 8,383      |  
|                                                                                                                            |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Basic net income per share (Note 12)                                                                                        |  | $                               | 0.26       |                                |      | $ | 0.17       |  | $ | 0.82       |   |  | $ | 0.39       |  
|                                                                                                                            |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Diluted net income per share (Note 12)                                                                                      |  | $                               | 0.26       |                                |      | $ | 0.17       |  | $ | 0.81       |   |  | $ | 0.39       |  
|                                                                                                                            |  |                                 |            |                                |      |   |            |  |   |            |   |  |   |            |  
|Basic weighted average common shares outstanding (Note 12)                                                                  |  |                                 | 21,593,927 |                                |      |   | 21,573,485 |  |   | 21,592,974 |   |  |   | 21,572,241 |  
|Diluted weighted average common shares outstanding (Note 12)                                                                |  |                                 | 21,844,946 |                                |      |   | 21,576,176 |  |   | 21,740,957 |   |  |   | 21,575,280 |  

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



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(In thousands of dollars)

(Unaudited)



|                                                                                       |  |      |         |   |      |   |         |  
|-------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                       |  | 2009 |         |   | 2008 |  
|Cash flows provided from operating activities:                                         |  |      |         |   |      |   |         |  
|Net income                                                                             |  | $    | 17,688  |   |      | $ | 8,383   |  
|Adjustments to reconcile net income to net cash provided from operating activities:    |  |      |         |   |      |   |         |  
|Loss on disposals of property and equipment                                            |  |      | 15      |   |      |   | 102     |  
|Stock-based compensation expense                                                       |  |      | 1,055   |   |      |   | 1,461   |  
|Impairment and other lease charges                                                     |  |      | 400     |   |      |   | 155     |  
|Depreciation and amortization                                                          |  |      | 23,833  |   |      |   | 24,223  |  
|Amortization of deferred financing costs                                               |  |      | 732     |   |      |   | 890     |  
|Amortization of unearned purchase discounts                                            |  |      | (1,616  | ) |      |   | (1,616  | )
|Amortization of deferred gains from sale-leaseback transactions                        |  |      | (2,363  | ) |      |   | (1,582  | )
|Gain on settlements of lease financing obligations                                     |  |      | (76     | ) |      |   | (48     | )
|Accretion of interest on lease financing obligations                                   |  |      | 33      |   |      |   | 180     |  
|Deferred income taxes                                                                  |  |      | 1,299   |   |      |   | (58     | )
|Accrued income taxes                                                                   |  |      | 902     |   |      |   | 2,748   |  
|Gain on extinguishment of debt                                                         |  |      |        |   |      |   | (180    | )
|Changes in other operating assets and liabilities                                      |  |      | 5,039   |   |      |   | (5,501  | )
|                                                                                       |  |      |         |   |      |   |         |  
|Net cash provided from operating activities                                            |  |      | 46,941  |   |      |   | 29,157  |  
|                                                                                       |  |      |         |   |      |   |         |  
|Cash flows used for investing activities:                                              |  |      |         |   |      |   |         |  
|Capital expenditures:                                                                  |  |      |         |   |      |   |         |  
|New restaurant development                                                             |  |      | (7,887  | ) |      |   | (26,464 | )
|Restaurant remodeling                                                                  |  |      | (10,073 | ) |      |   | (9,622  | )
|Other restaurant capital expenditures                                                  |  |      | (8,367  | ) |      |   | (6,903  | )
|Corporate and restaurant information systems                                           |  |      | (3,624  | ) |      |   | (5,835  | )
|                                                                                       |  |      |         |   |      |   |         |  
|Total capital expenditures                                                             |  |      | (29,951 | ) |      |   | (48,824 | )
|Properties purchased for sale-leaseback                                                |  |      | (1,260  | ) |      |   |        |  
|Proceeds from sale-leaseback transactions                                              |  |      | 5,454   |   |      |   | 6,788   |  
|Proceeds from sales of other properties                                                |  |      | 819     |   |      |   | 119     |  
|                                                                                       |  |      |         |   |      |   |         |  
|Net cash used for investing activities                                                 |  |      | (24,938 | ) |      |   | (41,917 | )
|                                                                                       |  |      |         |   |      |   |         |  
|Cash flows provided from (used for) financing activities:                              |  |      |         |   |      |   |         |  
|Borrowings on revolving credit facility                                                |  |      | 77,700  |   |      |   | 109,600 |  
|Repayments on revolving credit facility                                                |  |      | (92,600 | ) |      |   | (92,400 | )
|Scheduled principal payments on term loans                                             |  |      | (6,000  | ) |      |   | (1,500  | )
|Principal payments on capital leases                                                   |  |      | (82     | ) |      |   | (119    | )
|Proceeds from lease financing obligations                                              |  |      | 835     |   |      |   |        |  
|Settlement of lease financing obligations                                              |  |      | (1,945  | ) |      |   | (5,500  | )
|Financing costs associated with issuance of lease financing obligations                |  |      | (4      | ) |      |   |        |  
|Repurchase of senior subordinated notes                                                |  |      |        |   |      |   | (1,820  | )
|                                                                                       |  |      |         |   |      |   |         |  
|Net cash provided from (used for) financing activities                                 |  |      | (22,096 | ) |      |   | 8,261   |  
|                                                                                       |  |      |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                              |  |      | (93     | ) |      |   | (4,499  | )
|Cash and cash equivalents, beginning of period                                         |  |      | 3,399   |   |      |   | 7,396   |  
|                                                                                       |  |      |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                               |  | $    | 3,306   |   |      | $ | 2,897   |  
|                                                                                       |  |      |         |   |      |   |         |  
|Supplemental disclosures:                                                              |  |      |         |   |      |   |         |  
|Interest paid on long-term debt                                                        |  | $    | 17,803  |   |      | $ | 20,984  |  
|Interest paid on lease financing obligations                                           |  | $    | 926     |   |      | $ | 3,578   |  
|Accruals for capital expenditures                                                      |  | $    | 318     |   |      | $ | 810     |  
|Income taxes paid, net                                                                 |  | $    | 8,040   |   |      | $ | 2,141   |  
|Capital lease obligations incurred                                                     |  | $    |        |   |      | $ | 158     |  
|Non-cash reduction of assets under lease financing obligations due to lease amendments |  | $    | 2,074   |   |      | $ | 298     |  
|Non-cash reduction of lease financing obligations due to lease amendments              |  | $    | 2,833   |   |      | $ | 880     |  

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



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##### Table of Contents

CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)

1.
Basis of Presentation

Basis of Consolidation.The unaudited consolidated financial statements presented herein
include the accounts of Carrols Restaurant Group, Inc. (Carrols Restaurant Group or the Company) and its wholly-owned subsidiary Carrols Corporation (Carrols). Carrols Restaurant Group is a holding company and
conducts all of its operations through Carrols and its wholly-owned subsidiaries. Unless the context otherwise requires, Carrols Restaurant Group, Carrols and the direct and indirect subsidiaries of Carrols are collectively referred to as the
Company. All intercompany transactions have been eliminated in consolidation.

The difference between the
consolidated financial statements of Carrols Restaurant Group and Carrols is primarily due to additional rent expense of approximately $6 per year for Carrols Restaurant Group and the composition of stockholders equity.

Business Description.At September 30, 2009 the Company operated, as franchisee, 314 quick-service restaurants under the trade
name Burger King in 12 Northeastern, Midwestern and Southeastern states. At September 30, 2009, the Company also owned and operated 91 Pollo Tropical restaurants, of which 85 were located in Florida, four were in New Jersey and one
each in New York and Connecticut, and franchised a total of 27 Pollo Tropical restaurants, 21 in Puerto Rico, two in Ecuador, one in the Bahamas and three on college campuses in Florida. At September 30, 2009, the Company owned and operated 155
Taco Cabana restaurants located primarily in Texas and franchised a total of four Taco Cabana restaurants, two in New Mexico, one in Texas and one in Georgia.

Fiscal Year.The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. All references herein to the fiscal years ended December 28, 2008 and December 30,
2007 will be referred to as the fiscal years ended December 31, 2008 and 2007, respectively. Similarly, all references herein to the three and nine months ended September 27, 2009 and September 28, 2008 will be referred to as the
three and nine months ended September 30, 2009 and September 30, 2008, respectively. The years ended December 31, 2008 and 2007 each contained 52 weeks and the three and nine months ended September 30, 2009 and 2008 each
contained thirteen and thirty-nine weeks, respectively.

Basis of Presentation.The accompanying unaudited consolidated
financial statements for the three and nine months ended September 30, 2009 and 2008 have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain of the
information and the footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair
presentation of such financial statements have been included. The results of operations for the three and nine months ended September 30, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2008 contained in the Companys 2008 Annual Report on Form 10-K. The December 31, 2008 balance sheet data is derived from those audited financial statements.

Fair Value of Financial Instruments. The following methods were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate the fair value:



| |  |  | Current Assets and Liabilities. The carrying value of cash and cash equivalents and accrued liabilities approximates fair value because of the
short maturity of those instruments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Senior Subordinated Notes. The fair values of outstanding senior subordinated notes are based on quoted market prices. The fair values at
September 30, 2009 and December 31, 2008 were approximately $165.0 million and $111.4 million, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revolving and Term Loan Facilities. Rates and terms under Carrols senior credit facility are significantly favorable to debt with similar
terms and maturities that could be potentially obtainable, if at all, at September 30, 2009. Given the lack of comparative information regarding such debt it is not practicable to estimate the fair value of our existing borrowings under our
senior credit facility at September 30, 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Use of Estimates.The preparation of the
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 dates of the financial statements and the reported



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)



amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates include: accrued occupancy costs, insurance liabilities, legal obligations, income
taxes, evaluation for impairment of goodwill, long-lived assets and Burger King franchise rights, lease accounting matters and stock-based compensation. Actual results could differ from those estimates.

Subsequent Events. The Company evaluated for subsequent events through November 4, 2009, the issuance date of the Companys
financial statements. No subsequent events requiring disclosure were noted.

2. Stock-Based Compensation

As of September 30, 2009, the total non-vested stock-based compensation expense relating to the options and restricted shares was
approximately $3.0 million and the Company expects to record an additional $0.4 million as compensation expense in 2009. At September 30, 2009, the remaining weighted average vesting period for stock options and restricted shares was 3.3 years
and 1.6 years, respectively.

Stock Options

A summary of all option activity for the nine months ended September 30, 2009 was as follows:



|                                                 |  |                  |   |  |                               |       |                                 |     |                                           |   |      
|------------------------------------------------ |  | ---------------- | - |  | ----------------------------- | ----- | ------------------------------- | --- | ----------------------------------------- | - | -----
|                                                 |  | 2006 Plan       
|                                                 |  | Number ofOptions |   |  | WeightedAverageExercise Price |       | AverageRemainingContractualLife |     | AggregateIntrinsicValue (inthousands) (1)
|Options outstanding at January 1, 2009           |  | 1,710,764        |   |  | $                             | 12.17 |                                 | 5.3 |                                           | $ |     
|Granted                                          |  | 544,000          |   |  |                               | 2.77  |                                 |     |                                           |   |      
|Forfeited                                        |  | (90,113          | ) |  |                               | 10.75 |                                 |     |                                           |   |      
|                                                 |  |                  |   |  |                               |       |                                 |     |                                           |   |      
|Options outstanding at September 30, 2009        |  | 2,164,651        |   |  | $                             | 9.86  |                                 | 5.0 |                                           | $ | 2,809
|                                                 |  |                  |   |  |                               |       |                                 |     |                                           |   |      
|Vested or expected to vest at September 30, 2009 |  | 2,129,625        |   |  | $                             | 9.89  |                                 | 5.0 |                                           | $ | 2,741
|                                                 |  |                  |   |  |                               |       |                                 |     |                                           |   |      
|Options exercisable at September 30, 2009        |  | 779,628          |   |  | $                             | 12.85 |                                 | 4.5 |                                           | $ |     
|                                                 |  |                  |   |  |                               |       |                                 |     |                                           |   |      



|(1) | The aggregate intrinsic value was calculated using the difference between the market price of the Companys common stock at September 30, 2009 and the grant
price for only those awards that had a grant price that was less than the market price of the Companys common stock at September 30, 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3. Impairment and Other Lease Charges

The Company reviews its long-lived
assets, principally property and equipment, for impairment at the restaurant level. If an indicator of impairment exists for any of its assets, an estimate of the undiscounted future cash flows for each restaurant is compared to the carrying value
of that restaurants long-lived assets. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess
of the carrying amount of the asset over its fair value in addition to any lease liabilities to be incurred for non-operating restaurants.



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)



Impairment and other lease charges recorded on long-lived assets for its segments were
as follows:



|               |  |                                 |    |                                |   |      |  |      |     |  |   |    
|-------------- |  | ------------------------------- | -- | ------------------------------ | - | ---- |  | ---- | --- |  | - | ---
|               |  | Three Months EndedSeptember 30, |    | Nine Months EndedSeptember 30,
|               |  | 2009                            |    | 2008                           |   | 2009 |  | 2008
|Burger King    |  | $                               | 31 |                                | $ | 43   |  | $    | 59  |  | $ | 135
|Pollo Tropical |  |                                 |   |                                |   | 5    |  |      | 284 |  |   | 5  
|Taco Cabana    |  |                                 | 15 |                                |   | 5    |  |      | 57  |  |   | 15 
|               |  |                                 |    |                                |   |      |  |      |     |  |   |    
|               |  | $                               | 46 |                                | $ | 53   |  | $    | 400 |  | $ | 155
|               |  |                                 |    |                                |   |      |  |      |     |  |   |    

During the nine months ended September 30, 2009, the Company closed one Pollo
Tropical restaurant property in Florida whose fixed assets were impaired in the fourth quarter of 2008, and recorded a charge of $0.3 million which principally consisted of future minimum lease payments and related ancillary costs from the date of
the closure to the end of the remaining lease term, net of any estimated cost recoveries from subletting the property.

4. Goodwill and
Franchise Rights

Goodwill.Goodwill is reviewed for impairment annually, or more frequently when events and
circumstances indicate that the carrying amounts may be impaired. The Company performs its annual impairment assessment as of December 31 and does not believe circumstances have changed since the last assessment date which would make it
necessary to reassess their values. In performing its goodwill impairment test, the Company compares the net book values of its reporting units to their estimated fair values. In determining the estimated fair values of the reporting units, the
Company employs a combination of a discounted cash flow analysis and a market-based approach. The results of the discounted cash flow analyses are corroborated with other value indicators where available, such as comparable company earnings
multiples and research analyst estimates. No impairment losses have been recognized as a result of these tests. Goodwill balances are summarized below:



|                            |  |               |        |            |   |            |  |       |       |  |   |        
|--------------------------- |  | ------------- | ------ | ---------- | - | ---------- |  | ----- | ----- |  | - | -------
|                            |  | PolloTropical |        | TacoCabana |   | BurgerKing |  | Total
|Balance, September 30, 2009 |  | $             | 56,307 |            | $ | 67,177     |  | $     | 1,450 |  | $ | 124,934
|                            |  |               |        |            |   |            |  |       |       |  |   |        

Burger King Franchise Rights.Amounts allocated to franchise rights for each
Burger King acquisition are amortized using the straight-line method over the average remaining term of the acquired franchise agreements plus one twenty-year renewal period. The Company assesses the potential impairment of franchise rights whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. If an indicator of impairment exists, an estimate of the aggregate undiscounted future cash flows from the acquired restaurants is compared to the respective
carrying value of franchise rights for each Burger King acquisition and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There were no impairment charges recorded
against franchise rights for the three and nine months ended September 30, 2009 and 2008.

Amortization expense related
to Burger King franchise rights was $784 and $799 for the three months ended September 30, 2009 and 2008, respectively. Amortization expense related to Burger King franchise rights was $2,352 and $2,399 for the nine months ended
September 30, 2009 and 2008, respectively. The Company estimates the amortization expense for the year ending December 31, 2009 and for each of the five succeeding years to be $3,197.



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)



5. Long-term Debt

Long-term debt at September 30, 2009 and December 31, 2008 consisted of the following:



|                                                 |  |                   |         |   |                  |   |         |  
|------------------------------------------------ |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                 |  | September 30,2009 |         |   | December 31,2008 |  
|Collateralized:                                  |  |                   |         |   |                  |   |         |  
|Senior Credit Facility-Revolving credit facility |  | $                 | 3,100   |   |                  | $ | 18,000  |  
|Senior Credit Facility-Term loan A facility      |  |                   | 111,000 |   |                  |   | 117,000 |  
|Unsecured:                                       |  |                   |         |   |                  |   |         |  
|9% Senior Subordinated Notes                     |  |                   | 165,000 |   |                  |   | 165,000 |  
|Capital leases                                   |  |                   | 1,213   |   |                  |   | 1,295   |  
|                                                 |  |                   |         |   |                  |   |         |  
|                                                 |  |                   | 280,313 |   |                  |   | 301,295 |  
|Less: current portion                            |  |                   | (15,081 | ) |                  |   | (12,093 | )
|                                                 |  |                   |         |   |                  |   |         |  
|                                                 |  | $                 | 265,232 |   |                  | $ | 289,202 |  
|                                                 |  |                   |         |   |                  |   |         |  

Senior Credit Facility.On March 9, 2007, Carrols terminated and replaced
its prior senior credit facility with a new senior credit facility with a syndicate of lenders. Carrols senior credit facility initially totaled approximately $185 million, consisting of $120 million principal amount of term loan A borrowings
maturing on March 8, 2013 (or earlier on March 31, 2012 if the 9% Senior Subordinated Notes due 2013 are not refinanced by June 30, 2012) and a $65.0 million revolving credit facility (including a sub limit of up to $25.0 million for
letters of credit and up to $5.0 million for swingline loans), maturing on March 8, 2012.

The term loan and revolving
credit borrowings under the senior credit facility bear interest at a per annum rate, at Carrols option, of either:

1)
the applicable margin percentage ranging from 0% to 0.25% based on Carrols senior leverage ratio (as defined in the senior credit facility) plus the greater of (i) the prime rate or (ii) the federal funds rate for that day plus 0.5%;
or

2) Adjusted LIBOR plus the applicable margin percentage in effect ranging from 1.0% to 1.5% based on Carrols senior
leverage ratio. At September 27, 2009 the LIBOR margin percentage was 1.0%.

At September 27, 2009, outstanding term
loan borrowings under the senior credit facility were $111.0 million with the remaining balance due and payable as follows:

1)
seven quarterly installments of $3.0 million beginning on September 30, 2009;

2) four quarterly installments of $4.5
million beginning on June 30, 2011; and

3) four quarterly installments of $18.0 million beginning on June 30, 2012.

After reserving $14.3 million for letters of credit guaranteed by the facility, $47.6 million was available for borrowings
under the revolving credit facility at September 27, 2009.

Under the senior credit facility, Carrols is also required to
make mandatory prepayments of principal on its term loan borrowings (a) annually in an initial amount equal to 50% of Excess Cash Flow depending upon Carrols Total Leverage Ratio (as such terms are defined in the senior credit facility),
(b) in the event of certain dispositions of assets (all subject to certain exceptions) and insurance proceeds, in an amount equal to 100% of the net proceeds received by Carrols therefrom, and (c) in an amount equal to 100% of the net
proceeds from any subsequent issuance of debt. The senior credit facility contains customary default provisions as provided therein, including without limitation, a cross default provision pursuant to which it is an event of default under the senior
credit facility if there is a default in the payment of any principal of or interest on any indebtedness of Carrols having an outstanding principal amount of at least $2.5 million (excluding lease financing obligations but which would include the
Indenture governing the Notes, as defined below) or any event or condition which results in the acceleration of such indebtedness prior to its stated maturity.

In general, Carrols obligations under the senior credit facility are guaranteed by the Company and all of Carrols material subsidiaries and are collateralized by a pledge of Carrols
common stock and the stock of each of Carrols material subsidiaries. The senior credit facility contains certain covenants, including, without limitation, those limiting Carrols ability to incur indebtedness, incur liens, sell or acquire
assets or businesses, change the nature of its business, engage in transactions with related parties, make certain investments or pay dividends. In addition, Carrols is required to meet certain financial ratios, including fixed charge coverage,
senior leverage, and total leverage ratios (all as defined under the senior credit facility). Carrols was in compliance with the covenants under its senior credit facility as of September 30, 2009.



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)



Senior Subordinated Notes.On December 15, 2004, Carrols issued $180 million
of 9% Senior Subordinated Notes due 2013 (the Notes). At both September 30, 2009 and December 31, 2008, $165.0 million principal amount of the senior subordinated notes were outstanding. During 2008, Carrols repurchased and
retired $15.0 million principal amount of the Notes in open market transactions for $10.4 million resulting in a gain on extinguishment of debt of $4.4 million, net of a $0.3 million write-off of deferred financing costs. Of these repurchases in
2008, $2.0 million was repurchased in the three months ended September 30, 2008 which resulted in a gain on extinguishment of debt of $0.2 million.

Restrictive covenants under the Notes include limitations with respect to the Carrols ability to issue additional debt, incur liens, sell or acquire assets or businesses, pay dividends and make
certain investments. The Indenture governing the Notes contains customary default provisions as provided therein, including without limitation, a cross default provision pursuant to which it is an event of default under the Notes and the Indenture
if there is a default under any indebtedness of Carrols having an outstanding principal amount of $20 million or more (which would include the senior credit facility) if such default results in the acceleration of such indebtedness prior to its
stated maturity or is caused by a failure to pay principal when due. Carrols was in compliance with the restrictive covenants in the Indenture governing the Notes as of September 30, 2009.

6. Income Taxes

The
provision for income taxes for the three and nine months ended September 30, 2009 and 2008 was comprised of the following:



|         |  |                                 |       |      |                                |       |      |  |      |        |  |   |       |  
|-------- |  | ------------------------------- | ----- | ---- | ------------------------------ | ----- | ---- |  | ---- | ------ |  | - | ----- | -
|         |  | Three Months EndedSeptember 30, |       |      | Nine Months EndedSeptember 30, |      
|         |  | 2009                            |       | 2008 |                                |       | 2009 |  | 2008 |       
|Current  |  | $                               | 2,562 |      | $                              | 2,443 |      |  | $    | 8,942  |  | $ | 4,887 |  
|Deferred |  |                                 | 532   |      |                                | (307  | )    |  |      | 1,299  |  |   | (58   | )
|         |  |                                 |       |      |                                |       |      |  |      |        |  |   |       |  
|         |  | $                               | 3,094 |      | $                              | 2,136 |      |  | $    | 10,241 |  | $ | 4,829 |  
|         |  |                                 |       |      |                                |       |      |  |      |        |  |   |       |  

The provision for income taxes for the three and nine months ended September 30,
2009 was derived using an estimated effective annual income tax rate for 2009 of 37.3%, which excludes any discrete tax adjustments. Discrete tax adjustments reduced the provision for income taxes by $130 and $187 in the three and nine months ended
September 30, 2009, respectively.

The provision for income taxes for the three and nine months ended September 30,
2008 was derived using an estimated effective annual income tax rate for 2008 of 37.2%, which excludes any discrete tax adjustments. Discrete tax adjustments increased the provision for income taxes by $15 for the three months ended
September 30, 2008 and reduced the provision for income taxes by $97 for the nine months ended September 30, 2008.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2009 and 2008, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax
positions.

The tax years 2006-2008 remain open to examination by the major taxing jurisdictions to which the Company is
subject. It is not possible to reasonably estimate any possible change in the unrecognized tax benefits within the next twelve months due to the uncertainties regarding the timing of any examinations.



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)



7. Other Liabilities, Long-Term

Other liabilities, long-term, at September 30, 2009 and December 31, 2008 consisted of the following:



|                                    |  |                   |        |                  |   |       
|----------------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                                    |  | September 30,2009 |        | December 31,2008
|Accrued occupancy costs             |  | $                 | 11,282 |                  | $ | 10,949
|Accrued workers compensation costs |  |                   | 3,675  |                  |   | 4,312 
|Deferred compensation               |  |                   | 3,127  |                  |   | 3,244 
|Other                               |  |                   | 3,586  |                  |   | 3,224 
|                                    |  |                   |        |                  |   |       
|                                    |  | $                 | 21,670 |                  | $ | 21,729
|                                    |  |                   |        |                  |   |       

8. Postretirement Benefits

The Company provides postretirement medical and life insurance benefits covering substantially all Burger King administrative and restaurant
management salaried employees who retire or terminate after qualifying for such benefits. A December 31 measurement date is used for postretirement benefits.

The following summarizes the components of net periodic benefit income:



|                                           |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |      |  
|------------------------------------------ |  | ------------------------------- | --- | - | ------------------------------ | - | --- | ---- |  | - | ---- | - |  | - | ---- | -
|                                           |  | Three Months EndedSeptember 30, |     |   | Nine Months EndedSeptember 30, |  
|                                           |  | 2009                            |     |   | 2008                           |   |     | 2009 |  |   | 2008 |  
|Service cost                               |  | $                               | 6   |   |                                | $ | 7   |      |  | $ | 21   |   |  | $ | 21   |  
|Interest cost                              |  |                                 | 30  |   |                                |   | 27  |      |  |   | 84   |   |  |   | 80   |  
|Amortization of net gains and losses       |  |                                 | 27  |   |                                |   | 22  |      |  |   | 69   |   |  |   | 65   |  
|Amortization of prior service credit       |  |                                 | (93 | ) |                                |   | (90 | )    |  |   | (265 | ) |  |   | (269 | )
|                                           |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |      |  
|Net periodic postretirement benefit income |  | $                               | (30 | ) |                                | $ | (34 | )    |  | $ | (91  | ) |  | $ | (103 | )
|                                           |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |      |  

During the three and nine months ended September 30, 2009, the Company made
contributions of $52 and $124 to its postretirement plan and expects to make additional contributions during 2009.

9. Lease Financing
Obligations

The Company has previously entered into sale-leaseback transactions involving certain restaurant properties
that did not qualify for sale-leaseback accounting and as a result, were classified as financing transactions. Under the financing method, the assets remain on the consolidated balance sheet and proceeds received by the Company from these
transactions are recorded as a financing liability. Payments under these leases are applied as payments of imputed interest and deemed principal on the underlying financing obligations.

During the nine months ended September 30, 2009, the Company settled $1.9 million of lease financing obligations which included a
purchase from a lessor of one restaurant property previously subject to a lease financing obligation for $1.1 million and the settlement of the lease financing obligation recorded in the second quarter of 2009 for $0.8 million. The Company also
modified provisions in two of its restaurant leases previously accounted for as lease financing obligations which allowed the respective sale transactions to qualify for sale-leaseback accounting and resulted in a reduction of lease financing
obligations of $2.8 million. As a result of these transactions in 2009, lease financing obligations were reduced $4.0 million, assets under lease financing obligations were reduced by $2.1 million and deferred gains on qualified sale-leaseback
transactions of $0.7 million were recorded.

In the nine months ended September 30, 2008, the Company purchased from the
lessor six restaurant properties for $5.5 million that were previously accounted for as lease financing obligations.

In late
2008, the Company also amended or modified certain lease provisions and terminated certain purchase options for certain restaurant leases previously accounted for as lease financing obligations. The changes permitted 24 leases to qualify as
operating leases and the related sale-leaseback transactions to be recorded as sales, which removed all of the respective assets under lease financing obligations and related liabilities from the Companys consolidated balance sheet. The gains
from these sales were generally deferred and are being amortized as an adjustment to rent expense over the remaining term of the underlying leases.



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)



Interest expense associated with lease financing obligations, including settlement gains
and losses, for the three months ended September 30, 2009 and 2008 was $0.3 million and $1.1 million, respectively, and for the nine months ended September 30, 2009 and 2008 was $0.9 million and $3.8 million, respectively.

10. Business Segment Information

The Company is engaged in the quick-service and quick-casual restaurant industry, with three restaurant concepts: Burger King, operating as a franchisee, and 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 quick-casual restaurant chain featuring grilled marinated chicken and authentic made from scratch side
dishes. Pollo Tropicals restaurants are primarily located in south and central Florida. Taco Cabana is a quick-casual restaurant chain featuring fresh Mexican style food, including flame-grilled beef and chicken fajitas, quesadillas and other
Tex-Mex dishes. Taco Cabanas restaurants are primarily located in Texas.

The accounting policies of each segment are
the same as those described in the summary of significant accounting policies. The following table includes Segment EBITDA, which is the measure of segment profit or loss reported to the chief operating decision maker for purposes of allocating
resources to the segments and assessing their performance. Segment EBITDA is defined as earnings attributable to the applicable segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based
compensation expense, other income and gains and losses on extinguishment of debt.

The Other column includes
corporate related items not allocated to reportable segments, including stock-based compensation expense. Other identifiable assets consist primarily of cash, certain other assets, corporate property and equipment, including restaurant information
systems expenditures, goodwill and deferred income taxes.



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)



|                                             |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|-------------------------------------------- |  | ------------- | ------- | ---------- | - | ---------- |  | ----- | ------- | ------------ | - | ------- |  | - | -------
|Three Months Ended                           |  | PolloTropical |         | TacoCabana |   | BurgerKing |  | Other |         | Consolidated
|September 30, 2009:                          |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|Total revenues                               |  | $             | 44,021  |            | $ | 63,013     |  | $     | 94,132  |              | $ |        |  | $ | 201,166
|Cost of sales                                |  |               | 14,379  |            |   | 18,074     |  |       | 25,209  |              |   |        |  |   | 57,662 
|Restaurant wages and related expenses        |  |               | 10,689  |            |   | 19,030     |  |       | 29,339  |              |   | 51      |  |   | 59,109 
|General and administrative expenses (1)      |  |               | 2,771   |            |   | 2,877      |  |       | 6,822   |              |   | 296     |  |   | 12,766 
|Depreciation and amortization                |  |               | 2,014   |            |   | 2,249      |  |       | 3,407   |              |   | 410     |  |   | 8,080  
|Segment EBITDA                               |  |               | 6,294   |            |   | 6,662      |  |       | 8,822   |              |   |         |  |   |        
|Capital expenditures, including acquisitions |  |               | 697     |            |   | 2,924      |  |       | 8,475   |              |   | 547     |  |   | 12,643 
|September 30, 2008:                          |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|Total revenues                               |  | $             | 43,389  |            | $ | 64,132     |  | $     | 101,543 |              | $ |        |  | $ | 209,064
|Cost of sales                                |  |               | 14,312  |            |   | 19,646     |  |       | 29,600  |              |   |        |  |   | 63,558 
|Restaurant wages and related expenses        |  |               | 10,662  |            |   | 18,357     |  |       | 30,710  |              |   | 57      |  |   | 59,786 
|General and administrative expenses (1)      |  |               | 2,996   |            |   | 3,036      |  |       | 6,423   |              |   | 438     |  |   | 12,893 
|Depreciation and amortization                |  |               | 2,032   |            |   | 2,261      |  |       | 3,492   |              |   | 339     |  |   | 8,124  
|Segment EBITDA                               |  |               | 5,222   |            |   | 7,308      |  |       | 8,819   |              |   |         |  |   |        
|Capital expenditures, including acquisitions |  |               | 3,656   |            |   | 7,320      |  |       | 5,369   |              |   | 3,250   |  |   | 19,595 
|                                             |  |               |         |            |  
|Nine Months Ended                            |  |               |         |            |   |            |  |       |         |             
|September 30, 2009:                          |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|Total revenues                               |  | $             | 132,737 |            | $ | 189,543    |  | $     | 284,163 |              | $ |        |  | $ | 606,443
|Cost of sales                                |  |               | 43,585  |            |   | 54,960     |  |       | 76,739  |              |   |        |  |   | 175,284
|Restaurant wages and related expenses        |  |               | 32,553  |            |   | 56,029     |  |       | 88,158  |              |   | 156     |  |   | 176,896
|General and administrative expenses (1)      |  |               | 7,572   |            |   | 8,729      |  |       | 21,482  |              |   | 899     |  |   | 38,682 
|Depreciation and amortization                |  |               | 5,936   |            |   | 6,708      |  |       | 10,056  |              |   | 1,133   |  |   | 23,833 
|Segment EBITDA                               |  |               | 19,526  |            |   | 22,906     |  |       | 24,894  |              |   |         |  |   |        
|Capital expenditures, including acquisitions |  |               | 1,901   |            |   | 9,503      |  |       | 14,923  |              |   | 3,624   |  |   | 29,951 
|September 30, 2008:                          |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|Total revenues                               |  | $             | 133,125 |            | $ | 187,825    |  | $     | 294,549 |              | $ |        |  | $ | 615,499
|Cost of sales                                |  |               | 43,965  |            |   | 58,022     |  |       | 83,143  |              |   |        |  |   | 185,130
|Restaurant wages and related expenses        |  |               | 32,861  |            |   | 54,601     |  |       | 91,457  |              |   | 171     |  |   | 179,090
|General and administrative expenses (1)      |  |               | 8,324   |            |   | 9,048      |  |       | 20,943  |              |   | 1,290   |  |   | 39,605 
|Depreciation and amortization                |  |               | 5,948   |            |   | 6,423      |  |       | 10,741  |              |   | 1,111   |  |   | 24,223 
|Segment EBITDA                               |  |               | 17,959  |            |   | 19,679     |  |       | 22,532  |              |   |         |  |   |        
|Capital expenditures, including acquisitions |  |               | 15,064  |            |   | 16,360     |  |       | 11,565  |              |   | 5,835   |  |   | 48,824 
|Identifiable Assets:                         |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|At September 30, 2009                        |  | $             | 56,344  |            | $ | 66,812     |  | $     | 148,454 |              | $ | 172,717 |  | $ | 444,327
|At December 31, 2008                         |  |               | 64,550  |            |   | 67,093     |  |       | 143,152 |              |   | 175,403 |  |   | 450,198



|(1) | For the Pollo Tropical and Taco Cabana segments, such amounts include general and administrative expenses related directly to each segment. For the Burger King segment
such amounts include general and administrative expenses related directly to the Burger King segment as well as expenses associated with administrative support to all three of the Companys segments including executive management, information
systems and certain accounting, legal and other administrative functions.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)



A reconciliation of segment EBITDA to consolidated net income is as follows:



|                                   |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  
|---------------------------------- |  | ------------------------------- | ------ | ------------------------------ | ---- | - | ------ |  | - | ------ | - |  | - | ------ | -
|                                   |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30, |     
|                                   |  | 2009                            |        |                                | 2008 |   | 2009   |  |   | 2008   |  
|Segment EBITDA:                    |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  
|Pollo Tropical                     |  | $                               | 6,294  |                                |      | $ | 5,222  |  | $ | 19,526 |   |  | $ | 17,959 |  
|Taco Cabana                        |  |                                 | 6,662  |                                |      |   | 7,308  |  |   | 22,906 |   |  |   | 19,679 |  
|Burger King                        |  |                                 | 8,822  |                                |      |   | 8,819  |  |   | 24,894 |   |  |   | 22,532 |  
|                                   |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  
|Subtotal                           |  |                                 | 21,778 |                                |      |   | 21,349 |  |   | 67,326 |   |  |   | 60,170 |  
|Less:                              |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  
|Depreciation and amortization      |  |                                 | 8,080  |                                |      |   | 8,124  |  |   | 23,833 |   |  |   | 24,223 |  
|Impairment and other lease charges |  |                                 | 46     |                                |      |   | 53     |  |   | 400    |   |  |   | 155    |  
|Interest expense                   |  |                                 | 4,834  |                                |      |   | 6,861  |  |   | 14,908 |   |  |   | 21,418 |  
|Provision for income taxes         |  |                                 | 3,094  |                                |      |   | 2,136  |  |   | 10,241 |   |  |   | 4,829  |  
|Stock-based compensation expense   |  |                                 | 347    |                                |      |   | 495    |  |   | 1,055  |   |  |   | 1,461  |  
|Gain on extinguishment of debt     |  |                                 |       |                                |      |   |       |  |   |       |   |  |   | (180   | )
|Other income                       |  |                                 | (220   | )                              |      |   |       |  |   | (799   | ) |  |   | (119   | )
|                                   |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  
|Net income                         |  | $                               | 5,597  |                                |      | $ | 3,680  |  | $ | 17,688 |   |  | $ | 8,383  |  
|                                   |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  

11. Commitments and Contingencies

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 Carrols. The complaint alleged that Carrols engaged in a pattern and practice of unlawful discrimination, harassment and
retaliation against former and current female employees. The EEOC identified approximately 450 individuals (which were subsequently increased to 511 individuals) that it believed represented the class of claimants and was seeking monetary and
injunctive relief from Carrols. On April 20, 2005, the Court issued a decision and order granting Carrols Motion for Summary Judgment that Carrols filed in January 2004. Subject to possible appeal by the EEOC, the case is dismissed;
however the Court noted that it was not ruling on the claims, if any, that individual employees might have against Carrols. On February 27, 2006, Carrols filed a motion for summary judgment to dismiss all but between four and 17 of the
individual claims. On July 10, 2006, in its response to that motion, the EEOC asserted that, notwithstanding the Courts dismissal of the case as a class action, the EEOC may still maintain some kind of collective action on behalf of these
claimants. Oral argument before the Court was held on October 4, 2006 and the Company is awaiting the Courts decision on Carrols summary judgment motion. The Company does not believe that any individual claim, if any, would have a
material adverse impact on its consolidated financial statements. Although the Company believes that the EEOCs continued class litigation argument is without merit, it is not possible to predict the outcome of the pending motion.

The Company is a party to various other litigation matters incidental to the conduct of business. The Company does not believe that the
outcome of any of these other matters will have a material adverse effect on its consolidated financial statements.

12. Net Income per
Share

Basic net income per share is computed by dividing net income for the period by the weighted average number of
common shares outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options using the
treasury stock method.

The computation of diluted net income per share excludes options to purchase 1,036,992 shares of
common stock in each of the three and nine months ended September 30, 2009 and options to purchase 1,104,505 in each of the three and nine months ended September 30, 2008 because the exercise price of these options was greater than the
average market price of the common shares in the periods and therefore, they were antidilutive. In addition, options to purchase 31,508 shares of common stock are excluded from the computation of diluted net income per share in each of the three and
nine months ended September 30, 2009 and options to purchase 51,098 of common stock are excluded from the computation of diluted net income per share in each of the three and nine months ended September 30, 2008 as they were antidilutive
under the treasury stock method.



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)



The following table is a reconciliation of the income and share amounts used in
the calculation of basic net income per share and diluted net income per share:



|                                                       |  |                                 |            |                                |   |            |  |      |            |  |   |           
|------------------------------------------------------ |  | ------------------------------- | ---------- | ------------------------------ | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                       |  | Three months endedSeptember 30, |            | Nine months endedSeptember 30,
|                                                       |  | 2009                            |            | 2008                           |   | 2009       |  | 2008
|Basic net income per share:                            |  |                                 |            |                                |   |            |  |      |            |  |   |           
|Net income                                             |  | $                               | 5,597      |                                | $ | 3,680      |  | $    | 17,688     |  | $ | 8,383     
|Weighted average common shares outstanding             |  |                                 | 21,593,927 |                                |   | 21,573,485 |  |      | 21,592,974 |  |   | 21,572,241
|                                                       |  |                                 |            |                                |   |            |  |      |            |  |   |           
|Basic net income per share                             |  | $                               | 0.26       |                                | $ | 0.17       |  | $    | 0.82       |  | $ | 0.39      
|                                                       |  |                                 |            |                                |   |            |  |      |            |  |   |           
|Diluted net income per share:                          |  |                                 |            |                                |   |            |  |      |            |  |   |           
|Net income for diluted net income per share            |  | $                               | 5,597      |                                | $ | 3,680      |  | $    | 17,688     |  | $ | 8,383     
|Shares used in computed basic net income per share     |  |                                 | 21,593,927 |                                |   | 21,573,485 |  |      | 21,592,974 |  |   | 21,572,241
|Dilutive effect of restricted shares and stock options |  |                                 | 251,019    |                                |   | 2,691      |  |      | 147,983    |  |   | 3,039     
|                                                       |  |                                 |            |                                |   |            |  |      |            |  |   |           
|Shares used in computed diluted net income per share   |  |                                 | 21,844,946 |                                |   | 21,576,176 |  |      | 21,740,957 |  |   | 21,575,280
|                                                       |  |                                 |            |                                |   |            |  |      |            |  |   |           
|Diluted net income per share                           |  | $                               | 0.26       |                                | $ | 0.17       |  | $    | 0.81       |  | $ | 0.39      
|                                                       |  |                                 |            |                                |   |            |  |      |            |  |   |           

13. Comprehensive Income

The items that currently impact the Companys other comprehensive income are changes in postretirement benefit obligations, net of tax.



|                                                        |  |                                 |       |                                |   |       |  |      |        |  |   |      
|------------------------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ------ |  | - | -----
|                                                        |  | Three months endedSeptember 30, |       | Nine months endedSeptember 30,
|                                                        |  | 2009                            |       | 2008                           |   | 2009  |  | 2008
|Net income                                              |  | $                               | 5,597 |                                | $ | 3,680 |  | $    | 17,688 |  | $ | 8,383
|Change in postretirement benefit obligation, net of tax |  |                                 |      |                                |   |      |  |      |       |  |   | 8    
|                                                        |  |                                 |       |                                |   |       |  |      |        |  |   |      
|Comprehensive income                                    |  | $                               | 5,597 |                                | $ | 3,680 |  | $    | 17,688 |  | $ | 8,391
|                                                        |  |                                 |       |                                |   |       |  |      |        |  |   |      

14. Other Income

During the three months ended September 30, 2009, the Company recorded a gain of $0.2 million related to the sale of a non-operating property. During the nine months ended September 30, 2009,
the Company also recorded a gain of $0.6 million related to an insurance recovery for damages to Taco Cabana restaurants during Hurricane Ike. The Company recorded a gain of $0.1 million in the nine months ended September 30, 2008 related to
the sale of a Taco Cabana property.



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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)



15. Recent Accounting Developments

In June 2009, the FASB approved ASU 2009-01, the FASB Accounting Standards Codification (the ASC) as the single source of
authoritative nongovernmental generally accepted accounting principles (GAAP). All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related
literature, excluding guidance from the Securities and Exchange Commission (SEC), have been superseded by the ASC. All other non-grandfathered, non-SEC accounting literature not included in the ASC has become nonauthoritative. The ASC
did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The ASC is effective for interim or annual periods ending after September 15, 2009,
and impacts the Companys financial statements as all future references to authoritative accounting literature will be referenced in accordance with the ASC. There have been no changes to the content of the Companys financial statements
or disclosures as a result of implementing the ASC during the quarter ended September 30, 2009.

In June 2009, the FASB
issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS No. 167). This statement is a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and
changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based
on, among other things, an entitys purpose and design and a companys ability to direct the activities of the entity that most significantly impact the entitys economic performance. The statement is effective on January 1, 2010
for companies reporting on a calendar year basis. The Company is currently evaluating the impact of SFAS No. 167 on its financial statements.

In August 2009, the FASB issued ASU 2009-05, Fair Value Measurements and Disclosures (Topic 820). The purpose of this ASU is to clarify that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses either the quoted price of the identical liability when traded as an asset or quoted prices for similar
liabilities or similar liabilities when traded as assets. This guidance is effective upon issuance. This ASU had no impact on the Companys financial statements.



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##### Table of Contents

ITEM 1INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of
dollars except share and per share amounts)

(Unaudited)



|                                                                                               |  |                   |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                               |  | September 30,2009 |         |   | December 31,2008 |  
|ASSETS                                                                                         |  |                   |         |   |                  |   |         |  
|Current assets:                                                                                |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                                      |  | $                 | 3,306   |   |                  | $ | 3,399   |  
|Trade and other receivables                                                                    |  |                   | 5,293   |   |                  |   | 5,622   |  
|Inventories                                                                                    |  |                   | 5,467   |   |                  |   | 5,588   |  
|Prepaid rent                                                                                   |  |                   | 2,983   |   |                  |   | 2,998   |  
|Prepaid expenses and other current assets                                                      |  |                   | 4,751   |   |                  |   | 6,738   |  
|Deferred income taxes                                                                          |  |                   | 4,873   |   |                  |   | 4,890   |  
|                                                                                               |  |                   |         |   |                  |   |         |  
|Total current assets                                                                           |  |                   | 26,673  |   |                  |   | 29,235  |  
|Property and equipment, net                                                                    |  |                   | 197,081 |   |                  |   | 195,376 |  
|Franchise rights, net (Note 4)                                                                 |  |                   | 74,518  |   |                  |   | 76,870  |  
|Goodwill (Note 4)                                                                              |  |                   | 124,934 |   |                  |   | 124,934 |  
|Intangible assets, net                                                                         |  |                   | 578     |   |                  |   | 675     |  
|Franchise agreements, at cost less accumulated amortization of $5,715 and $5,729, respectively |  |                   | 5,900   |   |                  |   | 5,826   |  
|Deferred income taxes                                                                          |  |                   | 5,415   |   |                  |   | 6,697   |  
|Other assets                                                                                   |  |                   | 9,228   |   |                  |   | 10,585  |  
|                                                                                               |  |                   |         |   |                  |   |         |  
|Total assets                                                                                   |  | $                 | 444,327 |   |                  | $ | 450,198 |  
|                                                                                               |  |                   |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                           |  |                   |         |   |                  |   |         |  
|Current liabilities:                                                                           |  |                   |         |   |                  |   |         |  
|Current portion of long-term debt (Note 5)                                                     |  | $                 | 15,081  |   |                  | $ | 12,093  |  
|Accounts payable                                                                               |  |                   | 17,332  |   |                  |   | 18,789  |  
|Accrued interest                                                                               |  |                   | 3,232   |   |                  |   | 7,742   |  
|Accrued payroll, related taxes and benefits                                                    |  |                   | 19,943  |   |                  |   | 15,431  |  
|Accrued income taxes                                                                           |  |                   | 3,001   |   |                  |   | 2,099   |  
|Accrued real estate taxes                                                                      |  |                   | 4,979   |   |                  |   | 3,803   |  
|Other liabilities                                                                              |  |                   | 11,494  |   |                  |   | 10,848  |  
|                                                                                               |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                      |  |                   | 75,062  |   |                  |   | 70,805  |  
|Long-term debt, net of current portion (Note 5)                                                |  |                   | 265,232 |   |                  |   | 289,202 |  
|Lease financing obligations (Note 9)                                                           |  |                   | 10,865  |   |                  |   | 14,859  |  
|Deferred incomesale-leaseback of real estate                                                  |  |                   | 42,802  |   |                  |   | 43,447  |  
|Accrued postretirement benefits (Note 8)                                                       |  |                   | 1,494   |   |                  |   | 1,697   |  
|Other liabilities (Note 7)                                                                     |  |                   | 21,621  |   |                  |   | 21,685  |  
|                                                                                               |  |                   |         |   |                  |   |         |  
|Total liabilities                                                                              |  |                   | 417,076 |   |                  |   | 441,695 |  
|Commitments and contingencies (Note 11)                                                        |  |                   |         |   |                  |   |         |  
|Stockholders equity:                                                                          |  |                   |         |   |                  |   |         |  
|Common stock, par value $1; authorized 1,000 shares, issued and outstanding10 shares          |  |                   |        |   |                  |   |        |  
|Additional paid-in capital                                                                     |  |                   | (6,090  | ) |                  |   | (7,145  | )
|Retained earnings                                                                              |  |                   | 31,377  |   |                  |   | 13,684  |  
|Accumulated other comprehensive income (Note 12)                                               |  |                   | 1,964   |   |                  |   | 1,964   |  
|                                                                                               |  |                   |         |   |                  |   |         |  
|Total stockholders equity                                                                     |  |                   | 27,251  |   |                  |   | 8,503   |  
|                                                                                               |  |                   |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                     |  | $                 | 444,327 |   |                  | $ | 450,198 |  
|                                                                                               |  |                   |         |   |                  |   |         |  

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



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(In thousands of
dollars)

(Unaudited)



|                                                                                                                            |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ------------------------------ | ---- | - | ------- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                            |  | Three months endedSeptember 30, |         | Nine months endedSeptember 30, |     
|                                                                                                                            |  | 2009                            |         |                                | 2008 |   | 2009    |  |   | 2008    |  
|Revenues:                                                                                                                   |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |         |  
|Restaurant sales                                                                                                            |  | $                               | 200,802 |                                |      | $ | 208,698 |  | $ | 605,326 |   |  | $ | 614,422 |  
|Franchise royalty revenues and fees                                                                                         |  |                                 | 364     |                                |      |   | 366     |  |   | 1,117   |   |  |   | 1,077   |  
|                                                                                                                            |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |         |  
|Total revenues                                                                                                              |  |                                 | 201,166 |                                |      |   | 209,064 |  |   | 606,443 |   |  |   | 615,499 |  
|                                                                                                                            |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |         |  
|Costs and expenses:                                                                                                         |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |         |  
|Cost of sales                                                                                                               |  |                                 | 57,662  |                                |      |   | 63,558  |  |   | 175,284 |   |  |   | 185,130 |  
|Restaurant wages and related expenses (including stock-based compensation expense of $51, $57, $156 and $171,
respectively) |  |                                 | 59,109  |                                |      |   | 59,786  |  |   | 176,896 |   |  |   | 179,090 |  
|Restaurant rent expense                                                                                                     |  |                                 | 12,383  |                                |      |   | 11,714  |  |   | 37,217  |   |  |   | 34,765  |  
|Other restaurant operating expenses                                                                                         |  |                                 | 29,841  |                                |      |   | 32,433  |  |   | 88,541  |   |  |   | 93,326  |  
|Advertising expense                                                                                                         |  |                                 | 7,974   |                                |      |   | 7,826   |  |   | 23,552  |   |  |   | 24,874  |  
|General and administrative (including stock-based compensation expense of $296, $438, $899 and $1,290,
respectively)        |  |                                 | 12,764  |                                |      |   | 12,891  |  |   | 38,677  |   |  |   | 39,600  |  
|Depreciation and amortization                                                                                               |  |                                 | 8,080   |                                |      |   | 8,124   |  |   | 23,833  |   |  |   | 24,223  |  
|Impairment and other lease charges (Note 3)                                                                                 |  |                                 | 46      |                                |      |   | 53      |  |   | 400     |   |  |   | 155     |  
|Other income (Note 13)                                                                                                      |  |                                 | (220    | )                              |      |   |        |  |   | (799    | ) |  |   | (119    | )
|                                                                                                                            |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |         |  
|Total costs and expenses                                                                                                    |  |                                 | 187,639 |                                |      |   | 196,385 |  |   | 563,601 |   |  |   | 581,044 |  
|                                                                                                                            |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |         |  
|Income from operations                                                                                                      |  |                                 | 13,527  |                                |      |   | 12,679  |  |   | 42,842  |   |  |   | 34,455  |  
|Interest expense                                                                                                            |  |                                 | 4,834   |                                |      |   | 6,861   |  |   | 14,908  |   |  |   | 21,418  |  
|Gain on extinguishment of debt (Note 5)                                                                                     |  |                                 |        |                                |      |   |        |  |   |        |   |  |   | (180    | )
|                                                                                                                            |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |         |  
|Income before income taxes                                                                                                  |  |                                 | 8,693   |                                |      |   | 5,818   |  |   | 27,934  |   |  |   | 13,217  |  
|Provision for income taxes (Note 6)                                                                                         |  |                                 | 3,094   |                                |      |   | 2,136   |  |   | 10,241  |   |  |   | 4,829   |  
|                                                                                                                            |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |         |  
|Net income                                                                                                                  |  | $                               | 5,599   |                                |      | $ | 3,682   |  | $ | 17,693  |   |  | $ | 8,388   |  
|                                                                                                                            |  |                                 |         |                                |      |   |         |  |   |         |   |  |   |         |  

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



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(In thousands of dollars)

(Unaudited)



|                                                                                       |  |      |         |   |      |   |         |  
|-------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                       |  | 2009 |         |   | 2008 |  
|Cash flows provided from operating activities:                                         |  |      |         |   |      |   |         |  
|Net income                                                                             |  | $    | 17,693  |   |      | $ | 8,388   |  
|Adjustments to reconcile net income to net cash provided from operating activities:    |  |      |         |   |      |   |         |  
|Loss on disposals of property and equipment                                            |  |      | 15      |   |      |   | 102     |  
|Stock-based compensation expense                                                       |  |      | 1,055   |   |      |   | 1,461   |  
|Impairment and other lease charges                                                     |  |      | 400     |   |      |   | 155     |  
|Depreciation and amortization                                                          |  |      | 23,833  |   |      |   | 24,223  |  
|Amortization of deferred financing costs                                               |  |      | 732     |   |      |   | 890     |  
|Amortization of unearned purchase discounts                                            |  |      | (1,616  | ) |      |   | (1,616  | )
|Amortization of deferred gains from sale-leaseback transactions                        |  |      | (2,363  | ) |      |   | (1,582  | )
|Gain on settlements of lease financing obligations                                     |  |      | (76     | ) |      |   | (48     | )
|Accretion of interest on lease financing obligations                                   |  |      | 33      |   |      |   | 180     |  
|Deferred income taxes                                                                  |  |      | 1,299   |   |      |   | (58     | )
|Accrued income taxes                                                                   |  |      | 902     |   |      |   | 2,748   |  
|Gain on extinguishment of debt                                                         |  |      |        |   |      |   | (180    | )
|Changes in other operating assets and liabilities                                      |  |      | 5,034   |   |      |   | (5,506  | )
|                                                                                       |  |      |         |   |      |   |         |  
|Net cash provided from operating activities                                            |  |      | 46,941  |   |      |   | 29,157  |  
|                                                                                       |  |      |         |   |      |   |         |  
|Cash flows used for investing activities:                                              |  |      |         |   |      |   |         |  
|Capital expenditures:                                                                  |  |      |         |   |      |   |         |  
|New restaurant development                                                             |  |      | (7,887  | ) |      |   | (26,464 | )
|Restaurant remodeling                                                                  |  |      | (10,073 | ) |      |   | (9,622  | )
|Other restaurant capital expenditures                                                  |  |      | (8,367  | ) |      |   | (6,903  | )
|Corporate and restaurant information systems                                           |  |      | (3,624  | ) |      |   | (5,835  | )
|                                                                                       |  |      |         |   |      |   |         |  
|Total capital expenditures                                                             |  |      | (29,951 | ) |      |   | (48,824 | )
|Properties purchased for sale-leaseback                                                |  |      | (1,260  | ) |      |   |        |  
|Proceeds from sale-leaseback transactions                                              |  |      | 5,454   |   |      |   | 6,788   |  
|Proceeds from sales of other properties                                                |  |      | 819     |   |      |   | 119     |  
|                                                                                       |  |      |         |   |      |   |         |  
|Net cash used for investing activities                                                 |  |      | (24,938 | ) |      |   | (41,917 | )
|                                                                                       |  |      |         |   |      |   |         |  
|Cash flows provided from (used for) financing activities:                              |  |      |         |   |      |   |         |  
|Borrowings on revolving credit facility                                                |  |      | 77,700  |   |      |   | 109,600 |  
|Repayments on revolving credit facility                                                |  |      | (92,600 | ) |      |   | (92,400 | )
|Scheduled principal payments on term loans                                             |  |      | (6,000  | ) |      |   | (1,500  | )
|Principal payments on capital leases                                                   |  |      | (82     | ) |      |   | (119    | )
|Proceeds from lease financing obligations                                              |  |      | 835     |   |      |   |        |  
|Settlement of lease financing obligations                                              |  |      | (1,945  | ) |      |   | (5,500  | )
|Financing costs associated with issuance of lease financing obligations                |  |      | (4      | ) |      |   |        |  
|Repurchase of senior subordinated notes                                                |  |      |        |   |      |   | (1,820  | )
|                                                                                       |  |      |         |   |      |   |         |  
|Net cash provided from (used for) financing activities                                 |  |      | (22,096 | ) |      |   | 8,261   |  
|                                                                                       |  |      |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                              |  |      | (93     | ) |      |   | (4,499  | )
|Cash and cash equivalents, beginning of period                                         |  |      | 3,399   |   |      |   | 7,396   |  
|                                                                                       |  |      |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                               |  | $    | 3,306   |   |      | $ | 2,897   |  
|                                                                                       |  |      |         |   |      |   |         |  
|Supplemental disclosures:                                                              |  |      |         |   |      |   |         |  
|Interest paid on long-term debt                                                        |  | $    | 17,803  |   |      | $ | 20,984  |  
|Interest paid on lease financing obligations                                           |  | $    | 926     |   |      | $ | 3,578   |  
|Accruals for capital expenditures                                                      |  | $    | 318     |   |      | $ | 810     |  
|Income taxes paid, net                                                                 |  | $    | 8,040   |   |      | $ | 2,141   |  
|Capital lease obligations incurred                                                     |  | $    |        |   |      | $ | 158     |  
|Non-cash reduction of assets under lease financing obligations due to lease amendments |  | $    | 2,074   |   |      | $ | 298     |  
|Non-cash reduction of lease financing obligations due to lease amendments              |  | $    | 2,833   |   |      | $ | 880     |  

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



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of dollars, except share and per share amounts)

1. Basis of Presentation

Basis of Consolidation.The unaudited consolidated financial statements presented herein include the accounts of
Carrols Corporation and its subsidiaries (the Company). The Company is a wholly-owned subsidiary of Carrols Restaurant Group, Inc. (Carrols Restaurant Group or the Parent Company). All intercompany transactions
have been eliminated in consolidation.

The difference between the consolidated financial statements of Carrols Corporation
and Carrols Restaurant Group is primarily due to additional rent expense of approximately $6 per year for Carrols Restaurant Group and the composition of stockholders equity.

Business Description.At September 30, 2009 the Company operated, as franchisee, 314 quick-service restaurants under the trade
name Burger King in 12 Northeastern, Midwestern and Southeastern states. At September 30, 2009, the Company also owned and operated 91 Pollo Tropical restaurants, of which 85 were located in Florida, four were in New Jersey and one
each in New York and Connecticut, and franchised a total of 27 Pollo Tropical restaurants, 21 in Puerto Rico, two in Ecuador, one in the Bahamas and three on college campuses in Florida. At September 30, 2009, the Company owned and operated 155
Taco Cabana restaurants located primarily in Texas and franchised a total of four Taco Cabana restaurants, two in New Mexico, one in Texas and one in Georgia.

Fiscal Year.The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. All references herein to the fiscal years ended December 28, 2008 and December 30,
2007 will be referred to as the fiscal years ended December 31, 2008 and 2007, respectively. Similarly, all references herein to the three and nine months ended September 27, 2009 and September 28, 2008 will be referred to as the
three and nine months ended September 30, 2009 and September 30, 2008, respectively. The years ended December 31, 2008 and 2007 each contained 52 weeks and the three and nine months ended September 30, 2009 and 2008 each
contained thirteen and thirty-nine weeks, respectively.

Basis of Presentation.The accompanying unaudited consolidated
financial statements for the three and nine months ended September 30, 2009 and 2008 have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain of the
information and the footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair
presentation of such financial statements have been included. The results of operations for the three and nine months ended September 30, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2008 contained in the Companys 2008 Annual Report on Form 10-K. The December 31, 2008 balance sheet data is derived from those audited financial statements.

Fair Value of Financial Instruments. The following methods were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate the fair value:



| |  |  | Current Assets and Liabilities. The carrying value of cash and cash equivalents and accrued liabilities approximates fair value because of the
short maturity of those instruments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Senior Subordinated Notes. The fair values of outstanding senior subordinated notes are based on quoted market prices. The fair values at
September 30, 2009 and December 31, 2008 were approximately $165.0 million and $111.4 million, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revolving and Term Loan Facilities. Rates and terms under Carrols senior credit facility are significantly favorable to debt with similar
terms and maturities that could be potentially obtainable, if at all, at September 30, 2009. Given the lack of comparative information regarding such debt it is not practicable to estimate the fair value of our existing borrowings under our
senior credit facility at September 30, 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Use of Estimates.The preparation of the
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 dates of the financial statements and



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates include: accrued occupancy costs, insurance liabilities, legal obligations,
income taxes, evaluation for impairment of goodwill, long-lived assets and Burger King franchise rights, lease accounting matters and stock-based compensation. Actual results could differ from those estimates.

Earnings Per Share Presentation. Presentation of earnings per share is required for all entities that have issued common stock or
potential common stock if those securities trade in a public market either on a stock exchange (domestic or foreign) or in the over-the-counter market. The Companys common stock is not publicly traded and therefore, earnings per share amounts
are not presented.

Subsequent Events. The Company evaluated for subsequent events through November 4, 2009, the
issuance date of the Companys financial statements. No subsequent events requiring disclosure were noted.

2. Stock-Based
Compensation

As of September 30, 2009, the total non-vested stock-based compensation expense relating to the options
and restricted shares was approximately $3.0 million and the Company expects to record an additional $0.4 million as compensation expense in 2009. At September 30, 2009 the remaining weighted average vesting period for stock options and
restricted shares was 3.3 years and 1.6 years, respectively.

Stock Options

A summary of all option activity for the nine months ended September 30, 2009 was as follows:



|                                                 |  |                  |   |  |                               |       |                                 |     |                                           |   |      
|------------------------------------------------ |  | ---------------- | - |  | ----------------------------- | ----- | ------------------------------- | --- | ----------------------------------------- | - | -----
|                                                 |  | 2006 Plan       
|                                                 |  | Number ofOptions |   |  | WeightedAverageExercise Price |       | AverageRemainingContractualLife |     | AggregateIntrinsicValue (inthousands) (1)
|Options outstanding at January 1, 2009           |  | 1,710,764        |   |  | $                             | 12.17 |                                 | 5.3 |                                           | $ |     
|Granted                                          |  | 544,000          |   |  |                               | 2.77  |                                 |     |                                           |   |      
|Forfeited                                        |  | (90,113          | ) |  |                               | 10.75 |                                 |     |                                           |   |      
|                                                 |  |                  |   |  |                               |       |                                 |     |                                           |   |      
|Options outstanding at September 30, 2009        |  | 2,164,651        |   |  | $                             | 9.86  |                                 | 5.0 |                                           | $ | 2,809
|                                                 |  |                  |   |  |                               |       |                                 |     |                                           |   |      
|Vested or expected to vest at September 30, 2009 |  | 2,129,625        |   |  | $                             | 9.89  |                                 | 5.0 |                                           | $ | 2,741
|                                                 |  |                  |   |  |                               |       |                                 |     |                                           |   |      
|Options exercisable at September 30, 2009        |  | 779,628          |   |  | $                             | 12.85 |                                 | 4.5 |                                           | $ |     
|                                                 |  |                  |   |  |                               |       |                                 |     |                                           |   |      



|(1) | The aggregate intrinsic value was calculated using the difference between the market price of Carrols Restaurant Groups common stock at September 30, 2009
and the grant price for only those awards that had a grant price that was less than the market price of Carrols Restaurant Groups common stock at September 30, 2009.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3. Impairment and Other Lease Charges

The Company reviews its long-lived assets, principally property and equipment, for impairment at the restaurant level. If an indicator of impairment exists for any of its assets, an estimate of the
undiscounted future cash flows for each restaurant is compared to the carrying value of that restaurants long-lived assets. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the
asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value in addition to any lease liabilities to be incurred for non-operating restaurants.



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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



Impairment and other lease charges recorded on long-lived assets for its segments were
as follows:



|               |  |                                 |    |                                |   |      |  |      |     |  |   |    
|-------------- |  | ------------------------------- | -- | ------------------------------ | - | ---- |  | ---- | --- |  | - | ---
|               |  | Three Months EndedSeptember 30, |    | Nine Months EndedSeptember 30,
|               |  | 2009                            |    | 2008                           |   | 2009 |  | 2008
|Burger King    |  | $                               | 31 |                                | $ | 43   |  | $    | 59  |  | $ | 135
|Pollo Tropical |  |                                 |   |                                |   | 5    |  |      | 284 |  |   | 5  
|Taco Cabana    |  |                                 | 15 |                                |   | 5    |  |      | 57  |  |   | 15 
|               |  |                                 |    |                                |   |      |  |      |     |  |   |    
|               |  | $                               | 46 |                                | $ | 53   |  | $    | 400 |  | $ | 155
|               |  |                                 |    |                                |   |      |  |      |     |  |   |    

During the nine months ended September 30, 2009, the Company closed one Pollo
Tropical restaurant property in Florida whose fixed assets were impaired in the fourth quarter of 2008, and recorded a charge of $0.3 million which principally consisted of future minimum lease payments and related ancillary costs from the date of
the closure to the end of the remaining lease term, net of any estimated cost recoveries from subletting the property.

4. Goodwill and
Franchise Rights

Goodwill.Goodwill is reviewed for impairment annually, or more frequently when events and
circumstances indicate that the carrying amounts may be impaired. The Company performs its annual impairment assessment as of December 31 and does not believe circumstances have changed since the last assessment date which would make it
necessary to reassess their values. In performing its goodwill impairment test, the Company compares the net book values of its reporting units to their estimated fair values. In determining the estimated fair values of the reporting units, the
Company employs a combination of a discounted cash flow analysis and a market-based approach. The results of the discounted cash flow analyses are corroborated with other value indicators where available, such as comparable company earnings
multiples and research analyst estimates. No impairment losses have been recognized as a result of these tests. Goodwill balances are summarized below:



|                            |  |               |        |            |   |            |  |       |       |  |   |        
|--------------------------- |  | ------------- | ------ | ---------- | - | ---------- |  | ----- | ----- |  | - | -------
|                            |  | PolloTropical |        | TacoCabana |   | BurgerKing |  | Total
|Balance, September 30, 2009 |  | $             | 56,307 |            | $ | 67,177     |  | $     | 1,450 |  | $ | 124,934
|                            |  |               |        |            |   |            |  |       |       |  |   |        

Burger King Franchise Rights.Amounts allocated to franchise rights for each
Burger King acquisition are amortized using the straight-line method over the average remaining term of the acquired franchise agreements plus one twenty-year renewal period. The Company assesses the potential impairment of franchise rights whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. If an indicator of impairment exists, an estimate of the aggregate undiscounted future cash flows from the acquired restaurants is compared to the respective
carrying value of franchise rights for each Burger King acquisition. If an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There were no impairment charges recorded
against franchise rights for the three months and nine months ended September 30, 2009 and 2008.

Amortization expense
related to Burger King franchise rights was $784 and $799 for the three months ended September 30, 2009 and 2008, respectively. Amortization expense related to Burger King franchise rights was $2,352 and $2,399 for the nine months ended
September 30, 2009 and 2008, respectively. The estimated amortization expense for the year ending December 31, 2009 and for each of the five succeeding years is $3,197.



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



5. Long-term Debt

Long-term debt at September 30, 2009 and December 31, 2008 consisted of the following:



|                                                 |  |                   |         |   |                  |   |         |  
|------------------------------------------------ |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                 |  | September 30,2009 |         |   | December 31,2008 |  
|Collateralized:                                  |  |                   |         |   |                  |   |         |  
|Senior Credit Facility-Revolving credit facility |  | $                 | 3,100   |   |                  | $ | 18,000  |  
|Senior Credit Facility-Term loan A facility      |  |                   | 111,000 |   |                  |   | 117,000 |  
|Unsecured:                                       |  |                   |         |   |                  |   |         |  
|9% Senior Subordinated Notes                     |  |                   | 165,000 |   |                  |   | 165,000 |  
|Capital leases                                   |  |                   | 1,213   |   |                  |   | 1,295   |  
|                                                 |  |                   |         |   |                  |   |         |  
|                                                 |  |                   | 280,313 |   |                  |   | 301,295 |  
|Less: current portion                            |  |                   | (15,081 | ) |                  |   | (12,093 | )
|                                                 |  |                   |         |   |                  |   |         |  
|                                                 |  | $                 | 265,232 |   |                  | $ | 289,202 |  
|                                                 |  |                   |         |   |                  |   |         |  

Senior Credit Facility.On March 9, 2007, the Company terminated and
replaced its prior senior credit facility with a new senior credit facility with a syndicate of lenders. The Companys credit facility totals approximately $185 million, consisting of $120 million principal amount of term loan A borrowings
maturing on March 8, 2013 (or earlier on March 30, 2012 if the 9% Senior Subordinated Notes due 2013 are not refinanced by June 30, 2012) and a $65.0 million revolving credit facility (including a sub limit of up to $25.0 million for
letters of credit and up to $5.0 million for swingline loans), maturing on March 8, 2012.

The term loan and revolving
credit borrowings under the senior credit facility bear interest at a per annum rate, at the Companys option, of either:

1) the applicable margin percentage ranging from 0% to 0.25% based on the Companys senior leverage ratio (as defined in the senior credit facility) plus the greater of (i) the prime rate or (ii) the federal funds rate for
that day plus 0.5%; or

2) Adjusted LIBOR plus the applicable margin percentage in effect ranging from 1.0% to 1.5% based on
the Companys senior leverage ratio. At September 27, 2009 the LIBOR margin percentage was 1.0%.

At
September 27, 2009, outstanding term loan borrowings under the senior credit facility were $111.0 million with the remaining balance due and payable as follows:

1) seven quarterly installments of $3.0 million beginning on September 30, 2009;

2) four quarterly installments of $4.5 million beginning on June 30, 2011; and

3) four quarterly installments of
$18.0 million beginning on June 30, 2012.

After reserving $14.3 million for letters of credit guaranteed by the
facility, $47.6 million was available for borrowings under the revolving credit facility at September 27, 2009.

Under
the senior credit facility, the Company is also required to make mandatory prepayments of principal on its term loan borrowings (a) annually in an initial amount equal to 50% of Excess Cash Flow depending upon the Companys Total Leverage
Ratio (as such terms are defined in the senior credit facility), (b) in the event of certain dispositions of assets (all subject to certain exceptions) and insurance proceeds, in an amount equal to 100% of the net proceeds received by the
Company therefrom, and (c) in an amount equal to 100% of the net proceeds from any subsequent issuance of debt. The senior credit facility contains customary default provisions as provided therein, including without limitation, a cross default
provision pursuant to which it is an event of default under the senior credit facility if there is a default in the payment of any principal of or interest on any indebtedness of the Company having an outstanding principal amount of at least $2.5
million (excluding lease financing obligations but which would include the Indenture governing the Notes, as defined below) or any event or condition which results in the acceleration of such indebtedness prior to its stated maturity.

In general, the Companys obligations under the senior credit facility are guaranteed by Carrols Restaurant Group and all of the
Companys material subsidiaries and are collateralized by a pledge of the Companys common stock and the stock of each of the Companys material subsidiaries. The senior credit facility contains certain covenants, including, without
limitation, those limiting the Companys ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of its business, engage in transactions with related parties, make certain investments or pay
dividends. In addition, the Company is required to meet certain financial ratios, including fixed charge coverage, senior leverage, and total leverage ratios (all as defined under the senior credit facility). The Company was in compliance with the
covenants under its new senior credit facility as of September 30, 2009.



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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



Senior Subordinated Notes.On December 15, 2004, the Company issued $180
million of 9% Senior Subordinated Notes due 2013 (the Notes). At both September 30, 2009 and December 31, 2008, $165.0 million principal amount of the senior subordinated notes were outstanding. During 2008, the Company
repurchased and retired $15.0 million principal amount of the Notes in open market transactions for $10.4 million resulting in a gain on extinguishment of debt of $4.4 million, net of a $0.3 million write-off of deferred financing costs. Of these
repurchases in 2008, $2.0 million was repurchased in the three months ended September 30, 2008 which resulted in a gain on extinguishment of debt of $0.2 million.

Restrictive covenants under the Notes include limitations with respect to the Companys ability to issue additional debt, incur liens, sell or acquire assets or businesses, pay dividends and make
certain investments. The Indenture governing the Notes contains customary default provisions as provided therein, including without limitation, a cross default provision pursuant to which it is an event of default under the Notes and the Indenture
if there is a default under any indebtedness of the Company having an outstanding principal amount of $20 million or more (which would include the senior credit facility) if such default results in the acceleration of such indebtedness prior to its
stated maturity or is caused by a failure to pay principal when due. The Company was in compliance with the restrictive covenants in the Indenture governing the Notes as of September 30, 2009.

6. Income Taxes

The
provision for income taxes for the three and nine months ended September 30, 2009 and 2008 was comprised of the following:



|         |  |                                 |       |      |                                |       |      |  |      |        |  |   |       |  
|-------- |  | ------------------------------- | ----- | ---- | ------------------------------ | ----- | ---- |  | ---- | ------ |  | - | ----- | -
|         |  | Three Months EndedSeptember 30, |       |      | Nine Months EndedSeptember 30, |      
|         |  | 2009                            |       | 2008 |                                |       | 2009 |  | 2008 |       
|Current  |  | $                               | 2,562 |      | $                              | 2,443 |      |  | $    | 8,942  |  | $ | 4,887 |  
|Deferred |  |                                 | 532   |      |                                | (307  | )    |  |      | 1,299  |  |   | (58   | )
|         |  |                                 |       |      |                                |       |      |  |      |        |  |   |       |  
|         |  | $                               | 3,094 |      | $                              | 2,136 |      |  | $    | 10,241 |  | $ | 4,829 |  
|         |  |                                 |       |      |                                |       |      |  |      |        |  |   |       |  

The provision for income taxes for the three and nine months ended September 30,
2009 was derived using an estimated effective annual income tax rate for 2009 of 37.3%, which excludes any discrete tax adjustments. Discrete tax adjustments reduced the provision for income taxes by $130 and $187 in the three and nine months ended
September 30, 2009, respectively.

The provision for income taxes for the three and nine months ended September 30,
2008 was derived using an estimated effective annual income tax rate for 2008 of 37.2%, which excludes any discrete tax adjustments. Discrete tax adjustments increased the provision for income taxes by $15 for the three months ended
September 30, 2008 and reduced the provision for income taxes by $97 for the nine months ended September 30, 2008.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2009 and 2008, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax
positions.

The tax years 2006-2008 remain open to examination by the major taxing jurisdictions to which the Company is
subject. It is not possible to reasonably estimate any possible change in the unrecognized tax benefits within the next twelve months due to the uncertainties regarding the timing of any examinations.



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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



7. Other Liabilities, Long-Term

Other liabilities, long-term, at September 30, 2009 and December 31, 2008 consisted of the following:



|                                    |  |                   |        |                  |   |       
|----------------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                                    |  | September 30,2009 |        | December 31,2008
|Accrued occupancy costs             |  | $                 | 11,282 |                  | $ | 10,949
|Accrued workers compensation costs |  |                   | 3,675  |                  |   | 4,312 
|Deferred compensation               |  |                   | 3,127  |                  |   | 3,244 
|Other                               |  |                   | 3,537  |                  |   | 3,180 
|                                    |  |                   |        |                  |   |       
|                                    |  | $                 | 21,621 |                  | $ | 21,685
|                                    |  |                   |        |                  |   |       

8. Postretirement Benefits

The Company provides postretirement medical and life insurance benefits covering substantially all Burger King administrative and restaurant
management salaried employees who retire or terminate after qualifying for such benefits. A December 31 measurement date is used for postretirement benefits.

The following summarizes the components of net periodic benefit income:



|                                           |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |      |  
|------------------------------------------ |  | ------------------------------- | --- | - | ------------------------------ | - | --- | ---- |  | - | ---- | - |  | - | ---- | -
|                                           |  | Three Months EndedSeptember 30, |     |   | Nine Months EndedSeptember 30, |  
|                                           |  | 2009                            |     |   | 2008                           |   |     | 2009 |  |   | 2008 |  
|Service cost                               |  | $                               | 6   |   |                                | $ | 7   |      |  | $ | 21   |   |  | $ | 21   |  
|Interest cost                              |  |                                 | 30  |   |                                |   | 27  |      |  |   | 84   |   |  |   | 80   |  
|Amortization of net gains and losses       |  |                                 | 27  |   |                                |   | 22  |      |  |   | 69   |   |  |   | 65   |  
|Amortization of prior service credit       |  |                                 | (93 | ) |                                |   | (90 | )    |  |   | (265 | ) |  |   | (269 | )
|                                           |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |      |  
|Net periodic postretirement benefit income |  | $                               | (30 | ) |                                | $ | (34 | )    |  | $ | (91  | ) |  | $ | (103 | )
|                                           |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |      |  

During the three and nine months ended September 30, 2009, the Company made
contributions of $52 and $124 to its postretirement plan and expects to make additional contributions during 2009.

9. Lease Financing
Obligations

The Company has previously entered into sale-leaseback transactions involving certain restaurant properties
that did not qualify for sale-leaseback accounting and as a result, were classified as financing transactions. Under the financing method, the assets remain on the consolidated balance sheet and proceeds received by the Company from these
transactions are recorded as a financing liability. Payments under these leases are applied as payments of imputed interest and deemed principal on the underlying financing obligations.

During the nine months ended September 30, 2009, the Company settled $1.9 million of lease financing obligations which included a
purchase from a lessor one of one restaurant property previously subject to a lease financing obligation for $1.1 million and the settlement of the lease financing obligation recorded in the second quarter of 2009 for $0.8 million. The Company also
modified provisions in two of its restaurant leases previously accounted for as lease financing obligations which allowed the respective sale transactions to qualify for sale-leaseback accounting and resulted in a reduction of lease financing
obligations of $2.8 million. As a result of these transactions in the second quarter of 2009, lease financing obligations were reduced $4.0 million, assets under lease financing obligations were reduced by $2.1 million and deferred gains on
qualified sale-leaseback transactions of $0.7 million were recorded.

In the nine months ended September 30, 2008, the
Company purchased from the lessor six restaurant properties for $5.5 million that were previously accounted for as lease financing obligations.

In late 2008, the Company also amended or modified certain lease provisions and terminated certain purchase options, for certain restaurant leases previously accounted for as lease financing obligations.
The changes permitted 24 leases to qualify as operating leases and the related sale-leaseback transactions to be recorded as sales, which removed all of the respective assets under lease financing obligations and related liabilities from the
Companys consolidated balance sheet. The gains from these sales were generally deferred and are being amortized as an adjustment to rent expense over the remaining term of the underlying leases.



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



Interest expense associated with lease financing obligations, including settlement gains
and losses, for the three months ended September 30, 2009 and 2008 was $0.3 million and $1.1 million, respectively, and for the nine months ended September 30, 2009 and 2008 was $0.9 million and $3.8 million, respectively.

10. Business Segment Information

The Company is engaged in the quick-service and quick-casual restaurant industry, with three restaurant concepts: Burger King operating as a franchisee and 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 quick-casual restaurant chain featuring grilled marinated chicken and Caribbean style made from scratch
side dishes. Pollo Tropicals restaurants are primarily located in south and central Florida. Taco Cabana is a quick-casual restaurant chain featuring fresh Mexican style food, including flame-grilled beef and chicken fajitas, quesadillas and
other Tex-Mex dishes. Taco Cabanas restaurants are primarily located in Texas.

The accounting policies of each segment
are the same as those described in the summary of significant accounting policies. The following table includes Segment EBITDA, which is the measure of segment profit or loss reported to the chief operating decision maker for purposes of allocating
resources to the segments and assessing their performance. Segment EBITDA is defined as earnings attributable to the applicable segment before interest, income taxes, depreciation and amortization, impairment losses, stock-based compensation
expense, other income and expense and gains and losses on extinguishment of debt.

The Other column includes
corporate related items not allocated to reportable segments, including stock-based compensation expense. Other identifiable assets consist primarily of cash, certain other assets, corporate property and equipment, including restaurant information
systems expenditures, goodwill and deferred income taxes.



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



|                                             |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|-------------------------------------------- |  | ------------- | ------- | ---------- | - | ---------- |  | ----- | ------- | ------------ | - | ------- |  | - | -------
|Three Months Ended                           |  | PolloTropical |         | TacoCabana |   | BurgerKing |  | Other |         | Consolidated
|September 30, 2009:                          |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|Total revenues                               |  | $             | 44,021  |            | $ | 63,013     |  | $     | 94,132  |              | $ |        |  | $ | 201,166
|Cost of sales                                |  |               | 14,379  |            |   | 18,074     |  |       | 25,209  |              |   |        |  |   | 57,662 
|Restaurant wages and related expenses        |  |               | 10,689  |            |   | 19,030     |  |       | 29,339  |              |   | 51      |  |   | 59,109 
|General and administrative expenses (1)      |  |               | 2,769   |            |   | 2,877      |  |       | 6,822   |              |   | 296     |  |   | 12,764 
|Depreciation and amortization                |  |               | 2,014   |            |   | 2,249      |  |       | 3,407   |              |   | 410     |  |   | 8,080  
|Segment EBITDA                               |  |               | 6,296   |            |   | 6,662      |  |       | 8,822   |              |   |         |  |   |        
|Capital expenditures, including acquisitions |  |               | 697     |            |   | 2,924      |  |       | 8,475   |              |   | 547     |  |   | 12,643 
|September 30, 2008:                          |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|Total revenues                               |  | $             | 43,389  |            | $ | 64,132     |  | $     | 101,543 |              | $ |        |  | $ | 209,064
|Cost of sales                                |  |               | 14,312  |            |   | 19,646     |  |       | 29,600  |              |   |        |  |   | 63,558 
|Restaurant wages and related expenses        |  |               | 10,662  |            |   | 18,357     |  |       | 30,710  |              |   | 57      |  |   | 59,786 
|General and administrative expenses (1)      |  |               | 2,994   |            |   | 3,036      |  |       | 6,423   |              |   | 438     |  |   | 12,891 
|Depreciation and amortization                |  |               | 2,032   |            |   | 2,261      |  |       | 3,492   |              |   | 339     |  |   | 8,124  
|Segment EBITDA                               |  |               | 5,224   |            |   | 7,308      |  |       | 8,819   |              |   |         |  |   |        
|Capital expenditures, including acquisitions |  |               | 3,656   |            |   | 7,320      |  |       | 5,369   |              |   | 3,250   |  |   | 19,595 
|                                             |  |               |         |            |  
|Nine Months Ended                            |  |               |         |            |   |            |  |       |         |             
|September 30, 2009:                          |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|Total revenues                               |  | $             | 132,737 |            | $ | 189,543    |  | $     | 284,163 |              | $ |        |  | $ | 606,443
|Cost of sales                                |  |               | 43,585  |            |   | 54,960     |  |       | 76,739  |              |   |        |  |   | 175,284
|Restaurant wages and related expenses        |  |               | 32,553  |            |   | 56,029     |  |       | 88,158  |              |   | 156     |  |   | 176,896
|General and administrative expenses (1)      |  |               | 7,567   |            |   | 8,729      |  |       | 21,482  |              |   | 899     |  |   | 38,677 
|Depreciation and amortization                |  |               | 5,936   |            |   | 6,708      |  |       | 10,056  |              |   | 1,133   |  |   | 23,833 
|Segment EBITDA                               |  |               | 19,531  |            |   | 22,906     |  |       | 24,894  |              |   |         |  |   |        
|Capital expenditures, including acquisitions |  |               | 1,901   |            |   | 9,503      |  |       | 14,923  |              |   | 3,624   |  |   | 29,951 
|September 30, 2008:                          |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|Total revenues                               |  | $             | 133,125 |            | $ | 187,825    |  | $     | 294,549 |              | $ |        |  | $ | 615,499
|Cost of sales                                |  |               | 43,965  |            |   | 58,022     |  |       | 83,143  |              |   |        |  |   | 185,130
|Restaurant wages and related expenses        |  |               | 32,861  |            |   | 54,601     |  |       | 91,457  |              |   | 171     |  |   | 179,090
|General and administrative expenses (1)      |  |               | 8,319   |            |   | 9,048      |  |       | 20,943  |              |   | 1,290   |  |   | 39,600 
|Depreciation and amortization                |  |               | 5,948   |            |   | 6,423      |  |       | 10,741  |              |   | 1,111   |  |   | 24,223 
|Segment EBITDA                               |  |               | 17,964  |            |   | 19,679     |  |       | 22,532  |              |   |         |  |   |        
|Capital expenditures, including acquisitions |  |               | 15,064  |            |   | 16,360     |  |       | 11,565  |              |   | 5,835   |  |   | 48,824 
|Identifiable Assets:                         |  |               |         |            |   |            |  |       |         |              |   |         |  |   |        
|At September 30, 2009                        |  | $             | 56,344  |            | $ | 66,812     |  | $     | 148,454 |              | $ | 172,717 |  | $ | 444,327
|At December 31, 2008                         |  |               | 64,550  |            |   | 67,093     |  |       | 143,152 |              |   | 175,403 |  |   | 450,198



|(1) | For the Pollo Tropical and Taco Cabana segments, such amounts include general and administrative expenses related directly to each segment. For the Burger King segment
such amounts include general and administrative expenses related directly to the Burger King segment as well as expenses associated with administrative support to all of the Companys segments including executive management, information systems
and certain accounting, legal and other administrative functions.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



A reconciliation of segment EBITDA to consolidated net income is as follows:



|                                   |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  
|---------------------------------- |  | ------------------------------- | ------ | ------------------------------ | ---- | - | ------ |  | - | ------ | - |  | - | ------ | -
|                                   |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30, |     
|                                   |  | 2009                            |        |                                | 2008 |   | 2009   |  |   | 2008   |  
|Segment EBITDA:                    |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  
|Pollo Tropical                     |  | $                               | 6,296  |                                |      | $ | 5,224  |  | $ | 19,531 |   |  | $ | 17,964 |  
|Taco Cabana                        |  |                                 | 6,662  |                                |      |   | 7,308  |  |   | 22,906 |   |  |   | 19,679 |  
|Burger King                        |  |                                 | 8,822  |                                |      |   | 8,819  |  |   | 24,894 |   |  |   | 22,532 |  
|                                   |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  
|Subtotal                           |  |                                 | 21,780 |                                |      |   | 21,351 |  |   | 67,331 |   |  |   | 60,175 |  
|Less:                              |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  
|Depreciation and amortization      |  |                                 | 8,080  |                                |      |   | 8,124  |  |   | 23,833 |   |  |   | 24,223 |  
|Impairment and other lease charges |  |                                 | 46     |                                |      |   | 53     |  |   | 400    |   |  |   | 155    |  
|Interest expense                   |  |                                 | 4,834  |                                |      |   | 6,861  |  |   | 14,908 |   |  |   | 21,418 |  
|Provision for income taxes         |  |                                 | 3,094  |                                |      |   | 2,136  |  |   | 10,241 |   |  |   | 4,829  |  
|Stock-based compensation expense   |  |                                 | 347    |                                |      |   | 495    |  |   | 1,055  |   |  |   | 1,461  |  
|Gain on extinguishment of debt     |  |                                 |       |                                |      |   |       |  |   |       |   |  |   | (180   | )
|Other income                       |  |                                 | (220   | )                              |      |   |       |  |   | (799   | ) |  |   | (119   | )
|                                   |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  
|Net income                         |  | $                               | 5,599  |                                |      | $ | 3,682  |  | $ | 17,693 |   |  | $ | 8,388  |  
|                                   |  |                                 |        |                                |      |   |        |  |   |        |   |  |   |        |  

11. Commitments and Contingencies

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 alleged that the Company engaged in a pattern and practice of unlawful discrimination,
harassment and retaliation against former and current female employees. The EEOC identified approximately 450 individuals (which were subsequently increased to 511 individuals) that it believed represented the class of claimants and was seeking
monetary and injunctive relief from the Company. On April 20, 2005, the Court issued a decision and order granting the Companys Motion for Summary Judgment that the Company filed in January 2004. Subject to possible appeal by the EEOC,
the case is dismissed; however the Court noted that it was not ruling on the claims, if any, that individual employees might have against the Company. On February 27, 2006, the Company filed a motion for summary judgment to dismiss all but
between four and 17 of the individual claims. On July 10, 2006, in its response to that motion, the EEOC asserted that, notwithstanding the Courts dismissal of the case as a class action, the EEOC may still maintain some kind of
collective action on behalf of these claimants. Oral argument before the Court was held on October 4, 2006 and the Company is awaiting the Courts decision on the Company summary judgment motion. The Company does not believe that any
individual claim, if any, would have a material adverse impact on its consolidated financial statements. Although the Company believes that the EEOCs continued class litigation argument is without merit, it is not possible to predict the
outcome of the pending motion.

The Company is a party to various other litigation matters incidental to the conduct of
business. The Company does not believe that the outcome of any of these other matters will have a material adverse effect on its consolidated financial statements.



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



12. Comprehensive income

The items that currently impact the Companys other comprehensive income are changes in the postretirement benefit obligations, net of
tax.



|                                                        |  |                                 |       |                                |   |       |  |      |        |  |   |      
|------------------------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ------ |  | - | -----
|                                                        |  | Three months endedSeptember 30, |       | Nine months endedSeptember 30,
|                                                        |  | 2009                            |       | 2008                           |   | 2009  |  | 2008
|Net income                                              |  | $                               | 5,599 |                                | $ | 3,682 |  | $    | 17,693 |  | $ | 8,388
|Change in postretirement benefit obligation, net of tax |  |                                 |      |                                |   |      |  |      |       |  |   | 8    
|                                                        |  |                                 |       |                                |   |       |  |      |        |  |   |      
|Comprehensive income                                    |  | $                               | 5,599 |                                | $ | 3,682 |  | $    | 17,693 |  | $ | 8,396
|                                                        |  |                                 |       |                                |   |       |  |      |        |  |   |      

13. Other Income

During the three months ended September 30, 2009, the Company recorded a gain of $0.2 million related to the sale of a non-operating property. During the nine months ended September 30, 2009,
the Company also recorded a gain of $0.6 million related to an insurance recovery for damages to Taco Cabana restaurants during Hurricane Ike. The Company recorded a gain of $0.1 million in the nine months ended September 30, 2008 related to
the sale of a Taco Cabana property.

14. Recent Accounting Developments

In June 2009, the FASB approved ASU 2009-01, the FASB Accounting Standards Codification (the ASC) as the single source of
authoritative nongovernmental generally accepted accounting principles (GAAP). All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related
literature, excluding guidance from the Securities and Exchange Commission (SEC), have been superseded by the ASC. All other non-grandfathered, non-SEC accounting literature not included in the ASC has become nonauthoritative. The ASC
did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The ASC is effective for interim or annual periods ending after September 15, 2009,
and impacts the Companys financial statements as all future references to authoritative accounting literature will be referenced in accordance with the ASC. There have been no changes to the content of the Companys financial statements
or disclosures as a result of implementing the ASC during the quarter ended September 30, 2009.

In June 2009, the FASB
issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS No. 167). This statement is a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and
changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based
on, among other things, an entitys purpose and design and a companys ability to direct the activities of the entity that most significantly impact the entitys economic performance. The statement is effective on January 1, 2010
for companies reporting on a calendar year basis. The Company is currently evaluating the impact of SFAS No. 167 on its financial statements.

In August 2009, the FASB issued ASU 2009-05, Fair Value Measurements and Disclosures (Topic 820). The purpose of this ASU is to clarify that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses either the quoted price of the identical liability when traded as an asset or quoted prices for similar
liabilities or similar liabilities when traded as assets. This guidance is effective upon issuance. This ASU had no impact on the Companys financial statements.



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



15. Guarantor Financial Statements

The Companys obligations under the Notes are jointly and severally guaranteed in full on an unsecured senior subordinated basis by
certain of the Companys subsidiaries (Guarantor Subsidiaries), all of which are directly or indirectly wholly-owned by the Company. These subsidiaries are:

Cabana Beverages, Inc.

Cabana Bevco LLC

Carrols LLC

Carrols Realty Holdings Corp.

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.

TC Bevco LLC

T.C. Management, Inc.

TC Lease Holdings III, V and VI, Inc.

Get Real, Inc.

Texas Taco Cabana, L.P.

TPAQ Holding Corporation

The following supplemental financial information sets forth on a consolidating basis,
balance sheets as of September 30, 2009 and December 31, 2008 for the Parent Company only, Guarantor Subsidiaries and for the Company and the related statements of operations for the three and nine months ended September 30, 2009 and
2008, and cash flows for the nine months ended September 30, 2009 and 2008.

At the beginning of the third quarter of
2008 assets and liabilities related to the Companys Burger King restaurant operations were transferred to Carrols LLC, a 100% owned subsidiary of the Company. Carrols LLC became a Guarantor Subsidiary at that time and its results of operations
and cash flows are included with the Companys other Guarantor Subsidiaries for all periods presented.

For certain of
the Companys sale-leaseback transactions, the Parent Company has guaranteed on an unsecured basis the rental payments of its subsidiaries. In accordance with ASC 840-40-25-16, Sale-Leaseback Transactions, the Company has included
in the following guarantor financial statements amounts pertaining to these leases as if they were accounted for as financing transactions of the Guarantor Subsidiaries. These adjustments are eliminated in consolidation.

For purposes of the guarantor financial statements, the Company and its subsidiaries determine the applicable tax provision for each entity
generally using the separate return method. Under this method, current and deferred taxes are allocated to each reporting entity as if it were to file a separate tax return. The rules followed by the reporting entity in computing its tax obligation
or refund, including the effects of the alternative minimum tax, would be the same as those followed in filing a separate return with the Internal Revenue Service. However, for purposes of evaluating an entitys ability to realize its tax
attributes, the Company assesses whether it is more likely than not that those assets will be realized at the consolidated level. Any differences in the total of the income tax provision for the Parent Company only and the Guarantor Subsidiaries, as
calculated on the separate return method and the consolidated income tax provision are eliminated in consolidation.



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)



The Company provides some administrative support to its subsidiaries related to
executive management, information systems and certain accounting, legal and other administrative functions. For purposes of the guarantor financial statements, the Company allocates such corporate costs on a specific identification basis, where
applicable, or based on revenues or the number of restaurants for each subsidiary. Management believes that these allocations are reasonable based on the nature of costs incurred.



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING BALANCE SHEET

September 30, 2009

(In thousands of dollars)

(Unaudited)



|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|--------------------------------------------- |  | ----------------- | ------- | - | --------------------- | - | -------- | ------------ |  | - | ----------------- | - |  | - | -------
|                                              |  | ParentCompanyOnly |         |   | GuarantorSubsidiaries |   |          | Eliminations |  |   | ConsolidatedTotal
|ASSETS                                        |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Current assets:                               |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Cash and cash equivalents                     |  | $                 | 34      |   |                       | $ | 3,272    |              |  | $ |                  |   |  | $ | 3,306  
|Trade and other receivables                   |  |                   | (693    | ) |                       |   | 5,986    |              |  |   |                  |   |  |   | 5,293  
|Inventories                                   |  |                   |        |   |                       |   | 5,467    |              |  |   |                  |   |  |   | 5,467  
|Prepaid rent                                  |  |                   |        |   |                       |   | 2,983    |              |  |   |                  |   |  |   | 2,983  
|Prepaid expenses and other current assets     |  |                   | 779     |   |                       |   | 3,972    |              |  |   |                  |   |  |   | 4,751  
|Deferred income taxes                         |  |                   | 58      |   |                       |   | 4,815    |              |  |   |                  |   |  |   | 4,873  
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Total current assets                          |  |                   | 178     |   |                       |   | 26,495   |              |  |   |                  |   |  |   | 26,673 
|Property and equipment, net                   |  |                   | 9,267   |   |                       |   | 273,737  |              |  |   | (85,923           | ) |  |   | 197,081
|Franchise rights, net                         |  |                   |        |   |                       |   | 74,518   |              |  |   |                  |   |  |   | 74,518 
|Goodwill                                      |  |                   |        |   |                       |   | 124,934  |              |  |   |                  |   |  |   | 124,934
|Intangible assets, net                        |  |                   |        |   |                       |   | 578      |              |  |   |                  |   |  |   | 578    
|Franchise fees, net                           |  |                   |        |   |                       |   | 5,900    |              |  |   |                  |   |  |   | 5,900  
|Intercompany receivable (payable)             |  |                   | 148,244 |   |                       |   | (173,077 | )            |  |   | 24,833            |   |  |   |       
|Investment in subsidiaries                    |  |                   | 158,386 |   |                       |   |         |              |  |   | (158,386          | ) |  |   |       
|Deferred income taxes                         |  |                   | 2,824   |   |                       |   | 5,444    |              |  |   | (2,853            | ) |  |   | 5,415  
|Other assets                                  |  |                   | 4,762   |   |                       |   | 6,778    |              |  |   | (2,312            | ) |  |   | 9,228  
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Total assets                                  |  | $                 | 323,661 |   |                       | $ | 345,307  |              |  | $ | (224,641          | ) |  | $ | 444,327
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY          |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Current liabilities:                          |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Current portion of long-term debt             |  | $                 | 15,000  |   |                       | $ | 81       |              |  | $ |                  |   |  | $ | 15,081 
|Accounts payable                              |  |                   | 5,294   |   |                       |   | 12,038   |              |  |   |                  |   |  |   | 17,332 
|Accrued interest                              |  |                   | 3,232   |   |                       |   |         |              |  |   |                  |   |  |   | 3,232  
|Accrued payroll, related taxes and benefits   |  |                   | 1,305   |   |                       |   | 18,638   |              |  |   |                  |   |  |   | 19,943 
|Accrued income taxes payable                  |  |                   | 3,001   |   |                       |   |         |              |  |   |                  |   |  |   | 3,001  
|Accrued real estate taxes                     |  |                   |        |   |                       |   | 4,979    |              |  |   |                  |   |  |   | 4,979  
|Other liabilities                             |  |                   | 322     |   |                       |   | 11,172   |              |  |   |                  |   |  |   | 11,494 
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Total current liabilities                     |  |                   | 28,154  |   |                       |   | 46,908   |              |  |   |                  |   |  |   | 75,062 
|Long-term debt, net of current portion        |  |                   | 264,100 |   |                       |   | 1,132    |              |  |   |                  |   |  |   | 265,232
|Lease financing obligations                   |  |                   |        |   |                       |   | 127,936  |              |  |   | (117,071          | ) |  |   | 10,865 
|Deferred incomesale-leaseback of real estate |  |                   |        |   |                       |   | 23,974   |              |  |   | 18,828            |   |  |   | 42,802 
|Accrued postretirement benefits               |  |                   | 1,494   |   |                       |   |         |              |  |   |                  |   |  |   | 1,494  
|Other liabilities                             |  |                   | 2,662   |   |                       |   | 17,805   |              |  |   | 1,154             |   |  |   | 21,621 
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Total liabilities                             |  |                   | 296,410 |   |                       |   | 217,755  |              |  |   | (97,089           | ) |  |   | 417,076
|Stockholders equity                          |  |                   | 27,251  |   |                       |   | 127,552  |              |  |   | (127,552          | ) |  |   | 27,251 
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Total liabilities and stockholders equity    |  | $                 | 323,661 |   |                       | $ | 345,307  |              |  | $ | (224,641          | ) |  | $ | 444,327
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        



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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING BALANCE SHEET

December 31,
2008

(In thousands of dollars)

(Unaudited)



|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|--------------------------------------------- |  | ----------------- | ------- | - | --------------------- | - | -------- | ------------ |  | - | ----------------- | - |  | - | -------
|                                              |  | ParentCompanyOnly |         |   | GuarantorSubsidiaries |   |          | Eliminations |  |   | ConsolidatedTotal
|ASSETS                                        |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Current assets:                               |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Cash and cash equivalents                     |  | $                 | 361     |   |                       | $ | 3,038    |              |  | $ |                  |   |  | $ | 3,399  
|Trade and other receivables                   |  |                   | (113    | ) |                       |   | 5,735    |              |  |   |                  |   |  |   | 5,622  
|Inventories                                   |  |                   |        |   |                       |   | 5,588    |              |  |   |                  |   |  |   | 5,588  
|Prepaid rent                                  |  |                   |        |   |                       |   | 2,998    |              |  |   |                  |   |  |   | 2,998  
|Prepaid expenses and other current assets     |  |                   | 1,033   |   |                       |   | 5,705    |              |  |   |                  |   |  |   | 6,738  
|Deferred income taxes                         |  |                   | 58      |   |                       |   | 4,832    |              |  |   |                  |   |  |   | 4,890  
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Total current assets                          |  |                   | 1,339   |   |                       |   | 27,896   |              |  |   |                  |   |  |   | 29,235 
|Property and equipment, net                   |  |                   | 9,168   |   |                       |   | 267,060  |              |  |   | (80,852           | ) |  |   | 195,376
|Franchise rights, net                         |  |                   |        |   |                       |   | 76,870   |              |  |   |                  |   |  |   | 76,870 
|Goodwill                                      |  |                   |        |   |                       |   | 124,934  |              |  |   |                  |   |  |   | 124,934
|Intangible assets, net                        |  |                   |        |   |                       |   | 675      |              |  |   |                  |   |  |   | 675    
|Franchise agreements, net                     |  |                   |        |   |                       |   | 5,826    |              |  |   |                  |   |  |   | 5,826  
|Intercompany receivable (payable)             |  |                   | 169,553 |   |                       |   | (173,825 | )            |  |   | 4,272             |   |  |   |       
|Investment in subsidiaries                    |  |                   | 136,071 |   |                       |   |         |              |  |   | (136,071          | ) |  |   |       
|Deferred income taxes                         |  |                   | 2,794   |   |                       |   | 5,788    |              |  |   | (1,885            | ) |  |   | 6,697  
|Other assets                                  |  |                   | 5,449   |   |                       |   | 7,366    |              |  |   | (2,230            | ) |  |   | 10,585 
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Total assets                                  |  | $                 | 324,374 |   |                       | $ | 342,590  |              |  | $ | (216,766          | ) |  | $ | 450,198
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY          |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Current liabilities:                          |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Current portion of long-term debt             |  | $                 | 12,000  |   |                       | $ | 93       |              |  | $ |                  |   |  | $ | 12,093 
|Accounts payable                              |  |                   | 1,800   |   |                       |   | 16,989   |              |  |   |                  |   |  |   | 18,789 
|Accrued interest                              |  |                   | 7,742   |   |                       |   |         |              |  |   |                  |   |  |   | 7,742  
|Accrued payroll, related taxes and benefits   |  |                   | (453    | ) |                       |   | 15,884   |              |  |   |                  |   |  |   | 15,431 
|Accrued income taxes payable                  |  |                   | 2,099   |   |                       |   |         |              |  |   |                  |   |  |   | 2,099  
|Accrued real estate taxes                     |  |                   |        |   |                       |   | 3,803    |              |  |   |                  |   |  |   | 3,803  
|Other liabilities                             |  |                   | 193     |   |                       |   | 10,655   |              |  |   |                  |   |  |   | 10,848 
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Total current liabilities                     |  |                   | 23,381  |   |                       |   | 47,424   |              |  |   |                  |   |  |   | 70,805 
|Long-term debt, net of current portion        |  |                   | 288,000 |   |                       |   | 1,202    |              |  |   |                  |   |  |   | 289,202
|Lease financing obligations                   |  |                   |        |   |                       |   | 121,341  |              |  |   | (106,482          | ) |  |   | 14,859 
|Deferred incomesale-leaseback of real estate |  |                   |        |   |                       |   | 26,868   |              |  |   | 16,579            |   |  |   | 43,447 
|Accrued postretirement benefits               |  |                   | 1,697   |   |                       |   |         |              |  |   |                  |   |  |   | 1,697  
|Other liabilities                             |  |                   | 2,793   |   |                       |   | 18,203   |              |  |   | 689               |   |  |   | 21,685 
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Total liabilities                             |  |                   | 315,871 |   |                       |   | 215,038  |              |  |   | (89,214           | ) |  |   | 441,695
|Stockholders equity                          |  |                   | 8,503   |   |                       |   | 127,552  |              |  |   | (127,552          | ) |  |   | 8,503  
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        
|Total liabilities and stockholders equity    |  | $                 | 324,374 |   |                       | $ | 342,590  |              |  | $ | (216,766          | ) |  | $ | 450,198
|                                              |  |                   |         |   |                       |   |          |              |  |   |                   |   |  |   |        



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Three Months
Ended September 30, 2009

(In thousands of dollars)

(Unaudited)



|                                                                                          |  |                   |        |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ----------------- | ------ | - | --------------------- | - | ------- | ------------ |  | - | ----------------- | - |  | - | ------- | -
|                                                                                          |  | ParentCompanyOnly |        |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | ConsolidatedTotal |  
|Revenues:                                                                                 |  |                   |        |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Restaurant sales                                                                          |  | $                 |       |   |                       | $ | 200,802 |              |  | $ |                  |   |  | $ | 200,802 |  
|Franchise royalty revenues and fees                                                       |  |                   |       |   |                       |   | 364     |              |  |   |                  |   |  |   | 364     |  
|                                                                                          |  |                   |        |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Total revenues                                                                            |  |                   |       |   |                       |   | 201,166 |              |  |   |                  |   |  |   | 201,166 |  
|                                                                                          |  |                   |        |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Costs and expenses:                                                                       |  |                   |        |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Cost of sales                                                                             |  |                   |       |   |                       |   | 57,662  |              |  |   |                  |   |  |   | 57,662  |  
|Restaurant wages and related expenses (including stock based compensation expense of $51) |  |                   |       |   |                       |   | 59,109  |              |  |   |                  |   |  |   | 59,109  |  
|Restaurant rent expense                                                                   |  |                   |       |   |                       |   | 10,120  |              |  |   | 2,263             |   |  |   | 12,383  |  
|Other restaurant operating expenses                                                       |  |                   |       |   |                       |   | 29,841  |              |  |   |                  |   |  |   | 29,841  |  
|Advertising expense                                                                       |  |                   |       |   |                       |   | 7,974   |              |  |   |                  |   |  |   | 7,974   |  
|General and administrative (including stock based compensation expense of $296)           |  |                   | 2,210  |   |                       |   | 10,554  |              |  |   |                  |   |  |   | 12,764  |  
|Depreciation and amortization                                                             |  |                   |       |   |                       |   | 8,598   |              |  |   | (518              | ) |  |   | 8,080   |  
|Impairment and other lease charges                                                        |  |                   |       |   |                       |   | 46      |              |  |   |                  |   |  |   | 46      |  
|Other income                                                                              |  |                   |       |   |                       |   | (220    | )            |  |   |                  |   |  |   | (220    | )
|                                                                                          |  |                   |        |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Total costs and expenses                                                                  |  |                   | 2,210  |   |                       |   | 183,684 |              |  |   | 1,745             |   |  |   | 187,639 |  
|                                                                                          |  |                   |        |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Income (loss) from operations                                                             |  |                   | (2,210 | ) |                       |   | 17,482  |              |  |   | (1,745            | ) |  |   | 13,527  |  
|Interest expense                                                                          |  |                   | 4,526  |   |                       |   | 2,951   |              |  |   | (2,643            | ) |  |   | 4,834   |  
|Intercompany interest allocations                                                         |  |                   | (4,468 | ) |                       |   | 4,468   |              |  |   |                  |   |  |   |        |  
|                                                                                          |  |                   |        |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Income (loss) before income taxes                                                         |  |                   | (2,268 | ) |                       |   | 10,063  |              |  |   | 898               |   |  |   | 8,693   |  
|Provision (benefit) for income taxes                                                      |  |                   | (907   | ) |                       |   | 3,616   |              |  |   | 385               |   |  |   | 3,094   |  
|Equity income from subsidiaries                                                           |  |                   | 6,960  |   |                       |   |        |              |  |   | (6,960            | ) |  |   |        |  
|                                                                                          |  |                   |        |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net income                                                                                |  | $                 | 5,599  |   |                       | $ | 6,447   |              |  | $ | (6,447            | ) |  | $ | 5,599   |  
|                                                                                          |  |                   |        |   |                       |   |         |              |  |   |                   |   |  |   |         |  



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Three Months
Ended September 30, 2008

(In thousands of dollars)

(Unaudited)



|                                                                                          |  |                   |        |   |                       |   |              |  |   |                   |   |  |   |        
|----------------------------------------------------------------------------------------- |  | ----------------- | ------ | - | --------------------- | - | ------------ |  | - | ----------------- | - |  | - | -------
|                                                                                          |  | ParentCompanyOnly |        |   | GuarantorSubsidiaries |   | Eliminations |  |   | ConsolidatedTotal
|Revenues:                                                                                 |  |                   |        |   |                       |   |              |  |   |                   |   |  |   |        
|Restaurant sales                                                                          |  | $                 |       |   |                       | $ | 208,698      |  | $ |                  |   |  | $ | 208,698
|Franchise royalty revenues and fees                                                       |  |                   |       |   |                       |   | 366          |  |   |                  |   |  |   | 366    
|                                                                                          |  |                   |        |   |                       |   |              |  |   |                   |   |  |   |        
|Total revenues                                                                            |  |                   |       |   |                       |   | 209,064      |  |   |                  |   |  |   | 209,064
|                                                                                          |  |                   |        |   |                       |   |              |  |   |                   |   |  |   |        
|Costs and expenses:                                                                       |  |                   |        |   |                       |   |              |  |   |                   |   |  |   |        
|Cost of sales                                                                             |  |                   |       |   |                       |   | 63,558       |  |   |                  |   |  |   | 63,558 
|Restaurant wages and related expenses (including stock based compensation expense of $57) |  |                   |       |   |                       |   | 59,786       |  |   |                  |   |  |   | 59,786 
|Restaurant rent expense                                                                   |  |                   |       |   |                       |   | 10,300       |  |   | 1,414             |   |  |   | 11,714 
|Other restaurant operating expenses                                                       |  |                   |       |   |                       |   | 32,433       |  |   |                  |   |  |   | 32,433 
|Advertising expense                                                                       |  |                   |       |   |                       |   | 7,826        |  |   |                  |   |  |   | 7,826  
|General and administrative (including stock based compensation expense of $438)           |  |                   | 1,367  |   |                       |   | 11,524       |  |   |                  |   |  |   | 12,891 
|Depreciation and amortization                                                             |  |                   |       |   |                       |   | 8,457        |  |   | (333              | ) |  |   | 8,124  
|Impairment and other lease charges                                                        |  |                   |       |   |                       |   | 53           |  |   |                  |   |  |   | 53     
|                                                                                          |  |                   |        |   |                       |   |              |  |   |                   |   |  |   |        
|Total costs and expenses                                                                  |  |                   | 1,367  |   |                       |   | 193,937      |  |   | 1,081             |   |  |   | 196,385
|                                                                                          |  |                   |        |   |                       |   |              |  |   |                   |   |  |   |        
|Income (loss) from operations                                                             |  |                   | (1,367 | ) |                       |   | 15,127       |  |   | (1,081            | ) |  |   | 12,679 
|Interest expense                                                                          |  |                   | 5,681  |   |                       |   | 2,758        |  |   | (1,578            | ) |  |   | 6,861  
|Intercompany interest allocations                                                         |  |                   | (4,556 | ) |                       |   | 4,556        |  |   |                  |   |  |   |       
|                                                                                          |  |                   |        |   |                       |   |              |  |   |                   |   |  |   |        
|Income (loss) before income taxes                                                         |  |                   | (2,492 | ) |                       |   | 7,813        |  |   | 497               |   |  |   | 5,818  
|Provision (benefit) for income taxes                                                      |  |                   | (796   | ) |                       |   | 2,672        |  |   | 260               |   |  |   | 2,136  
|Equity income from subsidiaries                                                           |  |                   | 5,378  |   |                       |   |             |  |   | (5,378            | ) |  |   |       
|                                                                                          |  |                   |        |   |                       |   |              |  |   |                   |   |  |   |        
|Net income                                                                                |  | $                 | 3,682  |   |                       | $ | 5,141        |  | $ | (5,141            | ) |  | $ | 3,682  
|                                                                                          |  |                   |        |   |                       |   |              |  |   |                   |   |  |   |        



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Nine Months
Ended September 30, 2009

(In thousands of dollars)

(Unaudited)



|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ----------------- | ------- | - | --------------------- | - | ------- | ------------ |  | - | ----------------- | - |  | - | ------- | -
|                                                                                           |  | ParentCompanyOnly |         |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | ConsolidatedTotal |  
|Revenues:                                                                                  |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Restaurant sales                                                                           |  | $                 |        |   |                       | $ | 605,326 |              |  | $ |                  |   |  | $ | 605,326 |  
|Franchise royalty revenues and fees                                                        |  |                   |        |   |                       |   | 1,117   |              |  |   |                  |   |  |   | 1,117   |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Total revenues                                                                             |  |                   |        |   |                       |   | 606,443 |              |  |   |                  |   |  |   | 606,443 |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Costs and expenses:                                                                        |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Cost of sales                                                                              |  |                   |        |   |                       |   | 175,284 |              |  |   |                  |   |  |   | 175,284 |  
|Restaurant wages and related expenses (including stock based compensation expense of $156) |  |                   |        |   |                       |   | 176,896 |              |  |   |                  |   |  |   | 176,896 |  
|Restaurant rent expense                                                                    |  |                   |        |   |                       |   | 30,549  |              |  |   | 6,668             |   |  |   | 37,217  |  
|Other restaurant operating expenses                                                        |  |                   |        |   |                       |   | 88,541  |              |  |   |                  |   |  |   | 88,541  |  
|Advertising expense                                                                        |  |                   |        |   |                       |   | 23,552  |              |  |   |                  |   |  |   | 23,552  |  
|General and administrative (including stock based compensation expense of $899)            |  |                   | 6,924   |   |                       |   | 31,753  |              |  |   |                  |   |  |   | 38,677  |  
|Depreciation and amortization                                                              |  |                   |        |   |                       |   | 25,326  |              |  |   | (1,493            | ) |  |   | 23,833  |  
|Impairment and other lease charges                                                         |  |                   |        |   |                       |   | 400     |              |  |   |                  |   |  |   | 400     |  
|Other income                                                                               |  |                   |        |   |                       |   | (799    | )            |  |   |                  |   |  |   | (799    | )
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Total costs and expenses                                                                   |  |                   | 6,924   |   |                       |   | 551,502 |              |  |   | 5,175             |   |  |   | 563,601 |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Income (loss) from operations                                                              |  |                   | (6,924  | ) |                       |   | 54,941  |              |  |   | (5,175            | ) |  |   | 42,842  |  
|Interest expense                                                                           |  |                   | 13,884  |   |                       |   | 8,689   |              |  |   | (7,665            | ) |  |   | 14,908  |  
|Intercompany interest allocations                                                          |  |                   | (13,405 | ) |                       |   | 13,405  |              |  |   |                  |   |  |   |        |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Income (loss) before income taxes                                                          |  |                   | (7,403  | ) |                       |   | 32,847  |              |  |   | 2,490             |   |  |   | 27,934  |  
|Provision (benefit) for income taxes                                                       |  |                   | (2,781  | ) |                       |   | 12,023  |              |  |   | 999               |   |  |   | 10,241  |  
|Equity income from subsidiaries                                                            |  |                   | 22,315  |   |                       |   |        |              |  |   | (22,315           | ) |  |   |        |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net income                                                                                 |  | $                 | 17,693  |   |                       | $ | 20,824  |              |  | $ | (20,824           | ) |  | $ | 17,693  |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  



36



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Nine Months
Ended September 30, 2008

(In thousands of dollars)

(Unaudited)



|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ----------------- | ------- | - | --------------------- | - | ------- | ------------ |  | - | ----------------- | - |  | - | ------- | -
|                                                                                           |  | ParentCompanyOnly |         |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | ConsolidatedTotal |  
|Revenues:                                                                                  |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Restaurant sales                                                                           |  | $                 |        |   |                       | $ | 614,422 |              |  | $ |                  |   |  | $ | 614,422 |  
|Franchise royalty revenues and fees                                                        |  |                   |        |   |                       |   | 1,077   |              |  |   |                  |   |  |   | 1,077   |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Total revenues                                                                             |  |                   |        |   |                       |   | 615,499 |              |  |   |                  |   |  |   | 615,499 |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Costs and expenses:                                                                        |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Cost of sales                                                                              |  |                   |        |   |                       |   | 185,130 |              |  |   |                  |   |  |   | 185,130 |  
|Restaurant wages and related expenses (including stock based compensation expense of $171) |  |                   |        |   |                       |   | 179,090 |              |  |   |                  |   |  |   | 179,090 |  
|Restaurant rent expense                                                                    |  |                   |        |   |                       |   | 30,615  |              |  |   | 4,150             |   |  |   | 34,765  |  
|Other restaurant operating expenses                                                        |  |                   |        |   |                       |   | 93,326  |              |  |   |                  |   |  |   | 93,326  |  
|Advertising expense                                                                        |  |                   |        |   |                       |   | 24,874  |              |  |   |                  |   |  |   | 24,874  |  
|General and administrative (including stock based compensation expense of $1,290)          |  |                   | 4,328   |   |                       |   | 35,272  |              |  |   |                  |   |  |   | 39,600  |  
|Depreciation and amortization                                                              |  |                   |        |   |                       |   | 25,198  |              |  |   | (975              | ) |  |   | 24,223  |  
|Impairment and other lease charges                                                         |  |                   |        |   |                       |   | 155     |              |  |   |                  |   |  |   | 155     |  
|Other income                                                                               |  |                   |        |   |                       |   | (119    | )            |  |   |                  |   |  |   | (119    | )
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Total costs and expenses                                                                   |  |                   | 4,328   |   |                       |   | 573,541 |              |  |   | 3,175             |   |  |   | 581,044 |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Income (loss) from operations                                                              |  |                   | (4,328  | ) |                       |   | 41,958  |              |  |   | (3,175            | ) |  |   | 34,455  |  
|Interest expense                                                                           |  |                   | 17,447  |   |                       |   | 8,589   |              |  |   | (4,618            | ) |  |   | 21,418  |  
|Gain on extinguishment of debt                                                             |  |                   | (180    | ) |                       |   |        |              |  |   |                  |   |  |   | (180    | )
|Intercompany interest allocations                                                          |  |                   | (13,669 | ) |                       |   | 13,669  |              |  |   |                  |   |  |   |        |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Income (loss) before income taxes                                                          |  |                   | (7,926  | ) |                       |   | 19,700  |              |  |   | 1,443             |   |  |   | 13,217  |  
|Provision (benefit) for income taxes                                                       |  |                   | (2,895  | ) |                       |   | 7,002   |              |  |   | 722               |   |  |   | 4,829   |  
|Equity income from subsidiaries                                                            |  |                   | 13,419  |   |                       |   |        |              |  |   | (13,419           | ) |  |   |        |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net income                                                                                 |  | $                 | 8,388   |   |                       | $ | 12,698  |              |  | $ | (12,698           | ) |  | $ | 8,388   |  
|                                                                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  



37



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months
Ended September 30, 2009

(In thousands of dollars)

(Unaudited)



|                                                                                    |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|----------------------------------------------------------------------------------- |  | ----------------- | ------- | - | --------------------- | - | ------- | ------------ |  | - | ----------------- | - |  | - | ------- | -
|                                                                                    |  | ParentCompanyOnly |         |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | ConsolidatedTotal |  
|Cash flows provided from operating activities:                                      |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net income                                                                          |  | $                 | 17,693  |   |                       | $ | 20,824  |              |  | $ | (20,824           | ) |  | $ | 17,693  |  
|Adjustments to reconcile net income to net cash provided from operating activities: |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Loss on disposals of property and equipment                                         |  |                   |        |   |                       |   | 15      |              |  |   |                  |   |  |   | 15      |  
|Stock-based compensation expense                                                    |  |                   | 253     |   |                       |   | 802     |              |  |   |                  |   |  |   | 1,055   |  
|Impairment and other lease charges                                                  |  |                   |        |   |                       |   | 400     |              |  |   |                  |   |  |   | 400     |  
|Depreciation and amortization                                                       |  |                   |        |   |                       |   | 25,326  |              |  |   | (1,493            | ) |  |   | 23,833  |  
|Amortization of deferred financing costs                                            |  |                   | 716     |   |                       |   | 219     |              |  |   | (203              | ) |  |   | 732     |  
|Amortization of unearned purchase discounts                                         |  |                   |        |   |                       |   | (1,616  | )            |  |   |                  |   |  |   | (1,616  | )
|Amortization of deferred gains from sale-leaseback transactions                     |  |                   |        |   |                       |   | (1,359  | )            |  |   | (1,004            | ) |  |   | (2,363  | )
|Gain on settlements of lease financing obligations                                  |  |                   |        |   |                       |   | (76     | )            |  |   |                  |   |  |   | (76     | )
|Accretion of interest on lease financing obligations                                |  |                   |        |   |                       |   | 288     |              |  |   | (255              | ) |  |   | 33      |  
|Deferred income taxes                                                               |  |                   |        |   |                       |   | 331     |              |  |   | 968               |   |  |   | 1,299   |  
|Accrued income taxes                                                                |  |                   | 902     |   |                       |   |        |              |  |   |                  |   |  |   | 902     |  
|Changes in other operating assets and liabilities                                   |  |                   | 1,914   |   |                       |   | (19,691 | )            |  |   | 22,811            |   |  |   | 5,034   |  
|                                                                                    |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net cash provided from operating activities                                         |  |                   | 21,478  |   |                       |   | 25,463  |              |  |   |                  |   |  |   | 46,941  |  
|                                                                                    |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Cash flows used for investing activities:                                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Capital expenditures:                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|New restaurant development                                                          |  |                   |        |   |                       |   | (7,887  | )            |  |   |                  |   |  |   | (7,887  | )
|Restaurant remodeling                                                               |  |                   |        |   |                       |   | (10,073 | )            |  |   |                  |   |  |   | (10,073 | )
|Other restaurant capital expenditures                                               |  |                   |        |   |                       |   | (8,367  | )            |  |   |                  |   |  |   | (8,367  | )
|Corporate and restaurant information systems                                        |  |                   | (905    | ) |                       |   | (2,719  | )            |  |   |                  |   |  |   | (3,624  | )
|                                                                                    |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Total capital expenditures                                                          |  |                   | (905    | ) |                       |   | (29,046 | )            |  |   |                  |   |  |   | (29,951 | )
|Properties purchased for sale-leaseback                                             |  |                   |        |   |                       |   | (1,260  | )            |  |   |                  |   |  |   | (1,260  | )
|Proceeds from sale-leaseback transactions                                           |  |                   |        |   |                       |   |        |              |  |   | 5,454             |   |  |   | 5,454   |  
|Proceeds from sales of other properties                                             |  |                   |        |   |                       |   | 819     |              |  |   |                  |   |  |   | 819     |  
|                                                                                    |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net cash used for investing activities                                              |  |                   | (905    | ) |                       |   | (29,487 | )            |  |   | 5,454             |   |  |   | (24,938 | )
|                                                                                    |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Cash flows provided from (used for) financing activities:                           |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Borrowings on revolving credit facility                                             |  |                   | 77,700  |   |                       |   |        |              |  |   |                  |   |  |   | 77,700  |  
|Repayments on revolving credit facility                                             |  |                   | (92,600 | ) |                       |   |        |              |  |   |                  |   |  |   | (92,600 | )
|Scheduled principal payments on term loans                                          |  |                   | (6,000  | ) |                       |   |        |              |  |   |                  |   |  |   | (6,000  | )
|Principal payments on capital leases                                                |  |                   |        |   |                       |   | (82     | )            |  |   |                  |   |  |   | (82     | )
|Proceeds from lease financing obligations                                           |  |                   |        |   |                       |   | 6,535   |              |  |   | (5,700            | ) |  |   | 835     |  
|Settlement of lease financing obligations                                           |  |                   |        |   |                       |   | (1,945  | )            |  |   |                  |   |  |   | (1,945  | )
|Financing costs associated with issuance of lease financing obligations             |  |                   |        |   |                       |   | (4      | )            |  |   |                  |   |  |   | (4      | )
|Financing costs associated with issuance of debt                                    |  |                   |        |   |                       |   | (246    | )            |  |   | 246               |   |  |   |        |  
|                                                                                    |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net cash provided from (used for) financing activities                              |  |                   | (20,900 | ) |                       |   | 4,258   |              |  |   | (5,454            | ) |  |   | (22,096 | )
|                                                                                    |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                |  |                   | (327    | ) |                       |   | 234     |              |  |   |                  |   |  |   | (93     | )
|Cash and cash equivalents, beginning of period                                      |  |                   | 361     |   |                       |   | 3,038   |              |  |   |                  |   |  |   | 3,399   |  
|                                                                                    |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Cash and cash equivalents, end of period                                            |  | $                 | 34      |   |                       | $ | 3,272   |              |  | $ |                  |   |  | $ | 3,306   |  
|                                                                                    |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  



38



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##### Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months
Ended September 30, 2008

(In thousands of dollars)

(Unaudited)



|                                                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | --------------------- | - | ------- | ------------ |  | - | ----------------- | - |  | - | ------- | -
|                                                                                               |  | ParentCompanyOnly |         |   | GuarantorSubsidiaries |   |         | Eliminations |  |   | ConsolidatedTotal |  
|Cash flows provided from operating activities:                                                 |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net income                                                                                     |  | $                 | 8,388   |   |                       | $ | 12,698  |              |  | $ | (12,698           | ) |  | $ | 8,388   |  
|Adjustments to reconcile net income to net cash provided from (used for) operating activities: |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Loss on disposals of property and equipment                                                    |  |                   |        |   |                       |   | 102     |              |  |   |                  |   |  |   | 102     |  
|Stock-based compensation expense                                                               |  |                   | 1,007   |   |                       |   | 454     |              |  |   |                  |   |  |   | 1,461   |  
|Impairment and other lease charges                                                             |  |                   |        |   |                       |   | 155     |              |  |   |                  |   |  |   | 155     |  
|Depreciation and amortization                                                                  |  |                   |        |   |                       |   | 25,198  |              |  |   | (975              | ) |  |   | 24,223  |  
|Amortization of deferred financing costs                                                       |  |                   | 832     |   |                       |   | 178     |              |  |   | (120              | ) |  |   | 890     |  
|Amortization of unearned purchase discounts                                                    |  |                   |        |   |                       |   | (1,616  | )            |  |   |                  |   |  |   | (1,616  | )
|Amortization of deferred gains from sale-leaseback transactions                                |  |                   |        |   |                       |   | (1,186  | )            |  |   | (396              | ) |  |   | (1,582  | )
|Gain on settlements of lease financing obligations                                             |  |                   |        |   |                       |   | (48     | )            |  |   |                  |   |  |   | (48     | )
|Accretion of interest on lease financing obligations                                           |  |                   |        |   |                       |   | 180     |              |  |   |                  |   |  |   | 180     |  
|Deferred income taxes                                                                          |  |                   | 407     |   |                       |   | (1,123  | )            |  |   | 658               |   |  |   | (58     | )
|Accrued income taxes                                                                           |  |                   | 2,748   |   |                       |   |        |              |  |   |                  |   |  |   | 2,748   |  
|Gain on extinguishment of debt                                                                 |  |                   | (180    | ) |                       |   |        |              |  |   |                  |   |  |   | (180    | )
|Changes in other operating assets and liabilities                                              |  |                   | (29,928 | ) |                       |   | 10,891  |              |  |   | 13,531            |   |  |   | (5,506  | )
|                                                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net cash provided from (used for) operating activities                                         |  |                   | (16,726 | ) |                       |   | 45,883  |              |  |   |                  |   |  |   | 29,157  |  
|                                                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Cash flows used for investing activities:                                                      |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Capital expenditures:                                                                          |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|New restaurant development                                                                     |  |                   |        |   |                       |   | (26,464 | )            |  |   |                  |   |  |   | (26,464 | )
|Restaurant remodeling                                                                          |  |                   |        |   |                       |   | (9,622  | )            |  |   |                  |   |  |   | (9,622  | )
|Other restaurant capital expenditures                                                          |  |                   |        |   |                       |   | (6,903  | )            |  |   |                  |   |  |   | (6,903  | )
|Corporate and restaurant information systems                                                   |  |                   | (2,062  | ) |                       |   | (3,773  | )            |  |   |                  |   |  |   | (5,835  | )
|                                                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Total capital expenditures                                                                     |  |                   | (2,062  | ) |                       |   | (46,762 | )            |  |   |                  |   |  |   | (48,824 | )
|Properties purchased for sale-leaseback                                                        |  |                   |        |   |                       |   |        |              |  |   |                  |   |  |   |        |  
|Proceeds from sale-leaseback transactions                                                      |  |                   |        |   |                       |   | 2,557   |              |  |   | 4,231             |   |  |   | 6,788   |  
|Proceeds from sales of other properties                                                        |  |                   |        |   |                       |   | 119     |              |  |   |                  |   |  |   | 119     |  
|                                                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net cash used for investing activities                                                         |  |                   | (2,062  | ) |                       |   | (44,086 | )            |  |   | 4,231             |   |  |   | (41,917 | )
|                                                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Cash flows provided from (used for) financing activities:                                      |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Borrowings on revolving credit facility                                                        |  |                   | 109,600 |   |                       |   |        |              |  |   |                  |   |  |   | 109,600 |  
|Repayments on revolving credit facility                                                        |  |                   | (92,400 | ) |                       |   |        |              |  |   |                  |   |  |   | (92,400 | )
|Scheduled principal payments on term loans                                                     |  |                   | (1,500  | ) |                       |   |        |              |  |   |                  |   |  |   | (1,500  | )
|Principal payments on capital leases                                                           |  |                   |        |   |                       |   | (119    | )            |  |   |                  |   |  |   | (119    | )
|Proceeds from lease financing obligations                                                      |  |                   |        |   |                       |   | 4,450   |              |  |   | (4,450            | ) |  |   |        |  
|Settlement of lease financing obligations                                                      |  |                   |        |   |                       |   | (5,500  | )            |  |   |                  |   |  |   | (5,500  | )
|Financing costs associated with issuance of lease financing obligations                        |  |                   |        |   |                       |   | (219    | )            |  |   | 219               |   |  |   |        |  
|Repurchase of senior subordinated notes                                                        |  |                   | (1,820  | ) |                       |   |        |              |  |   |                  |   |  |   | (1,820  | )
|Financing costs associated with issuance of debt                                               |  |                   |        |   |                       |   |        |              |  |   |                  |   |  |   |        |  
|                                                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net cash provided from (used for) financing activities                                         |  |                   | 13,880  |   |                       |   | (1,388  | )            |  |   | (4,231            | ) |  |   | 8,261   |  
|                                                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                           |  |                   | (4,908  | ) |                       |   | 409     |              |  |   |                  |   |  |   | (4,499  | )
|Cash and cash equivalents, beginning of period                                                 |  |                   | 4,912   |   |                       |   | 2,484   |              |  |   |                  |   |  |   | 7,396   |  
|                                                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  
|Cash and cash equivalents, end of period                                                       |  | $                 | 4       |   |                       | $ | 2,893   |              |  | $ |                  |   |  | $ | 2,897   |  
|                                                                                               |  |                   |         |   |                       |   |         |              |  |   |                   |   |  |   |         |  



39



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##### Table of Contents

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

Throughout this Quarterly Report on Form 10-Q, we refer to Carrols Restaurant Group, Inc. as
Carrols Restaurant Group and, together with its consolidated subsidiaries, as we, our and us unless otherwise indicated or the context otherwise requires. Any reference to Carrols refers to
our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires. This combined Quarterly Report on Form 10-Q is filed by both Carrols
Restaurant Group and its wholly owned subsidiary, Carrols.

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 28, 2008 and December 30, 2007 will be referred to as the fiscal years ended December 31, 2008 and 2007, respectively. Similarly, all references herein to the
three and nine months ended September 27, 2009 and September 28, 2008 will be referred to as the three and nine months ended September 30, 2009 and September 30, 2008, respectively. The years ended December 31, 2008 and 2007
each contained 52 weeks and the three and nine months ended September 30, 2009 and 2008 each contained 13 weeks and 39 weeks, respectively.

Introduction

Carrols Restaurant Group is a holding company and conducts all of its operations through its
direct and indirect subsidiaries and has no assets other than the shares of capital stock of Carrols, its direct wholly-owned subsidiary. The following Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) relates to the consolidated financial statements of Carrols Restaurant Group and the consolidated financial statements for Carrols presented in Item 1. The difference between the consolidated financial
statements of Carrols Restaurant Group and Carrols is primarily due to additional rent expense of approximately $6,000 per year for Carrols Restaurant Group and the composition of stockholders equity.

The following MD&A is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read
in conjunction with, the Consolidated Financial Statements and the accompanying financial statement notes of each of Carrols Restaurant Group and Carrols appearing elsewhere in this report and our Annual Report on Form 10-K for the year ended
December 31, 2008. The overview provides our perspective on the individual sections of MD&A, which include the following:

Company Overviewa general description of our business and our key financial measures.

Recent
and Future Events Affecting Our Results of Operationsa description of recent events that affect, and future events that may affect, our results of operations.

Executive Summaryan executive review of our operating performance for the three months ended September 30, 2009.

Results of Operationsan analysis of our results of operations for the three and nine months ended
September 30, 2009 compared to the three and nine months ended September 30, 2008.

Liquidity and Capital
Resourcesan analysis of historical information regarding our sources of cash and capital expenditures, the existence and timing of commitments and contingencies, changes in capital resources and a discussion of cash flow items
affecting liquidity.

Application of Critical Accounting Policiesan overview of accounting policies
requiring critical judgments and estimates.

Effects of New Accounting Standardsa discussion of new
accounting standards and any implications related to our financial statements.

Forward Looking
Statementscautionary information about forward-looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from our historical results or our current expectations
or projections.



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Company Overview

We are one of the largest restaurant companies in the United States operating three restaurant brands in the quick-casual and quick-service restaurant segments with 560 restaurants located in 17 states as
of September 27, 2009. We have been operating restaurants for more than 45 years. We own and operate two Hispanic restaurant brands, Pollo Tropical and Taco Cabana (together referred to by us as our Hispanic Brands), which we acquired in 1998
and 2000, respectively. We are also the largest Burger King franchisee, based on the number of restaurants, and have operated Burger King restaurants since 1976. As of September 30, 2009, our company-owned restaurants included 91 Pollo Tropical
restaurants, 155 Taco Cabana restaurants and 314 Burger King restaurants operated under franchise agreements. We also franchise our Hispanic Brand restaurants with 31 franchised restaurants as of September 30, 2009 located in the United States,
Puerto Rico, Ecuador and the Bahamas. For the nine months ended September 30, 2009 and 2008, we had total revenues of $606.4 million and $615.5 million, respectively, and net income of $17.7 million and $8.4 million, respectively.

The following is an overview of the key financial measures discussed in our results of operations:



| |  |  | Restaurant sales consist of food and beverage sales at our company-owned and operated restaurants. Restaurant sales are influenced by menu price
increases, new restaurant openings, closures of restaurants and changes in comparable restaurant sales. Changes in comparable restaurant sales are calculated using only those restaurants open since the beginning of the earliest period being compared
and for the entirety of both periods being compared. Restaurants are included in comparable restaurant sales after they have been open for 12 months for our Burger King restaurants and 18 months for our Pollo Tropical and Taco Cabana restaurants.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cost of sales consists of food, paper and beverage costs, including packaging costs, less purchase discounts. Cost of sales is generally
influenced by changes in commodity costs, the sales mix of items sold and the effectiveness of our restaurant-level controls to manage food and paper costs. Key commodities, including chicken and beef, for our Pollo Tropical and Taco Cabana
restaurants are generally purchased under annual contracts.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Restaurant wages and related expenses include all restaurant management and hourly productive labor costs, employer payroll taxes,
restaurant-level bonuses and related benefits. Payroll and related benefits are subject to inflation, including minimum wage rate increases and increased costs for health insurance, workers compensation insurance and state unemployment
insurance.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Restaurant rent expense includes base rent, contingent rent and common area maintenance on our leases characterized as operating leases, reduced
by the amortization of gains on sale-leaseback transactions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other restaurant operating expenses include all other restaurant-level operating costs, the major components of which are royalty expense for
our Burger King restaurants, utilities, repairs and maintenance, property and general liability insurance, real estate taxes and credit card fees.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Advertising expense includes all promotional expenses including television, radio, billboards and other media for our Hispanic Brand restaurants
and advertising payments based on a percentage of sales as required under our franchise agreements for our Burger King restaurants.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and administrative expenses are comprised primarily of (1) salaries and expenses associated with corporate and administrative
functions that support the development and operation of our restaurants, (2) legal, auditing and other professional fees and (3) stock-based compensation expense.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Segment EBITDA, which is the measure of segment profit or loss used by our chief operating decision maker for purposes of allocating resources
to our segments and assessing their performance, is defined as earnings attributable to the applicable segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense, other
income and expense and gains or losses on extinguishment of debt. Segment EBITDA may not be necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Segment EBITDA for our Burger King
restaurants includes general and administrative expenses related directly to the Burger King segment as well as the expenses associated with administrative support to all three of our segments including executive management, information systems and
certain accounting, legal and other administrative functions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Depreciation and amortization primarily includes the depreciation of fixed assets, including equipment, owned buildings and leasehold
improvements, depreciation of assets under lease financing obligations and the amortization of Burger King franchise rights and franchise fees.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest expense consists primarily of interest expense associated with our 9% Senior Subordinated Notes due 2013 (the Notes),
borrowings under our senior credit facility, amortization of deferred financing costs and imputed interest expense on leases entered into in connection with sale-leaseback transactions which are accounted for as lease financing obligations. Interest
expense also includes any gains and losses from the
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | settlement of lease financing obligations. Interest on borrowings under our senior credit facility is generally based on LIBOR with a current margin of 1.0% or prime as we designate.
Consequently, changes in LIBOR rates or prime will impact our interest expense.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent and Future Events Affecting our
Results of Operations

Repurchase of Senior Subordinated Notes

In 2008, Carrols repurchased and retired $15.0 million principal amount of its Notes in open market transactions for $10.4 million which
resulted in a gain on extinguishment of debt of $4.4 million, net of a $0.3 million write-off of deferred financing costs. Of these repurchases in 2008, $2.0 million was repurchased in the nine months ended September 30, 2008 which resulted in
a gain on extinguishment of debt of $0.2 million. Based on our borrowing rates under our senior credit facility and due to the amount paid relative to the principal amount, we anticipate these repurchases will reduce our interest expense in 2009
compared to 2008.

Future Restaurant Closures

We evaluate the performance of our Burger King restaurants on an ongoing basis including assessment of the current and future operating
results of the restaurant, and in relation to Burger King franchise agreement renewals and the cost of required capital improvements. We may elect to close restaurants based on such evaluation. In 2008, we closed eight Burger King restaurants, not
including restaurants relocated within the same market area. We closed two Burger King restaurants in the first nine months of 2009 and we currently anticipate that we will close one additional Burger King restaurant in 2009, excluding any Burger
King restaurants which we may close and relocate.

We closed three Taco Cabana restaurants in 2008 and closed two Taco Cabana
restaurants and one Pollo Tropical restaurant in the first nine months of 2009. We currently do not anticipate any additional Pollo Tropical or Taco Cabana restaurant closures in 2009, although there can be no assurance in this regard.

We do not believe that the future impact on our consolidated results of operations from restaurant closures will be material, although
there can be no assurance in this regard. Our determination of whether to close restaurants in the future is subject to further evaluation and may change.

From time to time we consider and evaluate other strategic alternatives with respect to our Burger King restaurants, including the possible future sale of some or all of such restaurants. At this time, we
have no current understandings, commitments or agreements with respect to the foregoing and there can be no assurance that we will enter into any such arrangements in the future.

Lease Financing Obligations

In the past, we have entered into sale-leaseback transactions that have been classified as financing transactions. Under the financing method, the assets remain on our consolidated balance sheet and
continue to be depreciated and proceeds from these transactions are recorded as a financing liability. Payments under these leases are applied as payments of imputed interest and deemed principal on the underlying financing obligations.

In the first nine months of 2009, we settled $1.9 million of lease financing obligations which included a purchase from a lessor of one
restaurant property previously subject to a lease financing obligation for $1.1 million and the settlement of a lease financing obligation recorded in the second quarter of 2009 for $0.8 million. We also modified provisions in two of our restaurant
leases previously accounted for as lease financing obligations which allowed the respective sale transactions to qualify for sale-leaseback accounting and resulted in a reduction of lease financing obligations of $2.8 million. As a result of these
transactions in 2009, lease financing obligations were reduced $4.0 million, assets under lease financing obligations were reduced by $2.1 million and deferred gains on qualified sale-leaseback transactions of $0.7 million were recorded.

During the second quarter of 2008, we purchased from the lessor six restaurant properties for $5.5 million that were previously accounted
for as lease financing obligations. In late 2008, we also amended or modified lease provisions and terminated purchase options for certain restaurant leases previously accounted for as lease financing obligations. These changes permitted 24 leases
to qualify as operating leases and the related sale-leaseback transactions to be recorded as sales, which removed all of the respective assets under lease financing obligations and related liabilities from our consolidated balance sheet. The gains
recognized from these sales were generally deferred.

The effect of the recharacterization of the 2009 and 2008 transactions
described above was to treat these transactions as qualified sales and the payments associated with the related operating leases as restaurant rent expense, rather than as payments of interest and principal associated with lease financing
obligations. For the year ending December 31, 2009, these transactions will increase rent expense by $2.7 million, decrease depreciation expense by $0.7 million and decrease interest expense by $3.3 million.



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Executive Summary - Operating Performance for the Three Months Ended September 30, 2009

Total revenues in the third quarter of 2009 decreased 3.8% to $201.2 million from $209.1 million in the third quarter of
2008. Revenues from our Hispanic Brand restaurants decreased 0.5% to $107.0 million in the third quarter of 2009 from $107.5 million in the third quarter of 2008 and revenues from our Burger King restaurants decreased 7.3% to $94.1 million in the
third quarter of 2009 from $101.5 million in the third quarter of 2008.

As in prior quarters in 2009, restaurant operating
margins in the third quarter of 2009 were favorably impacted by lower food and utility costs and the leveraging or reduction of operating costs. As a percentage of total restaurant sales, cost of sales decreased to 28.7% in the third quarter of 2009
from 30.5% in the third quarter of 2008 primarily from lower commodity prices for our Burger King and Taco Cabana restaurants. As a percentage of total restaurant sales, restaurant wages and related expenses increased to 29.4% from 28.6% in the
prior year due to the effect of lower sales volumes on fixed labor costs and minimum wage increases in the past twelve months. This effect was somewhat mitigated due to improvements in labor productivity including reduced restaurant employee
turnover. Utility costs decreased 0.5%, as a percentage of total restaurant sales, in the third quarter of 2009 compared to the third quarter of 2008 due to both lower natural gas and electricity rates and usage.

General and administrative expenses decreased $0.1 million to $12.8 million in the third quarter of 2009 from $12.9 million in the third
quarter of 2008 and, as a percentage of total restaurant sales, increased to 6.4% in the third quarter of 2009 from 6.2% in the third quarter of 2008.

Interest expense decreased $2.0 million to $4.8 million in the third quarter of 2009 compared to the third quarter of 2008 due to a reduction in our total indebtedness of $70.3 million since the end of
the third quarter of 2008 and lower effective interest rates on our LIBOR based borrowings under our senior credit facility.

Our effective income tax rate, including discrete tax items, was 35.6% in the third quarter of 2009 compared to 36.7% in the third quarter of 2008. There were discrete tax adjustments of $0.1 million in the third quarter of 2009.

As a result of the above, our net income increased $1.9 million to $5.6 million, or $.26 per diluted share, in the third
quarter of 2009 from $3.7 million, or $.17 per diluted share, in the third quarter of 2008.

Results of Operations

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

The following table sets forth, for the three months ended September 30, 2009 and 2008, selected operating results as a percentage of
consolidated restaurant sales:



|                                                                        |  |       |   |  |       |  
|----------------------------------------------------------------------- |  | ----- | - |  | ----- | -
|                                                                        |  | 2009  |   |  | 2008  |  
|Restaurant sales:                                                       |  |       |   |  |       |  
|Pollo Tropical                                                          |  | 21.8  | % |  | 20.7  | %
|Taco Cabana                                                             |  | 31.3  | % |  | 30.7  | %
|Burger King                                                             |  | 46.9  | % |  | 48.6  | %
|                                                                        |  |       |   |  |       |  
|Total restaurant sales                                                  |  | 100.0 | % |  | 100.0 | %
|Costs and expenses:                                                     |  |       |   |  |       |  
|Cost of sales                                                           |  | 28.7  | % |  | 30.5  | %
|Restaurant wages and related expenses                                   |  | 29.4  | % |  | 28.6  | %
|Restaurant rent expense                                                 |  | 6.2   | % |  | 5.6   | %
|Other restaurant operating expenses                                     |  | 14.9  | % |  | 15.5  | %
|Advertising expense                                                     |  | 4.0   | % |  | 3.7   | %
|General and administrative (including stock-based compensation expense) |  | 6.4   | % |  | 6.2   | %

From the beginning of the third quarter of 2008 through the third quarter of 2009 we
have opened a net of three new Pollo Tropical restaurants, nine new Taco Cabana restaurants and four new Burger King restaurants, three of which were relocations within their market areas. During the same period we closed six Burger King
restaurants, excluding relocations, and four Taco Cabana restaurants.



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Restaurant Sales. Total restaurant sales in the third quarter of 2009 decreased $7.9
million, or 3.8%, to $200.8 million from $208.7 million in the third quarter of 2008 due primarily to lower sales at our Burger King restaurants of $7.4 million. Restaurant sales at our Hispanic Brand restaurants decreased 0.5% to $106.7 million in
the third quarter of 2009.

Pollo Tropical restaurant sales increased $0.6 million, or 1.4%, to $43.7 million in the third
quarter of 2009 due to the net addition of three new Pollo Tropical restaurants since the beginning of the third quarter of 2008, which contributed $0.9 million of additional restaurant sales in the third quarter of 2009 compared to the third
quarter of 2008. Comparable restaurant sales decreased 0.1% in the third quarter of 2009 as increases in customer traffic substantially offset a 2.8% decrease in average check due to the effect of menu mix changes and product promotions. The effect
of menu price increases taken in 2008 was approximately 1.8% in the third quarter of 2009.

Taco Cabana restaurant sales
decreased $1.1 million, or 1.7%, to $62.9 million in the third quarter of 2009 due primarily to 4.3% decrease in comparable restaurant sales attributable to a 3.0% decrease in average check due to menu mix changes and product promotions and a 1.4%
decrease in customer traffic. This decrease was offset by net addition of five Taco Cabana restaurants since the beginning of the third quarter of 2008 which contributed $1.9 million of additional restaurant sales in the third quarter of 2009
compared to the third quarter of 2008. The effect of menu price increases taken in 2008 was approximately 3.5% in the third quarter of 2009.

Burger King restaurant sales decreased $7.4 million, or 7.3%, to $94.1 million in the third quarter of 2009 from a decrease in comparable restaurant sales of 6.1% primarily from a 5.3% decrease in
customer traffic and lower average check, compared to the third quarter of 2008, and the net closing of five Burger King restaurants since the beginning of the third quarter of 2008. The effect of menu price increases taken in 2008 was approximately
1.5% in the third quarter of 2009.

Operating Costs and Expenses. Cost of sales as a percentage of total restaurant
sales decreased to 28.7% in the third quarter of 2009 from 30.5% in the third quarter of 2008. Pollo Tropical cost of sales, as a percentage of Pollo Tropical restaurant sales, decreased to 32.9% in the third quarter of 2009 from 33.2% in the third
quarter of 2008 due primarily to the effect of menu price increases taken in 2008 and lower fuel surcharges (0.3% of Pollo Tropical sales) partially offset by lower margins on new menu items and increased promotional discounting (0.3% of Pollo
Tropical sales). Taco Cabana cost of sales, as a percentage of Taco Cabana restaurant sales, decreased to 28.7% in the third quarter of 2009 from 30.7% in the third quarter of 2008 due primarily to the effect of menu price increases taken in 2008,
less product waste from increased food controls (0.4% of Taco Cabana sales) and lower commodity prices (1.0% of Taco Cabana sales) including cheese, partially offset by increased promotional discounting (0.8% of Taco Cabana sales). Burger King cost
of sales, as a percentage of Burger King restaurant sales, decreased to 26.8% in the third quarter of 2009 from 29.2% in the third quarter of 2008 due primarily to the effect of menu price increases taken in 2008, lower commodity prices (2.0% of
Burger King sales) including lower beef prices (1.3% of Burger King sales) and lower fuel surcharges (0.3% of Burger King sales) partially offset by higher discounts and promotions (0.4% of Burger King sales).

Restaurant wages and related expenses, as a percentage of total restaurant sales, increased to 29.4% in the third quarter of 2009 from 28.6%
in the third quarter of 2008. Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo Tropical restaurant sales, decreased to 24.4% in the third quarter of 2009 from 24.7% in the third quarter of 2008 due primarily to lower
workers compensation claim costs (0.6% of Pollo Tropical sales) partially offset by higher restaurant-level performance bonuses (0.3% of Pollo Tropical sales). Taco Cabana restaurant wages and related expenses, as a percentage of Taco Cabana
restaurant sales, increased to 30.2% in the third quarter of 2009 from 28.7% in the third quarter of 2008 due to the effect of lower sales volumes on fixed labor costs and higher medical and workers compensation insurance claim costs (0.7% of Taco
Cabana sales). Burger King restaurant wages and related expenses, as a percentage of Burger King restaurant sales, increased to 31.2% in the third quarter 2009 from 30.3% in the third quarter of 2008 due primarily to the effect of lower sales
volumes on fixed labor costs.

Restaurant rent expense, as a percentage of total restaurant sales, increased to 6.2% in the
third quarter of 2009 from 5.6% in the third quarter of 2008 due primarily to the reduction in lease financing obligations resulting from the recharacterization of certain transactions as qualified sales and the related lease payments as restaurant
rent expense, rather than as payments of interest and principal. Restaurant rent expense also increased from sale-leaseback transactions completed during the last twelve months and, as a percentage of restaurant sales, increased due to the effect of
lower sales volumes on fixed rent payments.

Other restaurant operating expenses, as a percentage of total restaurant sales,
decreased to 14.9% in the third quarter of 2009 from 15.5% in the third quarter of 2008. Pollo Tropical other restaurant operating expenses, as a percentage of Pollo



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Tropical restaurant sales, decreased to 14.3% in the third quarter of 2009 from 15.8% in the third quarter of 2008 due primarily to lower utility costs (0.5% of Pollo Tropical sales), lower
repair and maintenance expenses (0.4% of Pollo Tropical sales), lower general liability claim costs (0.2% of Pollo Tropical sales) and lower recruiting costs due to lower restaurant employee turnover. Taco Cabana other restaurant operating expenses,
as a percentage of Taco Cabana restaurant sales, decreased to 15.0% in the third quarter of 2009 from 15.8% in the third quarter of 2008 due primarily to lower utility costs (0.5% of Taco Cabana sales) and lower repair and maintenance expenses (0.2%
of Taco Cabana sales). Burger King other restaurant operating expenses, as a percentage of Burger King restaurant sales, decreased to 15.0% in the third quarter of 2009 from 15.3% in the third quarter of 2008 due primarily to lower utility costs
(0.7% of Burger King sales) partially offset by the effect of lower sales volumes on other fixed operating costs.

Advertising
expense, as a percentage of total restaurant sales, increased to 4.0% in the third quarter of 2009 from 3.7% in the third quarter of 2008. Pollo Tropical advertising expense, as a percentage of Pollo Tropical restaurant sales, was 2.5% in the both
the third quarter of 2008 and 2009. Pollo Tropical advertising costs are currently expected to be approximately 2.4% to 2.6% of Pollo Tropical restaurant sales for all of 2009, but there can be no assurance in this regard. Taco Cabana advertising
expense, as a percentage of Taco Cabana restaurant sales, increased to 4.7% in the third quarter of 2009 from 3.7% in the third quarter of 2008 due primarily to a timing of promotions within both years. Taco Cabana advertising costs are currently
expected to be approximately 4.0% to 4.2% of Taco Cabana restaurant sales for all of 2009, but there can be no assurance in this regard. Burger King advertising expense, as a percentage of Burger King restaurant sales, decreased to 4.2% in the third
quarter of 2009 from 4.3% in the third quarter of 2008 due to decreased promotional activities in certain of our Burger King markets. Our Burger King advertising costs are currently expected to be approximately 4.2% of our Burger King restaurant
sales for all of 2009, but there can be no assurance in this regard.

General and administrative expenses decreased $0.1
million in the third quarter of 2009 to $12.8 million and, as a percentage of total restaurant sales, increased to 6.4% from 6.2% in the third quarter of 2008. Before an increase in performance-based bonus expense of $1.7 million, all other general
and administrative expenses were reduced by $1.8 million compared to the third quarter of 2008 due substantially to cost reduction initiatives implemented in late 2008.

Segment EBITDA.As a result of the factors above, Segment EBITDA for our Pollo Tropical restaurants increased to $6.3 million in the third quarter of 2009 from $5.2 million in the third quarter of
2008. Segment EBITDA for our Taco Cabana restaurants decreased to $6.7 million in the third quarter of 2009 from $7.3 million in the third quarter of 2008. Segment EBITDA for our Burger King restaurants was $8.8 million in both the third quarter of
2009 and 2008.

Depreciation and Amortization and Impairment and Other Lease Charges. Depreciation and amortization
expense was $8.1 million in the both third quarter of 2009 and 2008. There were no significant impairment and other lease charges in either the third quarter of 2009 or 2008.

Interest Expense. Total interest expense decreased $2.0 million to $4.8 million in the third quarter of 2009 from $6.9 million in the
third quarter of 2008 due to a reduction in our total outstanding indebtedness of $70.3 million since the end of the third quarter of 2008 and lower effective interest rates on our LIBOR based borrowings under our senior credit facility. The
weighted average interest rate on our long-term debt, excluding lease financing obligations, for the third quarter of 2009 decreased to 5.9% from 6.8% in the third quarter of 2008. Interest expense on lease financing obligations decreased to $0.3
million in the third quarter of 2009 from $1.1 million in the third quarter of 2008 due to a reduction in lease financing obligations of $35.6 million since the end of third quarter of 2008.

Provision for Income Taxes. The provision for income taxes for the third quarter of 2009 was derived using an estimated effective
annual income tax rate for all of 2009 of 37.3%, which excludes discrete tax adjustments. Discrete tax adjustments reduced the provision for income taxes in the third quarter of 2009 by $130,000. The provision for income taxes for the third quarter
of 2008 was derived using an estimated effective annual income tax rate for 2008 of 37.2%, excluding discrete tax adjustments. Discrete tax adjustments increased the provision for income taxes in the third quarter of 2008 by $15,000.

Net Income.As a result of the foregoing, net income was $5.6 million in the third quarter of 2009 compared to $3.7 million in the
third quarter of 2008.



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Nine months Ended September 30, 2009 Compared to nine months Ended
September 30, 2008

The following table sets forth, for the nine months ended September 30, 2009 and 2008,
selected operating results as a percentage of consolidated restaurant sales:



|                                                                        |  |       |   |  |       |  
|----------------------------------------------------------------------- |  | ----- | - |  | ----- | -
|                                                                        |  | 2009  |   |  | 2008  |  
|Restaurant sales:                                                       |  |       |   |  |       |  
|Pollo Tropical                                                          |  | 21.8  | % |  | 21.5  | %
|Taco Cabana                                                             |  | 31.3  | % |  | 30.5  | %
|Burger King                                                             |  | 46.9  | % |  | 48.0  | %
|                                                                        |  |       |   |  |       |  
|Total restaurant sales                                                  |  | 100.0 | % |  | 100.0 | %
|Costs and expenses:                                                     |  |       |   |  |       |  
|Cost of sales                                                           |  | 29.0  | % |  | 30.1  | %
|Restaurant wages and related expenses                                   |  | 29.2  | % |  | 29.1  | %
|Restaurant rent expense                                                 |  | 6.1   | % |  | 5.7   | %
|Other restaurant operating expenses                                     |  | 14.6  | % |  | 15.2  | %
|Advertising expense                                                     |  | 3.9   | % |  | 4.0   | %
|General and administrative (including stock-based compensation expense) |  | 6.4   | % |  | 6.4   | %

From the beginning of 2008 through the third quarter of 2009 we have opened a net of
seven new Pollo Tropical restaurants, thirteen new Taco Cabana restaurants and five new Burger King restaurants, four of which were relocations within their market areas. One of the relocated Burger King restaurants in 2008 was closed in 2007.
During the same period we closed ten Burger King restaurants, excluding relocations, and five Taco Cabana restaurants.

Restaurant Sales. Total restaurant sales for the first nine months of 2009 decreased $9.1 million, or 1.5%, to $605.3 million from $614.4 million in the first nine months of 2008. Restaurant sales at our Hispanic Brand restaurants
increased 0.4% to $321.2 million in the first nine months of 2009.

Pollo Tropical restaurant sales decreased $0.4 million, or
0.3%, to $131.8 million in the first nine months of 2009 due primarily to a decrease in comparable restaurant sales of 2.0% primarily due to lower customer traffic compared to the first nine months of 2008. This decrease was offset by the net
addition of seven new Pollo Tropical restaurants since the beginning of 2008, which contributed $3.0 million in additional restaurant sales in the first nine months of 2009 compared to the first nine months of 2008. The effect of menu price
increases taken in 2008 was approximately 5.0% in the first nine months of 2009 although our average check decreased approximately 0.7% compared to the first nine months of 2008 reflecting the effect of menu mix changes and the effect of product
promotions.

Taco Cabana restaurant sales increased $1.7 million, or 0.9%, to $189.3 million in the first nine months of 2009
due primarily to the net increase of eight Taco Cabana restaurants since the beginning of 2008, which contributed $8.2 million of additional restaurant sales in the first nine months of 2009 compared to the first nine months of 2008. This increase
was offset by a 3.4% decrease in comparable restaurant sales in the first nine months of 2009 attributable to lower customer traffic. The effect of menu price increases taken in 2008 was approximately 5.3% in the first nine months of 2009 although
our average check increased approximately 1.1% compared to the first nine months of 2008 reflecting the effect of menu mix changes and product promotions.

Burger King restaurant sales decreased $10.4 million, or 3.5%, to $284.2 million in the first nine months of 2009 due to a decrease in comparable restaurant sales of 2.3% compared to the first nine months
of 2008 and from the closure, excluding relocated restaurants, of ten Burger King restaurants since the beginning of 2008. Effective menu price increases in the first nine months were approximately 3.1% and our average check also increased 3.1%.

Operating Costs and Expenses. Cost of sales as a percentage of total restaurant sales decreased to 29.0% in the first
nine months of 2009 from 30.1% in the first nine months of 2008. Pollo Tropical cost of sales, as a percentage of Pollo Tropical restaurant sales, decreased to 33.1% in the first nine months of 2009 from 33.2% in the first nine months of 2008 due
primarily to the effect of menu price increases taken in 2008 substantially offset by higher chicken commodity prices (0.2% of Pollo Tropical sales) and higher prices of other commodities (1.2% of Pollo Tropical sales). Taco Cabana cost of sales, as
a percentage of Taco Cabana restaurant sales, decreased to 29.0% in the first nine months of 2009 from 30.9% in the first nine months of 2008 due primarily to the effect of menu price increases taken in 2008, lower fuel surcharges (0.2% of Taco
Cabana sales) and less product waste from increased food controls (0.3% of Taco Cabana sales) Lower commodity prices for cheese (0.9% of Taco Cabana sales) were offset by increases in the price of other commodities. Burger King cost of sales, as a
percentage of Burger King restaurant sales, decreased to 27.0% in the first nine months of 2009 from 28.2% in the first nine months of 2008 due primarily to lower commodity costs (0.6% of Burger King sales) including lower beef costs (0.5% of Burger
King sales), higher vendor rebates (0.3% of Burger King sales) and lower fuel surcharges (0.2% of Burger King sales). Increases in sales from lower margin menu items (0.9% of Burger King sales) were offset by the effect of menu price increases taken
in 2008.



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Restaurant wages and related expenses, as a percentage of total restaurant sales, increased
to 29.2% in the first nine months of 2009 from 29.1% in the first nine months of 2008. Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo Tropical restaurant sales, decreased slightly to 24.7% in the first nine months of
2009 from 24.8% in the first nine months of 2008 due primarily to lower workers compensation claim costs (0.3% of Pollo Tropical sales) substantially offset by higher restaurant-level bonuses (0.2% of Pollo Tropical sales). Taco Cabana restaurant
wages and related expenses, as a percentage of Taco Cabana restaurant sales increased to 29.6% in the first nine months of 2009 from 29.1% in the first nine months of 2008 due primarily to higher medical and workers compensation claim costs (0.3% of
Taco Cabana sales) and the effect of lower sales volumes on fixed labor costs. Burger King restaurant wages and related expenses, as a percentage of Burger King restaurant sales, was 31.1% in both the first nine months of 2009 and 2008 due primarily
to improved labor productivity and the effect of menu price increases taken in 2008 offsetting the impact of lower sales volumes on fixed labor costs.

Restaurant rent expense, as a percentage of total restaurant sales, increased to 6.1% in the first nine months of 2009 from 5.7% in the first nine months of 2008 due primarily to the reduction in lease
financing obligations which resulted in a recharacterization of certain transactions as qualified sales and the related lease payments as restaurant rent expense, rather than as payments of interest and principal. Restaurant rent expense also
increased from sale-leaseback transactions completed since the beginning of 2008.

Other restaurant operating expenses, as a
percentage of total restaurant sales, decreased to 14.6% in the first nine months of 2009 from 15.2% in the first nine months of 2008. Pollo Tropical other restaurant operating expenses, as a percentage of Pollo Tropical restaurant sales, decreased
to 14.1% in the first nine months of 2009 from 14.8% in the first nine months of 2008 due primarily to lower repair and maintenance expenses (0.7% of Pollo Tropical sales). Taco Cabana other restaurant operating expenses, as a percentage of Taco
Cabana restaurant sales, decreased to 14.3% in the first nine months of 2009 from 15.3% in the first nine months of 2008 due primarily to lower utility costs (0.5% of Taco Cabana sales), lower repair and maintenance expenses (0.3% of Taco Cabana
sales) and lower security related costs. Burger King other restaurant operating expenses, as a percentage of Burger King restaurant sales, decreased to 15.1% in the first nine months of 2009 from 15.3% in the first nine months of 2008 due primarily
to lower utility costs (0.4% of Burger King sales) partially offset by higher credit card fees (0.1% of Burger King sales).

Advertising expense, as a percentage of total restaurant sales, decreased to 3.9% in the first nine months of 2009 from 4.0% in the first nine months of 2009. Pollo Tropical advertising expense, as a percentage of Pollo Tropical restaurant
sales, decreased slightly to 2.7% in the first nine months of 2009 from 2.8% in the first nine months of 2008. Taco Cabana advertising expense, as a percentage of Taco Cabana restaurant sales, decreased slightly to 4.2% in the first nine months of
2009 from 4.3% in the first nine months of 2008. Burger King advertising expense, as a percentage of Burger King restaurant sales, decreased to 4.2% in the first nine months of 2009 from 4.5% in the first nine months of 2008 due to decreased
promotional activities in certain of our Burger King markets.

General and administrative expenses decreased $0.9 million in
the first nine months of 2009 to $38.7 million and, as a percentage of total restaurant sales, was 6.4% in both the first nine months of 2009 and 2008. Before an increase in performance-based bonus expense of $3.9 million, all other general and
administrative expenses were reduced by $4.8 million compared to the first nine months of 2008 due substantially from cost reduction initiatives implemented in late 2008.

Segment EBITDA.As a result of the factors above, Segment EBITDA for our Pollo Tropical restaurants increased to $19.5 million in the first nine months of 2009 from $18.0 million in the first nine
months of 2008. Segment EBITDA for our Taco Cabana restaurants increased to $22.9 million in the first nine months of 2009 from $19.7 million in the first nine months of 2008. Segment EBITDA for our Burger King restaurants increased to $24.9 million
in the first nine months of 2009 from $22.5 million in the first nine months of 2008.

Depreciation and Amortization and
Impairment and Other Lease Charges. Depreciation and amortization expense was $23.8 million in the first nine months of 2009 compared to $24.2 million in the first nine months of 2008 due to lower depreciation expense pertaining to our Burger
King restaurants. Impairment and other lease charges were $0.4 million in the first nine months of 2009 due to lease related charges of $0.3 million associated with the closure of a Pollo Tropical restaurant in Florida in the first quarter of 2009.
Impairment and other lease charges were $0.2 million in the first nine months of 2008.

Interest Expense. Total
interest expense decreased $6.5 million to $14.9 million in the first nine months of 2009 from $21.4 million in the first nine months of 2008 due to a reduction in our total outstanding indebtedness of $70.3 million since



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the end of the first nine months of 2008 and lower effective interest rates on our LIBOR based borrowings under our senior credit facility. The weighted average interest rate on our long-term
debt, excluding lease financing obligations, for the first nine months of 2009 decreased to 5.9% from 7.0% in the first nine months of 2008. Interest expense on lease financing obligations decreased to $0.9 million in the first nine months of 2009
compared to $3.8 million in the first nine months of 2008 due to a reduction in lease financing obligations of $35.6 million since the end of first nine months of 2008.

Provision for Income Taxes. The provision for income taxes for the first nine months of 2009 was derived using an estimated effective annual income tax rate for all of 2009 of 37.3%, which excludes
discrete tax adjustments. Discrete tax adjustments reduced the provision for income taxes in the first nine months of 2009 by $187,000. The provision for income taxes for the first nine months of 2008 was derived using an estimated effective annual
income tax rate for 2008 of 37.2%, which excludes discrete tax adjustments. Discrete tax adjustments reduced the provision for income taxes by $97,000 in the first nine months of 2008.

Net Income.As a result of the foregoing, net income was $17.7 million in the first nine months of 2009 compared to $8.4 million in
the first nine months of 2008.

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 liabilities for food, supplies and payroll become due.
| | - |  | ---------------------------------------------------------------------------------------------------------

Interest payments under our debt obligations, capital expenditures and payments related to our lease obligations represent significant
liquidity requirements for us. We believe cash generated from our operations, availability of borrowings under our revolving credit facility and proceeds from anticipated sale-leaseback transactions will provide sufficient cash availability to cover
our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months.

In
response to economic conditions and changes in the capital markets, we have and will continue to focus on reducing our debt balances and our financial leverage, particularly in the near term. In 2009, we have significantly reduced our spending on
new restaurant development allowing us to utilize our free cash flow to reduce outstanding indebtedness.

Operating
Activities. Net cash provided from operating activities for the nine months ended September 30, 2009 was $46.9 million and resulted primarily from net income of $17.7 million, adjusted for non-cash items including depreciation and
amortization expense of $23.8 million and cash provided by changes in other operating assets and liabilities of $5.0 million. Net cash provided from operating activities for the nine months ended September 30, 2008 was $29.2 million resulting
primarily from net income of $8.4 million, adjusted for non-cash items including depreciation and amortization expense of $24.2 million and cash used by changes in other operating assets and liabilities of $5.5 million.

Investing Activities. Net cash used for investing activities in the nine months ended September 30, 2009 and 2008 was $24.9
million and $41.9 million, respectively. Capital expenditures are the largest component of our investing activities and include: (1) new restaurant development which may include the purchase of real estate; (2) restaurant remodeling, which
includes the renovation of the interior and exterior of our existing restaurants, including expenditures associated with Burger King franchise renewals; (3) other restaurant capital expenditures, which include capital maintenance expenditures
for the ongoing reinvestment and enhancement of our restaurants; and (4) corporate and restaurant information systems, including expenditures in 2009 and 2008 for new point-of-sale systems for all of our Pollo Tropical and Taco Cabana
restaurants, respectively.



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The following table sets forth our capital expenditures for the nine months ended
September 30, 2009 and 2008 (in thousands):



|                                             |  |          |        |        |   |        |  |       |        |              |   |       |  |   |       
|-------------------------------------------- |  | -------- | ------ | ------ | - | ------ |  | ----- | ------ | ------------ | - | ----- |  | - | ------
|                                             |  | Pollo    |        | Taco   |   | Burger |  |       |        |             
|                                             |  | Tropical |        | Cabana |   | King   |  | Other |        | Consolidated
|Nine months ended September 30, 2009:        |  |          |        |        |   |        |  |       |        |              |   |       |  |   |       
|New restaurant development                   |  | $        | 672    |        | $ | 6,201  |  | $     | 1,014  |              | $ |      |  | $ | 7,887 
|Restaurant remodeling                        |  |          | 364    |        |   | 1,414  |  |       | 8,295  |              |   |      |  |   | 10,073
|Other restaurant capital expenditures (1)    |  |          | 865    |        |   | 1,888  |  |       | 5,614  |              |   |      |  |   | 8,367 
|Corporate and restaurant information systems |  |          |       |        |   |       |  |       |       |              |   | 3,624 |  |   | 3,624 
|                                             |  |          |        |        |   |        |  |       |        |              |   |       |  |   |       
|Total capital expenditures                   |  | $        | 1,901  |        | $ | 9,503  |  | $     | 14,923 |              | $ | 3,624 |  | $ | 29,951
|                                             |  |          |        |        |   |        |  |       |        |              |   |       |  |   |       
|Number of new restaurant openings (2)        |  |          | 1      |        |   | 3      |  |       | 1      |              |   |       |  |   | 5     
|Nine months ended September 30, 2008:        |  |          |        |        |   |        |  |       |        |              |   |       |  |   |       
|New restaurant development                   |  | $        | 9,908  |        | $ | 13,946 |  | $     | 2,610  |              | $ |      |  | $ | 26,464
|Restaurant remodeling                        |  |          | 3,275  |        |   | 340    |  |       | 6,007  |              |   |      |  |   | 9,622 
|Other restaurant capital expenditures (1)    |  |          | 1,881  |        |   | 2,074  |  |       | 2,948  |              |   |      |  |   | 6,903 
|Corporate and restaurant information systems |  |          |       |        |   |       |  |       |       |              |   | 5,835 |  |   | 5,835 
|                                             |  |          |        |        |   |        |  |       |        |              |   |       |  |   |       
|Total capital expenditures                   |  | $        | 15,064 |        | $ | 16,360 |  | $     | 11,565 |              | $ | 5,835 |  | $ | 48,824
|                                             |  |          |        |        |   |        |  |       |        |              |   |       |  |   |       
|Number of new restaurant openings (2)        |  |          | 5      |        |   | 7      |  |       | 2      |              |   |       |  |   | 14    



|1) | Excludes restaurant repair and maintenance expenses included in other restaurant operating expenses in our consolidated financial statements. For the nine months ended
September 30, 2009 and 2008, total restaurant repair and maintenance expenses were approximately $12.7 million and $14.6 million, respectively.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2) | Includes Burger King restaurants which were relocated in the same market area under a new franchise agreement.
|-- | --------------------------------------------------------------------------------------------------------------

In 2009, we currently anticipate that total capital expenditures will range from $37 million to $39 million, although the actual amount of
capital expenditures may differ from these estimates. These expenditures are expected to include approximately $9 million to $10 million for the development of new restaurants and purchase of related real estate. As of September 30, 2009 we
have opened one new Pollo Tropical restaurant, three new Taco Cabana restaurants and one new Burger King restaurant, which was a relocation of the restaurant within its existing market area. Additional development in 2009 will consist of opening one
additional new Taco Cabana restaurant in the fourth quarter. Capital expenditures in 2009 are expected to also include approximately $20 million to $21 million for the ongoing reinvestment in our restaurants for remodeling costs and capital
maintenance expenditures, approximately $3 million related to the replacement and upgrade of point-of-sale systems at our Pollo Tropical restaurants and approximately $4 million for the installation of new broilers at our Burger King restaurants.

In 2010, we currently anticipate opening five to eight new Hispanic Brand restaurants and two new Burger King restaurants,
both of which will be relocations of the restaurants within their existing market areas.

Investing activities also include
sale-leaseback transactions related to our restaurant properties, the proceeds from which were $5.5 million and $6.8 million in the nine months ended September 30, 2009 and 2008, respectively. In the nine months ended September 30, 2009 we
also sold two non-operating restaurant properties for net proceeds of $0.8 million. The net proceeds from these sales were used to reduce outstanding borrowings under our senior credit facility. We also acquired two properties for future
sale-leaseback transactions for $1.3 million in the nine months ended September 30, 2009.

Financing Activities.
Net cash used for financing activities in the first nine months of 2009 was $22.1 million and included net repayments of revolving credit borrowings of $14.9 million and scheduled term loan principal repayments of $6.0 million. In 2009, we settled
$1.9 million of lease financing obligations which included a purchase from a lessor of one restaurant property previously subject to a lease financing obligation for $1.1 million and the settlement of the lease financing obligation recorded in the
second quarter of 2009 for $0.8 million. Net cash provided from financing activities in the first nine months of 2008 was $8.3 million and included net borrowings from our revolving credit facility of $17.2 million. During the nine months ended
September 30, 2008 we also acquired six restaurant properties for $5.5 million that were previously accounted for as lease financing obligations and purchased $2.0 million of our outstanding Notes for $1.8 million in open market transactions.

Senior Credit Facility. Our senior credit facility consists of term loan A borrowings maturing on March 8, 2013
(or earlier on September 30, 2012 if the Notes are not refinanced by June 30, 2012) and a $65.0 million revolving credit facility (including a sub limit of up to $25.0 million for letters of credit and up to $5.0 million for swingline
loans) maturing on March 8, 2012.



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Both term loan and revolving credit borrowings under the senior credit facility bear
interest at a per annum rate, at our option, of either:

1) the applicable margin percentage ranging from 0% to 0.25% based on
our senior leverage ratio (as defined in the senior credit facility) plus the greater of (i) the prime rate or (ii) the federal funds rate for that day plus 0.5%; or

2) Adjusted LIBOR plus the applicable margin percentage in effect ranging from 1.0% to 1.5% based on our senior leverage ratio. At
September 27, 2009 the LIBOR margin percentage was 1.0%.

At September 27, 2009, outstanding term loan borrowings
under the senior credit facility were $111.0 million with the remaining balance due and payable as follows:

1) seven quarterly
installments of $3.0 million; beginning on September 30, 2009;

2) four quarterly installments of $4.5 million beginning
on June 30, 2011; and

3) four quarterly installments of $18.0 million beginning on June 30, 2012.

Under the senior credit facility, we are also required to make mandatory prepayments of principal on term loan borrowings (a) annually
in an amount up to 50% of Excess Cash Flow depending upon our Total Leverage Ratio (as such terms are defined in the senior credit facility), (b) in the event of certain dispositions of assets (all subject to certain exceptions) and insurance
proceeds, in an amount equal to 100% of the net proceeds received by us therefrom, and (c) in an amount equal to 100% of the net proceeds from any subsequent issuance of debt. The senior credit facility contains customary default provisions as
provided therein, including without limitation, a cross default provision pursuant to which it is an event of default under the senior credit facility if there is a default in the payment of any principal of or interest on any indebtedness of
Carrols having an outstanding principal amount of at least $2.5 million (excluding lease financing obligations but which would include the Indenture governing the Notes) or any event or condition which results in the acceleration of such
indebtedness prior to its stated maturity.

In general, obligations under the senior credit facility are guaranteed by us and
all of Carrols material subsidiaries and are collateralized by a pledge of Carrols common stock and the stock of each of Carrols material subsidiaries. The senior credit facility contains certain covenants, including, without
limitation, those limiting our ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of our business, engage in transactions with related parties, make certain investments or pay dividends. In addition,
we are required to meet certain financial ratios, including fixed charge coverage, senior leverage, and total leverage ratios (all as defined under the senior credit facility). We were in compliance as of September 30, 2009 with the covenants
in the senior credit facility. At September 30, 2009, Carrols fixed charge coverage ratio was 1.51 to 1.00 compared to the minimum required fixed charge ratio of 1.20 to 1.00, Carrols senior leverage ratio was 1.41 to 1.00 compared to the
allowed senior leverage ratio of 2.25 to 1.00, and Carrols total leverage ratio was 3.24 to 1.00 compared to the allowed total leverage ratio of 4.50 to 1.00.

Notes.On December 15, 2004 Carrols issued $180.0 million of Notes which bear interest at a rate of 9% payable semi-annually on January 15 and July 15 and mature on January 15,
2013. During 2008, Carrols repurchased and retired $15.0 million principal amount of the Notes in open market transactions for $10.4 million resulting in a gain on extinguishment of debt of $4.4 million, net of a $0.3 million write-off of deferred
financing costs. The Notes are redeemable at the option of Carrols in whole or in part at a price of 104.5% of the principal amount if redeemed before January 15, 2010, 102.25% of the principal amount if redeemed after January 15, 2010 but
before January 15, 2011 and at 100% of the principal amount after January 15, 2011.

The Notes are unsecured and
guaranteed by Carrols material subsidiaries. Restrictive covenants under the Notes include limitations with respect to, among other things, Carrols and its material subsidiaries ability to incur additional debt, incur liens, sell
or acquire assets or businesses, pay dividends and make certain investments. The Indenture governing the Notes contains customary default provisions as provided therein, including without limitation, a cross default provision pursuant to which it is
an event of default under the Notes and the Indenture if there is a default under any indebtedness of Carrols having an outstanding principal amount of $20 million or more (which would include the senior credit facility) if such default results in
the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due. Carrols was in compliance as of September 30, 2009 with the restrictive covenants in the Indenture governing the Notes.

Indebtedness. At September 30, 2009, we had total debt outstanding of $291.2 million comprised of $165.0 million
of Notes, term loan borrowings of $111.0 million under the senior credit facility, borrowings of $3.1 million under the revolving credit facility, lease financing obligations of $10.9 million and capital lease obligations of $1.2 million. After
reserving $14.3 million for letters of credit guaranteed by our senior credit facility, $47.6 million was available for borrowings under the revolving credit facility at September 27, 2009.



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Contractual Obligations

A table of our contractual obligations as of December 31, 2008 was included in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. There have been no significant changes to our contractual obligations during the nine months ended September 30, 2009.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements other than our operating leases, which are primarily for our restaurant properties and are not recorded on our consolidated balance sheet.

Application of Critical Accounting Policies

Our unaudited interim consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing
consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting
policies. Our significant accounting policies are described in the Significant Accounting Policies footnote in the notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended
December 31, 2008. Critical accounting estimates are those that require application of managements most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent
periods.

Revenue recognition at our company-owned and 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 revenue reporting process is covered by our system of internal controls and generally does
not require significant management estimates and judgments. However, critical accounting estimates and judgments, as noted below, are inherent in the assessment and recording of accrued occupancy costs, insurance liabilities, legal obligations,
income taxes, the valuation of goodwill and intangible assets for impairment, assessing impairment of long-lived assets and lease accounting matters. 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.

Accrued occupancy costs. 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 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. At September 30, 2009 we had six non-operating restaurant properties.

Insurance liabilities. We are insured for workers compensation, general liability and medical insurance claims under policies where we pay all claims, subject to annual stop-loss limitations
both for individual claims and claims in the aggregate. At September 30, 2009, we had $8.5 million accrued for these 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, including the ability to estimate the future development of incurred claims based on historical
trends, differences between actual future events and prior estimates and assumptions could result in adjustments to these liabilities.

Legal obligations. 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.

Income taxes. We record income tax liabilities utilizing known obligations and estimates of potential obligations. We are required to
record a valuation allowance if it is more likely than not that 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 expected to be different from that recorded, the asset balance and income statement would reflect any change in valuation in the
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Evaluation of Goodwill. We must evaluate our recorded goodwill for impairment on an
ongoing basis. We have elected to conduct our annual impairment review of goodwill assets at December 31. Our review at December 31, 2008 indicated there has been no impairment as of that date. In performing the goodwill impairment test,
we compare the net book values of our reporting units to their estimated fair values. In determining the estimated fair values of the reporting units, we employ a combination of a discounted cash flow analysis and a market-based approach. The
results of these analyses are corroborated with other value indicators where available, such as comparable company earnings multiples and research analyst estimates. This annual evaluation of goodwill requires us to make estimates and assumptions to
determine the fair value of our reporting units including projections regarding future operating results of each restaurant over its remaining lease term and market values. These estimates may differ from actual future events and if these estimates
or related projections change in the future, we may be required to record impairment charges for these assets.

Impairment
of Long-lived Assets. We assess the potential impairment of long-lived assets, principally property and equipment, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We determine if there is
impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets with their respective carrying values. In determining future cash flows, significant estimates are made by us with respect to future
operating results of each restaurant over its remaining lease term. If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset carrying amount exceeds its fair value. This process of
assessing fair values requires the use of estimates and assumptions, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets.

Impairment of Burger King Franchise Rights. We assess the potential impairment of Burger King franchise rights whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. We determine if there is impairment by comparing the aggregate undiscounted future cash flows from those acquired restaurants with the respective carrying value of
franchise rights for each Burger King acquisition. In determining future cash flows, significant estimates are made by us with respect to future operating results of each group of acquired restaurants over their remaining franchise life. If acquired
franchise rights are determined to be impaired, the impairment charge is measured by calculating the amount by which the franchise rights carrying amount exceeds its fair value. This process requires the use of estimates and assumptions, which are
subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets.

Lease Accounting.Judgments made by management for our lease obligations include the lease term including the determination of renewal options that are reasonably assured which can affect the
classification of a lease as capital or operating for accounting purposes, the term over which related leasehold improvements for each restaurant are amortized, and any rent holidays and/or changes in rental amounts for recognizing rent expense over
the term of the lease. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.

We also must evaluate sales of our restaurants which occur in sale-leaseback transactions to determine the proper accounting for the
proceeds of such sales either as a sale or a financing. This evaluation requires certain judgments in determining whether or not clauses in the lease or any related agreements constitute continuing involvement. These judgments must also consider
various accounting interpretations. For those sale-leasebacks that are accounted for as financing transactions, we must estimate our incremental borrowing rate, or another rate in cases where the incremental borrowing rate is not appropriate to
utilize, for purposes of determining interest expense and the resulting amortization of the lease financing obligation. Changes in the determination of our incremental borrowing rate or other rates utilized in connection with the accounting for
lease financing transactions could have a significant effect on interest expense and underlying balance of the lease financing obligations.

In addition, if a purchase option exists for any properties subject to a lease financing obligation, the purchase option is evaluated for its probability of exercise on an ongoing basis. This evaluation
considers many factors including, without limitation, our intentions, the fair value of the underlying properties, our ability to acquire the property, economic circumstances and other available alternatives to us for the continued use of the
property. These factors may change and be considered differently in future assessments of probability.

Stock-based
Compensation. Stock-based compensation is estimated for equity awards at fair value at the grant date. We determine the fair value of equity awards using the Black-Scholes model which requires the use of certain assumptions. The assumptions
include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award. The risk-free rate of interest is based on the zero coupon U.S. Treasury rate appropriate for the expected term of the



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award. There are no dividend payments assumed as we do not currently plan to pay dividends on our common stock. Expected stock price volatility is based on the implied volatility of a peer group
that had actively traded stock during the period immediately preceding the share-based award grant as we currently do not have sufficient historical stock price data for our stock. This period is equal in length to the awards expected term.
Compensation expense is recognized only for those options expected to vest, with forfeitures estimated based on our historical experience and future expectations.

Effects of New Accounting Standards

In June 2009, the FASB approved ASU
2009-01, the FASB Accounting Standards Codification (the ASC) as the single source of authoritative nongovernmental generally accepted accounting principles (GAAP). All existing accounting standard documents, such as FASB,
American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (SEC), have been superseded by the ASC. All other
non-grandfathered, non-SEC accounting literature not included in the ASC has become nonauthoritative. The ASC did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically
organized online database. The ASC is effective for interim or annual periods ending after September 15, 2009, and impacts the Companys financial statements as all future references to authoritative accounting literature will be
referenced in accordance with the ASC. There have been no changes to the content of our financial statements or disclosures as a result of implementing the ASC during the quarter ended September 30, 2009.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS
No. 167). This statement is a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and changes how a company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entitys purpose and design and a companys ability to
direct the activities of the entity that most significantly impact the entitys economic performance. The statement is effective on January 1, 2010 for companies reporting on a calendar year basis. We are currently evaluating the impact of
SFAS No. 167 on our financial statements.

In August 2009, the FASB issued ASU 2009-05, Fair Value Measurements and
Disclosures (Topic 820). The purpose of this ASU is to clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using a valuation
technique that uses either the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets. This guidance is effective upon issuance. This ASU had no impact on
our financial statements.

Forward Looking Statements

This Quarterly Report on Form 10-Q contains statements which constitute 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. Statements that are predictive in nature or that depend upon or refer to future events or conditions are forward-looking statements.
These statements are often identified by the words may, might, will, should, anticipate, believe, expect, intend, estimate, hope
or similar expressions. In addition, expressions of our strategies, intentions or plans are also forward looking statements. These statements reflect managements current views with respect to future events and are subject to risks and
uncertainties, both known and unknown. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their date. There are important factors that could cause actual results to differ materially from those
in forward-looking statements, many of which are beyond our control. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ
materially from those projected or implied in the forward-looking statements. We believe important factors that could cause actual results to differ materially from our expectations include the following, in addition to other risks and uncertainties
discussed herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008:



| |  |  | Competitive conditions;
| | - |  | -----------------------



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| |  |  | Regulatory factors;
| | - |  | -------------------



| |  |  | Environmental conditions and regulations;
| | - |  | -----------------------------------------



| |  |  | General economic conditions, particularly in the retail sector;
| | - |  | ---------------------------------------------------------------



| |  |  | Weather conditions;
| | - |  | -------------------



| |  |  | Increases in commodity costs;
| | - |  | -----------------------------



| |  |  | Fuel prices;
| | - |  | ------------



| |  |  | Significant disruptions in service or supply by any of our suppliers or distributors;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Changes in consumer perception of dietary health and food safety;
| | - |  | -----------------------------------------------------------------



| |  |  | Labor and employment benefit costs;
| | - |  | -----------------------------------



| |  |  | The outcome of pending or future legal claims and proceedings;
| | - |  | --------------------------------------------------------------



| |  |  | Our ability to manage our growth and successfully implement our business strategy;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | The risks associated with the expansion of our business;
| | - |  | --------------------------------------------------------



| |  |  | Our ability to integrate any businesses we acquire;
| | - |  | ---------------------------------------------------



| |  |  | Our borrowing costs and credit ratings, which may be influenced by the credit ratings of our competitors;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | The availability and terms of necessary or desirable financing or refinancing and other related risks and uncertainties;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | The risk of events similar to those of September 11, 2001 or an outbreak or escalation of any insurrection or armed conflict involving the
United States or any other national or international calamity; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Factors that affect the restaurant industry generally, including recalls if products become adulterated or misbranded, liability if product
consumption causes injury, ingredient disclosure and labeling laws and regulations, reports of cases of mad cow disease and avian flu, and the possibility that consumers could lose confidence in the safety and quality of certain food
products, as well as negative publicity regarding food quality, illness, injury or other health concerns.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Inflation

The inflationary factors that have historically affected our results of operations include increases in food and paper
costs, labor and other operating expenses and energy costs. Wages paid in our restaurants are impacted by changes in the Federal and state hourly minimum wage rates. Accordingly, changes in the Federal and state hourly minimum wage rates directly
affect our labor costs. 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 fully offset such
inflationary cost increases in the future.

ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

There were no material changes from the information presented in Item 7A included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2008 with respect to the Companys market risk sensitive instruments.

A 1% change in interest rates would have resulted in an increase or decrease in interest expense of approximately $0.9 million for the nine months ended September 30, 2009.



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ITEM 4CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. Our senior management is responsible for establishing and maintaining disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), designed to ensure that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuers management, including its principal
executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures. We have evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our management.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 27, 2009.

No change occurred in our internal control over financial reporting during the third quarter of 2009 that materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

PART IIOTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

None



|Item 1A. | RISK FACTORS
|-------- | ------------

Part I
 Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 describes important factors that could cause our actual operating results to differ materially from those indicated or suggested by
forward-looking statements made in this Form 10-Q or presented elsewhere by management from time-to-time. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None



|Item 3. | Default Upon Senior Securities
|------- | ------------------------------

None



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

None



|Item 5. | Other Information
|------- | -----------------

None



|Item 6. | Exhibits
|------- | --------

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 for Carrols Restaurant Group, Inc.



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|     |  |                                                                                                                                                                                  
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 |  | Chief Financial Officers Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Carrols Restaurant Group, Inc.                                               
|     | 
|31.3 |  | Chief Executive Officers Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Carrols Corporation.                                                         
|     | 
|31.4 |  | Chief Financial Officers Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Carrols Corporation.                                                         
|     | 
|32.1 |  | Chief Executive Officers Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Carrols Restaurant Group,
Inc.
|     | 
|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 for Carrols Restaurant Group,
Inc.
|     | 
|32.3 |  | Chief Executive Officers Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Carrols
Corporation.          
|     | 
|32.4 |  | 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 for Carrols
Corporation.          



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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 RESTAURANT GROUP, INC.                                                     
|                       |  | 
|Date: November 4, 2009 |  |  |  | /s/    ALAN
VITULI                                                                 
|                       |  |  |  | (Signature) Alan Vituli Chairman of the Board and Chief Executive
Officer          
|                       |  | 
|Date: November 4, 2009 |  |  |  | /s/    PAUL R.
FLANDERS                                                            
|                       |  |  |  | (Signature) Paul R. Flanders Vice President  Chief Financial Officer and
Treasurer

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: November 4, 2009 |  |  |  | /s/    ALAN
VITULI                                                                 
|                       |  |  |  | (Signature) Alan Vituli Chairman of the Board and Chief Executive
Officer          
|                       |  | 
|Date: November 4, 2009 |  |  |  | /s/    PAUL R.
FLANDERS                                                            
|                       |  |  |  | (Signature) Paul R. Flanders Vice President  Chief Financial Officer and
Treasurer



57