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

                                   FORM 10-K

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

                    For Fiscal Year Ended December 31, 2001

                        Commission File Number: 0-25629

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

                              Carrols Corporation
            (Exact name of Registrant as specified in its charter)

                      Delaware                 16-0958146
                   (State or other
                   jurisdiction of          (I.R.S. Employer
                  incorporation or
                    organization)          Identification No.)

                  968 James Street                13203
                 Syracuse, New York            (Zip Code)
                (Address of principal
                  executive office)

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

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

          Securities registered pursuant to Section 12(g) of the Act:

                   91/2% SENIOR SUBORDINATED NOTES DUE 2008

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

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

   The aggregate market value of the voting stock held by non-affiliates of the
Registrant: No voting stock is held by non-affiliates.

   The number of shares outstanding of each of the Registrant's classes of
common stock, as of March 26, 2001: 10.

================================================================================

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   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 January 2, 2000,
December 31, 2000 and December 30, 2001 will hereinafter be referred to as the
fiscal years ended December 31, 1999, 2000 and 2001, respectively.

                                    PART I

   This 2001 Annual Report on Form 10-K 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. Those statements include statements regarding the intent,
belief or current expectations of the Registrant and its management team.
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 in the
forward-looking statements. Such risks and uncertainties include, among other
things, competitive conditions, economic and regulatory factors, general
economic conditions, fluctuations in commodity prices, availability of
restaurant supply and distribution of product, liquidity of major distributors,
labor and employee benefit costs, the outcome of pending or yet-to-be
instituted legal proceedings, the ability of the Registrant to manage its
growth and successfully implement its business strategy, the availability and
terms of necessary or desirable financing or refinancing and other risks and
uncertainties that are discussed herein.

ITEM 1.  BUSINESS

Overview

  Who We Are

   We are one of the largest restaurant companies in the U.S. operating 529
restaurants in 16 states. We are the second largest Burger King(R) franchisee
in the world and have operated Burger King restaurants since 1976. We currently
operate 361 Burger King restaurants located in 13 Northeastern, Midwestern and
Southeastern states. We also operate two regional Hispanic restaurant chains,
Taco Cabana and Pollo Tropical, which operate or franchise more than 200
restaurants.

   We have acquired and constructed Burger King restaurants resulting in a 55%
increase in the number of restaurants we operate since the end of fiscal 1996.
We have also enhanced the quality of operations and have increased our Burger
King restaurant sales from $295.4 million in 1997 to $380.9 million in 2001.

   We have also expanded our operations during the past four years through the
acquisition of two regional quick-casual Hispanic restaurant chains. In 1998 we
acquired Pollo Tropical Inc., a restaurant chain featuring grilled marinated
chicken and authentic "made from scratch" side dishes, for a cash purchase
price of approximately $95 million. Since the acquisition we have expanded this
concept by over 50% by opening 18 new Pollo Tropical restaurants. We currently
have 54 company owned Pollo Tropical restaurants in Florida and franchise 26
Pollo Tropical restaurants, primarily in Puerto Rico. Total Pollo Tropical
revenues from Company operated restaurants were $96.4 million in 2001.

   In December 2000 we acquired Taco Cabana Inc., a restaurant chain featuring
Tex-Mex style food including flame-grilled beef and chicken fajitas,
quesadillas, and fresh flour tortillas, for a total purchase price of
approximately $155 million. We currently have 114 company owned Taco Cabana
restaurants located in Texas and Oklahoma and 10 franchised Taco Cabana
restaurants. In the fourth quarter of 2001 the Company decided to close its
seven restaurants in the Phoenix, Arizona market which it completed in the
first quarter of 2002. See Note 6 to the Consolidated Financial Statements in
Item 14. Total Taco Cabana revenues were $177.4 million in 2001.

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<PAGE>

   Due primarily to our acquisitions as well as the construction of new
restaurants over the past five years, our total revenues have increased from
$295.4 million in 1997 to $656.3 million in 2001. During this time frame our
total EBITDA (earnings before interest, income taxes, depreciation,
amortization and other income and expense) has increased over 250% from $32.5
million in 1997 to $82.7 million in 2001.

  The Industry

   We operate restaurants in the quick-service restaurant industry which
includes hamburgers, pizza, chicken, various types of sandwiches, Mexican and
other ethnic foods. Our Burger King restaurants operate in the hamburger
segment of this industry. Our Hispanic brands, Taco Cabana and Pollo Tropical,
are part of the quick-casual segment which combines the convenience of
quick-serve restaurants with the menu variety, use of fresh ingredients and
food quality of casual dining.

   The National Restaurant Association estimates that sales at quick-serve
restaurants will increase 3.7% in 2002 and reach approximately $115.2 billion.
According to Technomic Information Services, sales in this segment grew at a
compound rate of 4.7% between 1995 and 2000 and are projected to increase at a
compound rate of 5.8% between 2000 and 2005 including an increase of 4.1% in
the hamburger segment. This growth reflects consumers' increasing desire for a
convenient, reasonably priced restaurant experience. In addition, consumer need
for meals prepared outside of the home, including takeout, has increased
significantly over the past several years as a result of the greater numbers of
working women and single parent families.

   Our Hispanic brands are also affected by other factors including the growing
U.S. Hispanic population and increasing consumer demand for variety and ethnic
foods. According to the U.S. Census Bureau, growth of the Hispanic population
is projected to outpace overall population growth and increase from 11.8% of
the total population in 2000 to 18.2% by 2025.

  Burger King

   Burger King is the second largest quick-service hamburger restaurant chain
in the world, with approximately 11,400 restaurants throughout the U.S. and in
57 foreign countries. In fiscal 2001, Burger King Corporation ("BKC") reported
worldwide sales of approximately $11.2 billion including $8.7 billion from its
restaurants in the U.S. Burger King restaurants are quick-service restaurants
of distinctive design which feature flame-broiled hamburgers and serve several
widely known, trademarked products, the most popular being the WHOPPER(R)
sandwich.

   We believe that the primary competitive advantages of Burger King
restaurants are:

  .   convenience of location;

  .   speed of service;

  .   quality; and

  .   price.

  Pollo Tropical

   We operate and franchise Pollo Tropical quick-casual restaurants featuring
fresh grilled chicken marinated in a proprietary blend of tropical fruit juices
and spices and authentic "made from scratch" side dishes. The menu emphasizes
freshness and quality with a focus on flavorful chicken served "hot off the
grill." Pollo Tropical restaurants combine high quality, distinctive menu items
and an inviting tropical setting with the convenience and value of
quick-service restaurants.

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   Pollo Tropical opened its first company-owned restaurant in 1988 in Miami
and its first international franchised restaurant in 1995 in Puerto Rico. As of
December 31, 2001, we owned and operated 53 Pollo Tropical restaurants, all
located in south and central Florida, and we franchised 26 Pollo Tropical
restaurants, 18 of which are located in Puerto Rico, three each in Ecuador and
El Salvador and one location each in Aruba and Miami. For the year ended
December 31, 2001, Pollo Tropical's average restaurant sales were approximately
$1.93 million, which we believe is among the highest in the quick-service
restaurant industry.

  Taco Cabana

   Acquired in December 2000, our Taco Cabana restaurants feature fresh,
premium quality Tex-Mex and traditional Mexican style food. Menu items include
flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and
American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Many
of Taco Cabana's menu items are "sharing" foods designed for families and large
groups. Unlike many of its competitors, most menu items are made fresh daily in
each of our Taco Cabana restaurants. Taco Cabana restaurants also offer a
variety of beverage choices, including margaritas and beer.

   Taco Cabana pioneered the Mexican patio cafe concept with its first
restaurant in 1978 and of the 114 restaurants we currently operate, 106 are
located in Texas. For the year ended December 31, 2001, Taco Cabana's average
restaurant sales were approximately $1.5 million.

   Our acquisitions of Taco Cabana and Pollo Tropical have provided the
opportunity to:

  .   broaden our opportunities to build additional restaurants;

  .   expand our geographic presence including areas with high population
      growth;

  .   diversify our revenue base;

  .   enhance our overall operating margins and cash flow; and

  .   capitalize on the significant growth of the Hispanic population in the
      United States.

Competitive Strengths

   We attribute our success in the quick-service restaurant industry to the
following competitive strengths:

   One of the Largest Burger King Franchisees.  We are the second largest
Burger King franchisee in the world. We believe that our leadership position,
together with our experienced management team, effective management information
systems, an extensive infrastructure and a proven track record for integrating
acquisitions and new restaurants, provide us with attractive opportunities to
build and acquire additional restaurants. In addition, we believe that these
factors enable us to enhance restaurant margins and overall performance and
allow us to operate more efficiently than most other Burger King franchisees.

   Strong Brand Names.  We believe all of our restaurant concepts are highly
recognized brands in their market areas.

   Burger King--Since the formation of BKC in 1954, the Burger King brand has
become one of the most recognized brands in the restaurant industry. BKC spends
between 4% and 5% of total system sales on advertising per year (approximately
$2.3 billion over the past five years) to sustain and increase this high brand
awareness. Strong brand recognition coupled with the quality and value of the
food and convenience of its restaurants, has provided growth for the Burger
King system.

   Our Hispanic Brands--Pollo Tropical is one of the most highly recognized
quick-service restaurant brands in their core markets of south and central
Florida. Taco Cabana is also a highly recognized brand particularly in its
Texas core markets. Of the 114 Taco Cabana restaurants we currently operate, a
total of 100 restaurants are

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<PAGE>

concentrated in four major markets: San Antonio, Houston, Dallas/Fort Worth and
Austin. We believe that the following factors have led to the success of both
of these concepts:

  .   strong brand awareness in their respective markets;

  .   high quality freshly prepared food;

  .   high frequency of visits and loyalty among our Hispanic customers; and

  .   strategic positioning of the menu to capitalize on the growing consumer
      preference for variety including ethnic foods.

   Stable Cash Flows.  We believe that the stability of our operating cash flow
is due to the proven success of our restaurant concepts and our consistent
focus on restaurant operations. During the past five years, our restaurant
level EBITDA (EBITDA before general and administrative expenses) margins for
our Burger King restaurants ranged between 14.5% and 16.5% and averaged 15.7%.
Over the same five year period, restaurant level EBITDA margins for our Pollo
Tropical restaurants have ranged between 24.4% and 25.8% and averaged 25.1%. In
2001 the restaurant level EBITDA margin for our Taco Cabana restaurants was
18.4%. Aggregate cash flow from total Company operations has increased from
$19.9 million in 1997 to $46.4 million in 2001. We believe that the stability
and diversification of our cash flows provide us with adequate liquidity to
meet our cash flow requirements and to achieve additional growth.

   Diversified Locations and Restaurant Concepts.  Our Burger King restaurants
are geographically dispersed over 13 states in the Northeast, Southeast and
Great Lakes regions. Our acquisitions of Pollo Tropical with its restaurants in
Florida, the Caribbean and Central and South America and Taco Cabana with its
restaurants in Texas and Oklahoma have further expanded our geographic
presence. We believe that multiple concepts operating in diverse geographic
areas enable us to capitalize on regions that have rapidly growing populations
and to further reduce our dependence on the economic performance of any one
particular region or restaurant concept.

   Experienced Management Team with a Significant Equity Stake.  Our senior
management team, headed by Chairman and Chief Executive Officer Alan Vituli and
President and Chief Operating Officer Daniel T. Accordino, has a long and
successful history of developing, acquiring and operating quick-service
restaurants. Under their leadership and direction, we have become the second
largest Burger King franchisee in the world. Mr. Accordino oversees all Company
operations. For our Burger King restaurants he leads a team of four regional
operating directors who have an average of 27 years of restaurant industry
experience and 50 district managers who have an average of 17 years of
restaurant management experience in the Burger King system. In addition,
Nicholas A. Castaldo, President and Chief Operating Officer of our Pollo
Tropical Division, has over 20 years experience in the restaurant industry. Our
management owns (on a diluted basis) approximately 12% of Carrols Holdings
Corporation (Carrols Holdings), which owns 100% of our stock. Our regional and
district managers also hold options to acquire equity in Carrols Holdings.

   Until March 27, 2002 we had employment agreements with Mr. Vituli and Mr.
Accordino. Mr Vituli and Mr. Accordino are currently in discussions with our
Compensation Committee of the Board of Directors with respect to entering into
new employment agreements. See Item 11 Executive Compensation--Description of
Employment Agreements on page 36.

Business Strategy

   Our business strategy is to continue to increase revenues and cash flow
through the construction of new restaurants, selective acquisitions and to
increase operating efficiencies. Based on our historical performance, we
believe that this business strategy represents a low-risk growth plan. Our
strategy is based on the following components:

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<PAGE>

   Leverage Brand Names.  We realize significant benefits as a Burger King
franchisee and owner of the Pollo Tropical and Taco Cabana restaurant concepts.
These benefits are the result of the following:

  .   widespread recognition of the Burger King brand;

  .   the size and penetration of BKC's advertising;

  .   BKC's management of the Burger King brand, including new product
      development; and

  .   strong recognition of the Pollo Tropical and Taco Cabana brands in their
      core markets.

We believe that all three of our brands provide opportunities to expand our
operations both within and outside our existing geographic markets.

   Develop Additional Restaurants in Existing Markets.  We believe that our
existing markets will continue to provide opportunities for the development of
new restaurants. We look to develop restaurants in those of our markets that we
believe are underpenetrated and where the demographic characteristics are
favorable for the development of new restaurants. Our own staffs of real estate
and construction professionals conduct our new restaurant development. Before
developing a new restaurant, we conduct an extensive site selection and
evaluation process that includes in-depth demographic, market and financial
analysis. By selectively increasing the number of restaurants we operate in a
particular market, we can effectively leverage our management, corporate
infrastructure and local marketing while increasing brand awareness.

   Selectively Acquire Burger King Restaurants.  The Burger King system is
highly fragmented in the U.S., with approximately 7,700 Burger King restaurants
being operated by approximately 1,600 franchisees. We expect to continue to be
a buyer of Burger King restaurants and we believe that opportunities for
selective acquisitions will continue in both existing and new geographic
markets as smaller franchisees seek liquidity through the sale of their
restaurants. As the second largest Burger King franchisee with a demonstrated
ability to effectively integrate acquisitions, we believe that we are better
positioned to capitalize on potential acquisitions than many other Burger King
franchisees. We believe that by acquiring additional Burger King restaurants,
we can achieve operating efficiencies from our ability to improve controls over
restaurant food costs, more efficiently utilize labor, and achieve increased
economies of scale by leveraging our corporate infrastructure and control
systems.

   Achieve Operating Efficiencies.  We maintain a disciplined commitment to
increasing the profitability of our existing restaurants. Our large base of
restaurants, management structure and management information systems enable us
to optimize operating efficiencies for our new and existing restaurants. We are
able to control restaurant and corporate level costs, capture economies of
scale by leveraging our existing corporate infrastructure and use our
sophisticated management information and point-of-sale systems to more
efficiently manage our restaurant operations and to ensure consistent
application of operating controls. Our size enables us to realize benefits with
improved bargaining power for purchasing and cost management activities. We
believe these factors provide the basis for increased unit and Company
profitability.

   Consistently Provide Superior Customer Satisfaction.  Our operations are
focused on achieving a high level of customer satisfaction through quick,
accurate and high-quality customer service. BKC and we have uniform operating
standards and specifications relating to the following:

  .   quality;

  .   preparation and selection of menu items;

  .   maintenance and cleanliness; and

  .   employee conduct.

We closely supervise the operation of all of our restaurants to help ensure
that standards and policies are followed and that product quality, customer
service and cleanliness of the restaurants are maintained at high levels.

                                      6

<PAGE>

Overview of Restaurant Concepts

  Burger King Restaurants

   "Have It Your Way"(R) service, flame-broiling, generous portions and
competitive prices characterize the Burger King system marketing strategy.
Burger King restaurants feature flame-broiled hamburgers, the most popular of
which is the WHOPPER(R) sandwich. The WHOPPER is a large, flame-broiled
hamburger on a toasted bun garnished with a combination of mayonnaise, lettuce,
onions, pickles and tomatoes. The basic menu of all Burger King restaurants
consists of hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast
items, french fried potatoes, onion rings, salads, shakes, desserts, soft
drinks, milk and coffee. In addition, promotional menu items are introduced
periodically for limited periods. BKC continually seeks to develop new products
as it endeavors to enhance the menu and service of Burger King restaurants.

   Our Burger King restaurants are typically open seven days per week with
minimum operating hours from 6:00 AM to 11:00 PM. Burger King restaurants are
quick-service restaurants of distinctive design and are generally located in
high-traffic areas throughout the U.S. We believe that the primary competitive
advantages of Burger King restaurants are:

  .   convenience of location;

  .   quality;

  .   price; and

  .   speed of service.

Burger King restaurants appeal to a broad spectrum of consumers, with multiple
day-part meal segments that appeal to different groups of consumers.

   Our Burger King restaurants consist of one of several building types with
various seating capacities. BKC's traditional restaurant contains approximately
2,800 to 3,200 square feet with seating capacity for 90 to 100 customers, has
drive-thru service windows, and has adjacent parking areas. At December 31,
2001, 344 of our 359 Burger King restaurants were freestanding.

  Pollo Tropical Restaurants

   Pollo Tropical restaurants combine high quality, distinctive taste and an
inviting tropical setting with the convenience and value pricing of
quick-service restaurants. Pollo Tropical restaurants offer a unique selection
of food items reflecting tropical and Caribbean influences and feature grilled
fresh chicken marinated in a proprietary blend of tropical fruit juices and
spices. Chicken is grilled in view of customers on large, custom, open-flame
grills. Over time Pollo Tropical has broadened its selection by introducing
additional menu items such as "island" pork, a line of "TropiChops(R)" (a bowl
containing rice, black beans, chicken or pork), grilled steak served with our
distinctive "Chimichurri" sauce and grilled fish which was introduced in early
2002. We also feature an array of distinctive and popular side dishes,
including black beans and rice, yucatan fries and sweet plantains, as well as
more traditional menu items such as french fries, corn, and tossed and caesar
salads. We also offer freshly prepared tropical desserts, such as flan and tres
leches.

   Our Pollo Tropical restaurants incorporate high ceilings, large windows,
tropical plants, light colored woods, decorative tiles, a visually distinctive
exterior entrance tower, lush landscaping and other signature architectural
features, all designed to create an airy, inviting and tropical atmosphere. We
design our restaurants to conveniently serve a high volume of customer traffic
while retaining an inviting, casual atmosphere.

   Our Pollo Tropical restaurants are generally open for lunch and dinner seven
days per week from 11:00 AM to 10:00 PM (11:00 PM on Friday and Saturday) and
offer sit-down dining, counter take-out and drive-thru service to accommodate
the varied schedules of families, business people, students and other
time-sensitive

                                      7

<PAGE>

individuals. Our menu offers a variety of portion sizes to accommodate a single
customer, family or large group. Pollo Tropical restaurants also offer an
economical catering menu, with special prices and portions to serve 25 to 500
persons.

   Our Pollo Tropical restaurants typically provide seating for 80 to 100
customers and provide drive-thru service. All of our Pollo Tropical restaurants
are free-standing buildings except for three locations contained within strip
shopping centers and one street-level storefront location in an office
building. Our current prototypical freestanding Pollo Tropical restaurant
ranges between 2,800 and 3,200 square feet in size.

  Taco Cabana

   Taco Cabana restaurants combine generous portions of fresh, premium quality
Tex-Mex and traditional Mexican style food with the convenience and value
pricing of quick-service restaurants. The restaurants provide interior,
semi-enclosed and patio dining areas with a festive Mexican theme. Menu items
include flame-grilled beef and chicken fajitas served on sizzling iron
skillets, "Chicken Flameante"(TM) (a marinated rotisserie chicken),
quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes
and fresh, hot flour tortillas. The menu items offered at our Taco Cabana
restaurants are prepared at that restaurant from fresh meat and produce
ingredients delivered by suppliers to most restaurants three times each week.
Taco Cabana is committed to differentiating itself from other quick service
competitors by utilizing fresh, high quality ingredients as well as the
preparation of most items "from scratch". In order to simplify operations and
provide a more consistent product, Taco Cabana also uses a number of
pre-prepared items.

   In the third quarter of 2001 we introduced grilled chicken on a test basis
in our Tulsa, Oklahoma market. As a result of the success of that test, we will
begin installing additional grills in 2002 to allow for the introduction of
grilled chicken in all our Taco Cabana restaurants over the next three years.

   Taco Cabana restaurants average approximately 3,200 square feet (exclusive
of the exterior dining area) and provide seating for approximately 80
customers, with additional patio seating for approximately 50 customers. Taco
Cabana restaurants are typically distinctive in appearance, conveying a Mexican
theme and permitting easy identification by passing motorists. Substantially
all of Taco Cabana's restaurants have been re-imaged over the past four years.
The new prototype features rounded fronts, as well as Southwest accents such as
a clay tile roof, heavy wood beams and a trellis that shades the patio area,
and add the use of bright colors outside and inside, including colored tiles,
doors, windows and awnings. Corrugated metal wall panels, aged wood finishes
and distressed stainless steel counter tops are featured inside, all of which
are intended to replicate an old Mexican cafe.

   Taco Cabana's interior restaurant design features display cooking that
enables customers to observe fresh fajitas cooking on a grill, a machine making
fresh, hot flour tortillas and the preparation of other food items. Upon entry,
the customer places an order selected from an overhead menu board, proceeds
down a service line to where the order is picked up, and then passes a Salsa
Bar en route to the dining area. The distinctive Salsa Bar offers Taco Cabana
customers freshly prepared, authentic Tex-Mex ingredients such as Salsa de
Fuego (made with charred peppers and tomatoes,) pico de gallo and salsa (all
"made from scratch" throughout the day at each restaurant), cilantro, pickled
jalapeno slices, crisp chopped onions, and fresh sliced limes. According to the
season, time of day and personal preference, our customers can choose to dine
in the restaurant's brightly colored and festive interior dining area or in
either the semi-enclosed or outdoor patio areas.

   We operate our Taco Cabana restaurants to enable customers to dine-in or
take-out, as they choose. In most cases, the restaurants also provide the
convenience of drive-thru windows which, in the aggregate, accounted for 46.3%
of its restaurant sales for the year ended December 31, 2001. A majority of our
Taco Cabana restaurants are open 24 hours a day. This strategy is continually
evaluated for economic viability on a restaurant by restaurant basis.

                                      8

<PAGE>

Restaurant Economics

  Burger King Restaurants

   For fiscal 2001, our Burger King restaurants generated average sales of
$1,079,000 and average restaurant level EBITDA of $171,000. Drive-thru sales
contributed 59.1% of all restaurant sales. In all but 15 locations, which are
primarily in malls, our Burger King restaurants have a drive-thru window.
Percentages of total sales by day part were as follows for the year ended
December 31, 2001:

<TABLE>
          <S>                                               <C>
          Breakfast........................................      14.4%
          Lunch............................................      33.4%
          Dinner...........................................      27.0%
          Late Afternoon & Late Night Snacks............... Remainder
</TABLE>

   The average sales transaction was $4.22 in 2001.

   The cost of the franchise fee, equipment, seating, signage and other
interior costs of a standard new Burger King restaurant is approximately
$365,000 (excluding the cost of the land, building, and site improvements). The
cost of land generally ranges from $350,000 to $500,000. The cost of building
and site improvements generally ranges from $525,000 to $600,000. We typically
lease the real estate associated with our Burger King restaurants.

  Pollo Tropical Restaurants

   For the year ended December 31, 2001, our Pollo Tropical restaurants
generated average sales of $1,929,000 and average restaurant level EBITDA of
$471,000. Pollo Tropical restaurant sales are well balanced by method of
service and by day part. For 2001, drive-thru sales contributed 38.0% of
restaurant sales and take-out sales accounted for 22.4% of total sales.
Percentages of total sales by day part are as follows:

<TABLE>
            <S>                                               <C>
            Lunch............................................ 45.9%
            Dinner........................................... 54.1%
</TABLE>

      The average sales transaction was $8.11 in 2001.

   The cost of equipment, seating, signage and other interior costs of a
standard new Pollo Tropical restaurant are approximately $350,000 (excluding
the cost of the land, building, and site improvements). The cost of land
generally ranges from $550,000 to $700,000. The cost of building and site
improvements generally ranges from $650,000 to $725,000. We generally lease the
real estate associated with our Pollo Tropical restaurants.

  Taco Cabana Restaurants

   For the year ended December 31, 2001, our Taco Cabana restaurants generated
average restaurant sales of $1,478,000 and average restaurant level EBITDA of
$272,000.

   The majority of our Taco Cabana restaurants are open 24 hours a day. Sales
at the restaurants are balanced by day part. Percentages of total sales by day
part are as follows:

<TABLE>
          <S>                                               <C>
          Breakfast........................................   14.7%
          Lunch............................................   22.4%
          Dinner...........................................   24.1%
          Late Night (9pm to 12am).........................   16.4%
          Other (2pm to 5pm and 12am to 6am)............... Remainder
</TABLE>

   The average sales transaction was $6.63 in 2001.

                                      9

<PAGE>

   The cost of equipment, seating, signage and other interior costs of a
standard new Taco Cabana restaurant total approximately $460,000 (excluding the
cost of the land, building and site improvements). The cost of the land
generally ranges from $600,000 to $750,000. The cost of building and site
improvements generally ranges from $550,000 to $650,000. We will typically
lease the real estate associated with our Taco Cabana restaurants.

Restaurant Locations

   The following table sets forth the locations of the 359 Burger King
restaurants we operated at December 31, 2001.

<TABLE>
<CAPTION>
                                                              Total
         State                                             Restaurants
         -----                                             -----------
         <S>                                               <C>
         Connecticut......................................       1
         Indiana..........................................       5
         Kentucky.........................................      10
         Maine............................................       5
         Massachusetts....................................       2
         Michigan.........................................      27
         New Jersey.......................................       2
         New York.........................................     153
         North Carolina...................................      39
         Ohio.............................................      79
         Pennsylvania.....................................      13
         South Carolina...................................      22
         Vermont..........................................       1
                                                               ---
            Total.........................................     359
                                                               ===
</TABLE>

   As of December 31, 2001, we owned and operated 53 Pollo Tropical
restaurants, all located in Florida. In addition, of our 26 franchised Pollo
Tropical restaurants, 18 are located in Puerto Rico, Ecuador and El Salvador
each have three locations and Aruba and Miami each have one location.

   As of December 31, 2001, we owned and operated 120 Taco Cabana restaurants
and franchised 10 Taco Cabana restaurants located in the following states:

<TABLE>
<CAPTION>
                                                Owned   Franchised Total
                                                -----   ---------- -----
        <S>                                     <C>     <C>        <C>
        Texas..................................  106         6      112
        Oklahoma...............................    8        --        8
        Arizona................................    6(a)     --        6
        New Mexico.............................   --         2        2
        Georgia................................   --         1        1
        Indiana................................   --         1        1
                                                 ---        --      ---
          Total................................  120        10      130
                                                 ===        ==      ===
</TABLE>
--------
(a) These restaurants were closed in February 2002.

Operations

  Management Structure

   We conduct substantially all of our executive management, finance, marketing
and operations support functions from our corporate headquarters in Syracuse,
New York, our Pollo Tropical headquarters in Miami, Florida or our Taco Cabana
headquarters in San Antonio, Texas. Our Burger King operations are overseen by
four regional directors with an average of 27 years of restaurant industry
experience, two of whom are vice

                                      10

<PAGE>

presidents. Fifty district supervisors, that have an average of 17 years of
restaurant management experience in the Burger King system, support the
regional directors. The management structure for Pollo Tropical consists of a
Vice President of Operations who is supported by six district supervisors. The
management structure of Taco Cabana consists of an Executive Vice President of
Operations, who has over 25 years of restaurant experience, and two regional
vice presidents supported by 16 district supervisors.

   For each of our brands, a district supervisor is responsible for the direct
oversight of the day-to-day operations of an average of seven restaurants.
Typically, district supervisors have previously served as restaurant managers
at one of our restaurants. Both regional directors and district supervisors are
compensated with a fixed salary plus an incentive bonus based upon the
performance of the restaurants under their supervision. Typically, our
restaurants are staffed with hourly employees who are supervised by a salaried
manager and two or three salaried assistant managers.

  Training

   We maintain a comprehensive training and development program for all of our
personnel and provide both classroom and in-restaurant training for our
salaried and hourly personnel. The program emphasizes system-wide operating
procedures, food preparation methods and customer service standards for each of
the concepts. In addition, BKC's training and development programs are also
available to us.

  Management Information Systems

   We believe that our management information systems, which are more
sophisticated than systems typically utilized by smaller Burger King
franchisees and other small quick-service restaurant operators, provide us with
the ability to more efficiently manage our restaurants and to ensure consistent
application of operating controls throughout the chain. Our size also affords
us the ability to maintain an in-house staff of information and restaurant
systems professionals dedicated to continuously enhancing our existing systems.
In addition, these capabilities allow us to integrate newly acquired
restaurants and to leverage our investments in information technology over a
large base of restaurants.

   Both our Burger King and Taco Cabana restaurants employ state-of-the-art,
touch-screen point-of-sale (POS) systems that are designed to facilitate
accuracy and speed of order taking. These systems are user-friendly, require
limited cashier training and improve speed-of-service through the use of
conversational order-taking techniques. The POS systems are integrated with
PC-based applications at the restaurant that are designed to facilitate
financial and management control of our restaurant operations.

   Our restaurant systems provide daily tracking and reporting of traffic
counts, menu item sales, labor and food data, and other key operating
information for each restaurant. We electronically communicate with our
restaurants on a daily basis enabling us to collect this information for use in
our corporate management systems. Our Corporate and divisional administrative
headquarters house client/server-based systems that support all of our
accounting, operating and reporting systems. We also operate a 24-hour, 7-day
help desk at our corporate headquarters that enables us to provide systems and
operational support to our Burger King restaurant operations as required. Among
other things, our restaurant information systems provide us with the ability to:

  .   monitor labor utilization and sales trends on a real-time basis at each
      restaurant enabling the store manager to effectively manage to
      established labor standards on a timely basis;

  .   minimize shrinkage using restaurant-level inventory management and
      centralized standard costing systems;

                                      11

<PAGE>

  .   analyze sales and product mix data to help restaurant management
      personnel forecast production levels;

  .   monitor day-part drive-thru speed of service at each of our restaurants.

  .   systematically communicate human resource and payroll data to our
      administrative offices for efficient centralized management of labor
      costing and payroll processing;

  .   employ centralized control over price, menu and inventory management
      activities at the restaurant utilizing the remote access capabilities of
      our systems;

  .   take advantage of electronic commerce including our ability to place
      orders with suppliers and to integrate detailed invoice, receiving and
      product data with our inventory and accounting systems;

  .   provide analyses, reporting and tools to enable all levels of management
      to review a wide-range of financial and operating data; and

   Information from our systems is available daily to the restaurant manager,
who is expected to react quickly to trends or situations in his or her
restaurant. Our district supervisors also receive daily information for all
restaurants under their control and have access to key operating data on a
remote basis using our corporate intranet and laptop computers. Each management
level, from the restaurant manager through senior management, monitors key
restaurant performance indicators.

  Site Selection

   We believe that the location of our restaurants is a critical component of
each restaurant's success. We evaluate potential new development sites based
upon accessibility, visibility, costs, surrounding traffic patterns,
competition and demographic characteristics. Our senior management determines
the acceptability of all acquisition and new development sites, based upon
analyses prepared by our real estate professionals and operations personnel.

Burger King Franchise Agreements

   Each of our Burger King restaurants operates under a separate franchise
agreement. Our franchise agreements with BKC require, among other things, that
all restaurants be of standardized design and be operated in a prescribed
manner, including utilization of the standard Burger King menu. Our franchise
agreements with BKC generally provide for an initial term of 20 years and
currently have an initial fee of $50,000. BKC may grant a successor franchise
agreement (renewal) for an additional 20-year term, provided the restaurant
meets the then current BKC operating standards. The successor BKC franchise
agreement fee is currently $50,000. Our franchise agreements with BKC are
non-cancelable except for failure to abide by their terms. We are not in
default under our franchise agreements with BKC.

   In order to obtain a successor franchise agreement with BKC, a franchisee is
typically required to make capital improvements to the Burger King restaurant
to bring the Burger King restaurant up to BKC's then-current design standards.
The required capital improvements will vary widely depending upon the magnitude
of the required changes and the degree to which we have made interim changes to
the restaurant. Our average remodeling costs for the 67 restaurants we have
remodeled in the past two years was approximately $365,000. We have four
franchise agreements expiring in 2002, and one each in 2003 and 2004.

   We believe that we have a good relationship with BKC and that we will
satisfy BKC's normal successor franchise agreement policies. Accordingly, we
believe that successor franchise agreements with BKC will be granted on a
timely basis by BKC at the expiration of our existing franchise agreements with
BKC. Historically, BKC has granted each of our requests for a successor
franchise agreement for our restaurants. We cannot assure you, however, that
BKC will continue to grant each of our requests for successor franchise
agreements.

                                      12

<PAGE>

   In addition to the initial franchise fee, we generally pay a monthly royalty
of 3 1/2% of the gross revenues from our Burger King restaurants to BKC on our
existing restaurants. We also contribute a minimum of 4% of restaurant sales
from our Burger King restaurants to fund BKC's national and regional
advertising. BKC engages in substantial national advertising and promotional
activities and other efforts to maintain and enhance the Burger King brand. We
supplement BKC's marketing with local advertising and promotional campaigns.
See "Business--Advertising and Promotion."

   Our franchise agreements with BKC do not give us exclusive rights to operate
a Burger King restaurant in any defined territory. We believe that BKC
generally seeks to ensure that newly granted franchises do not materially
adversely affect the operations of existing Burger King restaurants. There is
no assurance that a franchise given by BKC to a third party will not adversely
effect any single Burger King restaurant that we operate.

   We are required to obtain BKC's consent before we acquire or develop new
Burger King restaurants. BKC also has the right of first refusal to purchase
any Burger King restaurant that is being offered for sale by a franchisee. To
date, BKC has approved all of our acquisitions of Burger King restaurants,
except for two instances when it exercised its right of first refusal.

  Franchise Fee Changes and Early Successor Program

   On July 1, 2000, BKC increased its royalty and franchise fees for most new
restaurants. The franchise fee for new restaurants increased from $40,000 to
$50,000 for a 20-year agreement and the royalty rate increased from 31/2% of
sales to 41/2% of sales, after a transitional period. For franchise agreements
entered into during the transitional period, the royalty rate will be 4% of
sales for the first 10 years and 41/2% of sales for the balance of the term.

   For new restaurants, the transitional period is from July 1, 2000 through
June 30, 2003. As of July 1, 2003, the royalty rate will become 41/2% of sales
for the full term of new restaurant franchise agreements. As of July 1, 2001,
existing restaurants that renew their franchise agreements will pay a royalty
of 41/2% of sales for the full term of the renewed agreement. The advertising
contribution will remain at 4% of sales. The royalty rates for existing
franchise agreements are not affected by these changes until the time of
renewal.

   BKC offered a voluntary program to encourage franchisees to accelerate the
renewal of their franchise agreements. Franchisees that elected to participate
in the Early Successor Incentive Program were required to make capital
improvements in their restaurants to bring them up to BKC's current design
image. Franchise agreements entered into under this program contain special
provisions regarding the royalty rates including a reduction in the royalty for
a period of time.

   For commitments made prior to July 1, 2000 to renew franchise agreements
under BKC's Fiscal 2000 early successor program, the renewal franchise fee
remained at $40,000. The royalty rate under this program remains at 31/2%
through March 31, 2002, at which time it will then be reduced to 23/4% for the
following five-year period. The royalty rate reverts back to 31/2% effective
April 1, 2007 for the remainder of any of the initial franchise term, and then
increases to 41/2% for the balance of the new agreement.

   For commitments made between July 1, 2000 and June 30, 2001 to renew
franchise agreements under BKC's Fiscal 2001 early successor program, the
renewal franchise fee increased to $50,000. The royalty rate will remain at
31/2% through September 30, 2002, at which time it will be reduced to 3% for a
three-year period. The royalty rate reverts back to 31/2% effective October 1,
2005 for the remainder of any of the initial franchise term, and then increases
to 41/2% for the balance of the new agreement. The capital improvements
required in conjunction with the successor franchise renewal under this program
must be completed by June 30, 2002.

   After evaluating the applicable royalty reductions and the acceleration of
the required capital improvements, we elected to renew 48 franchise agreements
under BKC's early successor programs. The Company's total Burger King
remodeling expenditures, which include expenditures for these early successor
programs, was $20.2 million in 2001, $12.7 million in 2000 and $9.8 million in
1999.

                                      13

<PAGE>

  Transformation Initiatives

   Over the past two years BKC has instituted initiatives to encourage and
facilitate franchisees' investment in certain upgrades to their restaurants.
These transformation initiatives include the installation of new signage with
the new Burger King logos, a new drive-thru equipment package, and where
necessary, expenditures for painting, parking lot maintenance and landscaping.
In addition BKC has defined enhancements to the kitchen including a new
high-speed toaster, improved product holding units and a new self-loading
broiler capable of cooking at different speeds and temperatures facilitating
the preparation of a wider variety of menu items. By an amendment to our
franchise agreements, we committed:

  .   to install the new signage in substantially all of our restaurants;

  .   to "spruce up" our restaurants in 2000 to the extent necessary, including
      painting, parking lot sealing/striping, and landscaping;

  .   to install the new drive-thru package which includes new menu boards, an
      order confirmation unit and improved speaker system; and

  .   to roll-out and install the new kitchen initiatives as approved and
      mandated by BKC which currently include improved toasting and holding
      equipment (Phase I initiatives) and a new broiler (Phase II initiatives).

   BKC also arranged for the Coca-Cola Company and Dr. Pepper/Seven-Up, Inc. to
make funds available to franchisees to be used in connection with the
transformation initiatives. By agreeing to make the investments associated with
the transformation initiatives, we received $56,000 per restaurant in 2000, or
approximately $19.8 million in the aggregate, from the fund established by
Coca-Cola and Dr. Pepper. We also received $1.6 million from this fund on a
supplemental basis in 2001 pertaining to completing the drive-thru package.

   At the end of 2001 we had completed the drive-thru upgrades in approximately
80% of our Burger King restaurants, were two-thirds complete with the Phase I
Kitchen upgrades and 20% complete with respect to new signage.

   We have made a total of $9.0 million of expenditures related to these
activities over the past two years. We currently anticipate expenditures of
$7.5 million in 2002 and between $4.5 million and $5.0 million in 2003 to
complete these initiatives.

Pollo Tropical Franchise Operations

   At December 31, 2001 Pollo Tropical had five franchisees operating a total
of 26 Pollo Tropical restaurants located in Puerto Rico, Ecuador, Aruba, El
Salvador and Miami. While our existing franchisees may open new restaurants
from time to time, we are not actively expanding our franchising operations at
the present time.

   Our standard franchise agreement under which we franchise Pollo Tropical
restaurants to independent restaurant operators has a 15-year term (with one
15-year renewal option). It provides for an initial payment by the franchisee
of a portion of all franchise fees upon signing of the area development and
franchise agreements, with the remainder due before the opening of the
franchisee's Pollo Tropical restaurants. The franchisee also pays a continuing
royalty, based upon gross sales. The terms and conditions of these franchise
agreements will vary depending upon a number of factors, including:

  .   the experience and resources of the franchisee;

  .   the size and density of the covered territory;

  .   the number of units to be developed;

  .   the schedule for development;

  .   capital requirements; and

  .   fee and royalty arrangements.

   All franchisees are required to operate their restaurants in compliance with
certain methods, standards and specifications developed by Pollo Tropical
regarding such matters as menu items, recipes, food preparation,

                                      14

<PAGE>

materials, supplies, services, fixtures, furnishings, decor and signs. The
franchisees have discretion to determine the prices to be charged to customers.
In addition, all franchisees are required to purchase substantially all food,
ingredients, supplies and materials from suppliers approved by us.

Taco Cabana Franchise Operations

   As of December 31, 2001, Taco Cabana had five franchisees operating a total
of 10 Taco Cabana restaurants. Taco Cabana did not enter into any new franchise
agreements during 2001 and does not currently anticipate entering into any new
franchise agreements during 2002.

Advertising and Promotion

   The efficiency and quality of advertising and promotional programs can
significantly affect quick-service restaurant businesses. We believe that one
of the major advantages of being a Burger King franchisee is the value of the
extensive regional and national advertising and promotional programs conducted
by BKC. In addition to the benefits derived from BKC's advertising spending, we
supplement BKC's advertising and promotional activities with local advertising
and promotions, including the purchase of additional television, radio and
print advertising. Our concentration of restaurants in many of our markets
permits us to leverage advertising in those markets. We also utilize
promotional programs, such as combination value meals and discounted prices,
targeted to our customers, in order to create a flexible and directed marketing
program.

   We are generally required to contribute 4% of gross revenues from restaurant
operations to an advertising fund utilized by BKC for its advertising,
promotional programs and public relations activities. BKC's advertising
programs consist of national campaigns supplemented by local advertising. BKC's
advertising campaigns are generally carried on television, radio and in
circulated print media (national and regional newspapers and magazines).

   We believe that brand awareness for our Pollo Tropical restaurants is
extremely high because of the concentration of our restaurants in the south
Florida markets. Pollo Tropical restaurants are clustered in target markets
which maximizes the effectiveness of our advertising efforts. Pollo Tropical
advertises in both English and Spanish media throughout the year, including
television, radio and print advertising. Pollo Tropical also has marketed at
the individual restaurant level through special price offerings and unique
promotional and public relations programs. Pollo Tropical spent approximately
3.7%, 3.9%, and 4.0% of restaurant sales on advertising in 2001, 2000, and
1999, respectively.

   Taco Cabana utilizes an integrated, multi-level marketing approach that
includes periodic chain-wide promotions, direct mail, in-store promotions,
local store marketing and other strategies, including the use of radio
advertising in its major markets. In 2001 television advertising was also
utilized as well as combination value meals, and, to a lesser extent,
discounted prices. As a percentage of restaurant sales, Taco Cabana's
advertising expenditures were approximately 5.1% in 2001 and approximately 3.8%
in 2000 and 1999. The increase in advertising expenditures in 2001, as a
percentage of restaurant sales, was due to the use of television advertising
which had not been done for several years. We anticipate that Taco Cabana's
advertising expenditures will decrease to 4% to 4.5% of restaurant sales in
2002 .

Supplies and Distribution

   We are a member of a national purchasing cooperative created for the Burger
King system known as Restaurant Services, Inc. Restaurant Services Inc. is a
non-profit independent cooperative which acts as the purchasing agent for
approved distributors to the system and serves to negotiate the lowest cost for
the Burger King system. We use our purchasing power to negotiate directly with
certain other vendors, to obtain favorable pricing and terms for supplying our
restaurants.

                                      15

<PAGE>

   For our Burger King restaurants, we are required to purchase all of our
foodstuffs, paper goods and packaging materials from BKC-approved suppliers. We
may purchase non-food items such as kitchen utensils, equipment maintenance
tools and other supplies from any suitable source provided that such items meet
BKC product uniformity standards. All BKC-approved suppliers are required to
purchase foodstuffs and supplies from BKC-approved manufacturers and purveyors.
BKC is responsible for monitoring quality control and supervision of these
manufacturers and conducts regular visits to observe the preparation of
foodstuffs, and to run various tests to ensure that only high quality
foodstuffs are sold to BKC-approved suppliers. In addition, BKC coordinates and
supervises audits of approved suppliers and distributors to determine
continuing product specification compliance and to ensure that manufacturing
plant and distribution center standards are met.

   We previously obtained substantially all of our foodstuffs for our Burger
King restaurants (other than bread products which we purchase from local
bakeries), paper goods, promotional premiums and packaging materials from
AmeriServe Food Distribution, Inc. under a supply contract which expired on May
15, 2000. We have entered into new supply agreements each for terms of up to
five years with four BKC-approved suppliers who are servicing our restaurants
utilizing a total of seven distribution centers in various geographical
regions. The transition to our new suppliers was completed in June 2000.

   For our Pollo Tropical and Taco Cabana restaurants, we have negotiated
directly with local and national suppliers for the purchase of food and
beverage products and supplies to ensure consistent quality and freshness and
to obtain competitive prices. Pollo Tropical and Taco Cabana restaurant's food
and supplies are ordered from approved suppliers and are shipped directly to
the restaurants. Both brands are responsible for monitoring quality control and
supervision of these suppliers and conduct inspections to observe the
preparation and quality of products purchased. For our Taco Cabana restaurants,
SYGMA Network, Inc. (SYGMA) serves as the primary distributor of food and
beverage products and supplies. SYGMA purchases, warehouses and distributes
products for these restaurants under a distribution service agreement that
expires on August 9, 2003.

   If a significant disruption in service or supply by any of our suppliers
were to occur, it could create disruptions in the operations of our
restaurants, which could have a material adverse effect on us.

Quality Assurance

   At each of our three brands we focus our operations on achieving a high
level of customer satisfaction with speed, accuracy and quality of service that
is closely monitored. Our senior management and restaurant management staff are
principally responsible for ensuring compliance with our operating policies,
and with respect to our Burger King restaurants, BKC's required operating
procedures as well. We have uniform operating standards and specifications
relating to the quality, preparation and selection of menu items, maintenance
and cleanliness of the premises and employee conduct. In order to help maintain
compliance with these operating standards and specifications, we distribute to
our restaurant operations management team detailed reports measuring compliance
with various customer service standards and objectives.

   We also operate in accordance with quality assurance and health standards
set by Federal, state and local governmental laws and regulations. These
standards include food preparation rules regarding, among other things, minimum
cooking times and temperatures, maximum time standards for holding prepared
food, food handling guidelines and cleanliness. To maintain these standards, we
conduct unscheduled inspections of our restaurants. In addition, restaurant
managers conduct internal inspections for taste, quality, cleanliness and food
safety on a regular basis.

Trademarks

   Taco Cabana has registered its principal Taco Cabana logo and design with
the United States Patent and Trademark Office on the Principal Register as a
service mark for its restaurant services. It also has secured or has applied
for state and federal registrations of several other advertising or promotional
marks, including variations of its principal mark and has applied for
registrations in foreign countries of its principal mark and several other
marks.

                                      16

<PAGE>

   Pollo Tropical has registered its principal trademarks for "Pollo
Tropical(R)," "TropiGrill(R)" and "TropiChops(R)" in the United States and
presently has applications pending or registrations granted in various foreign
countries in which it conducts business or may conduct business through its
franchise system. In certain foreign countries, Pollo Tropical has been
involved in trademark opposition proceedings to defend its rights to register
certain trademarks. We intend to protect both Taco Cabana and Pollo Tropical
trademarks by appropriate legal action whenever necessary.

   Other than the Pollo Tropical and Taco Cabana trademarks, we have no
proprietary intellectual property other than the logo and trademark of Carrols
Corporation. As a franchisee of Burger King, we also have contractual rights to
use certain BKC-owned trademarks, servicemarks and other intellectual property
relating to the Burger King concept.

Government Regulation

   Various Federal, state and local laws affect our business, including various
health, sanitation, fire and safety standards. Restaurants to be constructed or
remodeled are subject to state and local building code and zoning requirements.
In connection with the construction and remodeling of our restaurants, we may
incur costs to meet certain Federal, state and local regulations, including
regulations promulgated under the Americans with Disabilities Act.

   We are subject to the Federal Fair Labor Standards Act and various state
laws governing such matters as:

  .   minimum wage requirements;

  .   overtime; and

  .   other working conditions and citizenship requirements.

   A significant number of our food service personnel are paid at rates related
to the Federal minimum wage and, accordingly, increases in the minimum wage
have increased wage rates at our restaurants in the past.

   We are also subject to various Federal, state and local environmental laws,
rules and regulations. We believe that we conduct our operations in substantial
compliance with applicable environmental laws and regulations. In an effort to
prevent and, if necessary, to correct environmental problems, we conduct
environmental audits of proposed restaurant sites and restaurants we seek to
acquire. None of the applicable environmental laws or regulations have had a
material adverse effect on our operations or financial condition.

   Taco Cabana is subject to state "dram-shop" laws in the states in which it
operates. Dram-shop laws provide a person injured by an intoxicated person the
right to recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. We have specific insurance that covers
claims arising under dram-shop laws.

   With respect to the franchising of Pollo Tropical and Taco Cabana
restaurants, we are subject to franchise and related regulations in the U.S.
and certain foreign jurisdictions where we offer and sell franchises. These
regulations include obligations to provide disclosure about our two concepts,
the franchise agreements and the franchise system. The regulations also include
obligations to register certain franchise documents in the U.S. and foreign
jurisdictions, and obligations to disclose the substantive relationship between
the parties to the agreements.

Competition

   The quick-service and quick-casual restaurant industries are highly
competitive with respect to price, service, location and food quality. In each
of our markets, our restaurants compete with a large number of national and
regional restaurant chains, as well as locally owned restaurants, offering low
and medium-priced fare. Convenience stores, delicatessens and food counters in
grocery stores; cafeterias and other purveyors of moderately priced and quickly
prepared foods also compete with us.

                                      17

<PAGE>

   We believe that:

  .   product quality and taste;

  .   brand recognition;

  .   convenience of location;

  .   speed of service;

  .   menu variety;

  .   price; and

  .   ambiance

are the most important competitive factors in the quick-service restaurant
industry and that our three concepts effectively compete in each category.

   With respect to our Burger King restaurants, which are part of the
quick-service hamburger segment, our largest competitors are McDonald's and
Wendy's. According to publicly available information, as of December 31, 2000,
McDonald's U.S. operations comprised 12,804 restaurants and had U.S. systemwide
sales for the year ended December 31, 2000 of $19.6 billion. As of December 31,
2000, Wendy's U.S. operations comprised 5,095 restaurants and had total U.S.
systemwide sales for the year ended December 31, 2000 of $5.8 billion.

   In addition to quick-service hamburger restaurant chains, Pollo Tropical's
competitors include national and regional chicken-based concepts, such as
Boston Market and KFC, as well as other types of quick-service restaurants.

   Taco Cabana's restaurants compete both with quick-service operators,
including those in the quick-serve Mexican segment such as Taco Bell, and
traditional casual dining Mexican restaurants. We believe that Taco Cabana's
combination of freshly prepared food, distinctive ambiance and superior service
help to distinguish Taco Cabana restaurants from quick-service operators, while
Taco Cabana's price-value relationship enables it to compete favorably with
more expensive casual dining Mexican restaurants.

Employees

   At December 31, 2001, we employed approximately 16,100 persons of whom
approximately 370 were supervisory and administrative personnel and 15,730 were
restaurant operating personnel. None of our employees are covered by collective
bargaining agreements. We believe that our relations with our employees are
good.

ITEM 2. PROPERTIES

   At December 31, 2001 we owned or leased the following restaurant properties:

<TABLE>
<CAPTION>
                                         Owned    Leased   Leased
                                         Land;    Land;    Land;
                                         Owned    Owned    Leased
                                        Building Building Building Total
                                        -------- -------- -------- -----
<S>                                     <C>      <C>      <C>      <C>
Restaurants--operating(a)..............    51       66      415(b)  532
Restaurants under construction.........     8        2      --       10
Excess properties:
  Leased to others.....................    --       --        4       4
  Available for sale or lease(b).......     2       --        6       8
                                           --       --      ---     ---
Total restaurant properties............    61       68      425     554
                                           ==       ==      ===     ===
</TABLE>
--------
(a) Includes six Taco Cabana restaurants closed in February 2002 in the
    Phoenix, Arizona market.
(b) Includes 15 restaurants located in mall shopping centers.

                                      18

<PAGE>

   As of December 31, 2001 we leased 93% of our Burger King restaurant
locations, 87% of our Pollo Tropical restaurant locations and 85% of our Taco
Cabana restaurant locations. We typically enter into leases (including options
to renew) from 20 to 40 years. The average remaining term for all leases,
excluding options, is approximately 20 years. Generally, we have been able to
renew leases, upon or prior to their expiration, at the prevailing market rates.

   Most of our Burger King restaurant leases are coterminous with the related
Franchise Agreements. We believe that we generally will be able to renew, at
commercially reasonable rates, the leases whose terms expire prior to the
subject Burger King Franchise Agreements.

   Most leases require us, as lessee, to pay utility and water charges,
premiums on insurance and real estate taxes. Certain leases also require
contingent rentals based upon a percentage of gross sales that exceed specified
minimums.

   In addition to the restaurant locations set forth under "Business-Restaurant
Locations," we own an approximately 22,000 square foot building at 968 James
Street, Syracuse, New York, which houses our executive offices and most of our
administrative operations for our Burger King restaurants. We lease five small
regional offices that support the management of our Burger King restaurants. We
also lease 13,449 square feet at 7300 North Kendall Drive, 8th Floor, Miami,
Florida, which houses most of our administrative operations for our Pollo
Tropical restaurants. In addition, we lease approximately 17,200 square feet of
office space at 8918 Tesoro Drive, Suite 200, San Antonio, Texas, which houses
most of our administrative operations for our Taco Cabana restaurants.

ITEM 3. LEGAL PROCEEDINGS

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

   The case is in the later stages of written discovery. It is too early to
make an evaluation of the likelihood of an unfavorable outcome or estimate of
the amount or range of potential loss. Consequently it is not possible to
predict what adverse impact, if any, this case could have on the Company's
financial condition. We intend to contest the case vigorously and believe it is
without merit.

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

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

   None

                                    PART II

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

   There is no established trading market for the Company's capital stock.
Carrols Holdings Corporation owns 10 shares of common stock of the Company
(representing 100% of the capital stock of the Company).

   There were no cash dividends paid during fiscal 2001, 2000 and 1999.

                                      19

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

   The selected historical financial information presented below at the end of
and for each of the fiscal years ended December 31, 1997, 1998, 1999, 2000 and
2001 have been derived from the Carrols' audited consolidated financial
statements. Our acquisition of Pollo Tropical was completed in July 1998 and,
as a result, Carrols' audited financial statements as of and for the year ended
December 31, 1998 include the results of operations for Pollo Tropical since
July 10, 1998. Our acquisition of Taco Cabana was completed in December 2000
and, as a result, Carrols' audited financial statements as of and for the year
ended December 31, 2000 include the results of operations for Taco Cabana since
December 20, 2000. The following selected financial information should be read
in conjunction with Carrols' Consolidated Financial Statements and accompanying
Notes as of December 31, 2001 and 2000 and for the fiscal years ended December
31, 2001, 2000 and 1999 in Item 14 and Management's Discussion and Analysis of
Financial Condition and Results of Operations in Item 7.

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                             --------------------------------------------------
                                               1997     1998(1)     1999      2000       2001
                                             --------  ---------  --------  ---------  --------
                                                           (Dollars in thousands)
<S>                                          <C>       <C>        <C>       <C>        <C>
Statement of Operations Data:
   Restaurant sales......................... $295,436  $ 416,190  $455,440  $ 465,862  $654,710
   Franchise royalty revenues and fees......       --        395     1,039      1,039     1,579
                                             --------  ---------  --------  ---------  --------
       Total revenues.......................  295,436    416,585   456,479    466,901   656,289
   Costs and expenses:......................
   Cost of sales............................   85,542    122,620   137,279    132,646   189,947
   Restaurant wages and related expenses....   89,447    121,732   134,125    135,787   192,214
   Other restaurant operating expenses......   61,691     82,710    89,093     91,595   127,181
   Advertising expense......................   13,122     18,615    20,618     20,554    28,830
   General and administrative...............   13,121     19,219    23,102     26,403    35,393
   Depreciation and amortization............   15,102     20,005    23,898     28,856    43,495
   Other expense (income ) (2)..............       --         --        --     (1,365)    8,841
                                             --------  ---------  --------  ---------  --------
       Total operating expenses.............  278,025    384,901   428,115    434,476   625,901
                                             --------  ---------  --------  ---------  --------
Income from operations......................   17,411     31,684    28,364     32,425    30,388
Refinancing expenses........................       --      1,639        --         --        --
Interest expense............................   14,598     21,068    22,386     23,666    32,988
                                             --------  ---------  --------  ---------  --------
Income (loss) before income taxes and
  extraordinary loss........................    2,813      8,977     5,978      8,759    (2,600)
Provision for income taxes..................      655      4,847     3,826      4,441     1,364
                                             --------  ---------  --------  ---------  --------
Income (loss) before extraordinary loss.....    2,158      4,130     2,152      4,318    (3,964)
Extraordinary loss on extinguishment of
  debt, net of tax benefit..................       --      3,701     1,099        350        --
                                             --------  ---------  --------  ---------  --------
Net income (loss)........................... $  2,158  $     429  $  1,053  $   3,968  $ (3,964)
                                             ========  =========  ========  =========  ========

Balance Sheet Data (At Period End):
Total assets................................ $215,328  $ 318,810  $320,027  $ 476,912  $474,003
Working capital deficiency..................  (18,293)   (10,633)  (21,696)   (25,943)  (33,198)
Total long-term debt(3).....................  160,287    261,522   253,494    371,138   373,644
Stockholder's equity........................   17,447     13,998    15,051     19,019    15,055

Other Financial Data:
EBITDA(4)................................... $ 32,513  $  45,411  $ 52,262  $  59,916  $ 80,936
Adjusted EBITDA(5)..........................   32,513     51,689    52,262     59,916    82,724
Adjusted EBITDA margin......................     11.0%      12.4%     11.4%      12.8%     12.6%
Cash provided from operating activities.....   19,940     23,273    38,173     49,720    46,435
Cash used for investing activities..........  (95,383)  (126,504)  (48,935)  (190,818)  (49,156)
Cash provided from financing activities.....   76,381    107,756     5,886    141,909     2,414
Capital expenditures, excluding acquisitions   18,210     33,295    45,332     36,157    47,575
</TABLE>

                                      20

<PAGE>

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                               -----------------------------------------
                                                1997    1998(1)  1999     2000     2001
                                               ------   ------- ------   ------   ------
                                                         (Dollars in thousands)
<S>                                            <C>      <C>     <C>      <C>      <C>

Operating Statistics:
Total number of restaurants...................    335      383     397      521      532
Burger King:
   Number of restaurants (at end of period)...    335      343     352      355      359
   Average number of restaurants..............    280      339     344      352      353
   Average annual sales per restaurant........ $1,055   $1,124  $1,082   $1,055   $1,079
   Percentage change in comparable restaurant
     sales(1).................................   (1.4)%    6.2%   (2.5)%   (2.5)%    1.3%
Pollo Tropical (6):
   Number of restaurants (at end of period)...     36       40      45       49       53
   Average number of restaurants..............     35       37      42       46       50
   Average annual sales per restaurant........ $1,861   $1,985  $1,952   $1,951    1,929
   Percentage change in comparable restaurant
     sales (1)................................    4.2%     7.8%    0.7%     1.7%    (0.3)%
Taco Cabana (6):
   Number of restaurants (at end of period)...     98      102     109      117      120
   Average number of restaurants..............    107      101     106      113      120
   Average annual sales per restaurant........ $1,220   $1,402  $1,487   $1,510   $1,478
   Percentage change in comparable
     restaurant sales (1).....................   (2.5)%    6.3%    5.5%     3.4%     1.6%
</TABLE>
--------
(1) The year ended December 31, 1998 included 53 weeks; all other years
    presented include 52 weeks. The percentage change in comparable restaurant
    sales for the year ended December 31, 1998 has been calculated using a
    comparable number of weeks from the prior year. The percentage change in
    comparable Burger King restaurant sales using the actual number of weeks in
    the year ended December 31, 1998 was 7.9%. The percentage change in
    comparable restaurant sales is calculated using only those restaurants that
    have been open since the beginning of the earliest period being compared.
    (12 months in the case of Burger King and 18 months for Pollo Tropical and
    Taco Cabana.)
(2) Other income in 2000 was from the recognition of previously deferred
    contractual payments received from Ameriserve Food Distribution, Inc. which
    were recognized upon termination of the related supply agreement in 2000.
    Other expense in 2001 resulted from the closure of seven Taco Cabana
    restaurants in the Phoenix, Arizona market and the discontinuance of
    restaurant development in that market. See Note 6 to the Consolidated
    Financial Statements in Item 14.
(3) Includes capital lease obligations and other debt, which was $5.1 million
    at December 31, 2001.
(4) EBITDA is defined as income before interest, income taxes, depreciation and
    amortization, non-cash extraordinary items and non-cash other income and
    expense. EBITDA is presented because we believe it is a useful financial
    indicator for measuring a company's ability to service and/or incur
    indebtedness. However, EBITDA should not be considered as an alternative to
    net income as a measure of operating results or to cash flows as a measure
    of liquidity in accordance with generally accepted accounting principles.
(5) Adjusted EBITDA is defined as EBITDA plus refinancing expenses of
    $1,639,000 in 1998, the redemption premium of $4,639,000 associated with
    the retirement of debt in 1998 and other expense of $1,788,000 in 2001
    related to the closure of seven Taco Cabana restaurants.
(6) Pollo Tropical was acquired in July 1998 and Taco Cabana was acquired in
    December 2000. Average restaurants, average sales and comparable sales data
    for periods prior to the respective acquisition are presented for
    informational purposes only.

                                      21

<PAGE>

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

Overview

   We are one of the largest restaurant companies in the U. S. currently
operating 529 restaurants in 16 states. We are the second largest Burger King
franchisee in the world, and have operated Burger King restaurants since 1976.
As of December 31, 2001, we operated 359 Burger King restaurants located in 13
Northeastern, Midwestern and Southeastern states. We also operate two regional
Hispanic restaurant chains, Taco Cabana and Pollo Tropical, which operate or
franchise more than 200 restaurants.

   We have acquired and constructed additional Burger King restaurants
resulting in a 55% increase in the number of Burger King restaurants we operate
since the end of fiscal 1996. Burger King restaurant sales have grown from
$295.4 million in 1997 to $380.9 million in 2001.

   We have also expanded our operations during the past four years through the
acquisition of two regional quick-casual Hispanic restaurant chains. In July
1998, we acquired Pollo Tropical Inc., a restaurant chain featuring grilled
marinated chicken and authentic "made from scratch" side dishes. Since the
acquisition we have opened 18 new Pollo Tropical restaurants and at December
31, 2001 we had 53 company owned Pollo Tropical restaurants in Florida and 26
franchised Pollo Tropical restaurants, 18 of which are in Puerto Rico.

   In December 2000 we acquired Taco Cabana Inc., a restaurant chain featuring
Tex-Mex style food including flame-grilled beef and chicken fajitas,
quesadillas, and fresh flour tortillas. As of December 31, 2001 we had 120
company owned Taco Cabana restaurants located primarily in Texas and 10
franchised Taco Cabana restaurants. When we acquired Taco Cabana, there was
considerable momentum on an expansion into the Phoenix, Arizona market. While
we believe that this could ultimately be a successful expansion market, this
market was extremely under-penetrated and our seven Taco Cabana restaurants in
Phoenix were not likely to achieve acceptable performance in the near-term
without aggressive expansion. Therefore, in the fourth quarter of 2001, we
decided to close our seven restaurants in the Phoenix, Arizona market and
discontinue restaurant development underway in that market. One Taco Cabana
restaurant in Phoenix was closed in December 2001 and our six remaining Taco
Cabana restaurants in the Phoenix, Arizona market were closed in the first
quarter of 2002. This decision resulted in a charge to other expense of $8.8
million in the fourth quarter of 2001, representing $7.1 million in asset
impairments, primarily leasehold improvements, and $1.7 million in future
occupancy and other exit costs. The anticipated cash outlays pertaining to
these costs, to be funded by operations, are $1.1 million in 2002 with the
remainder in 2003. See Note 6 to the Consolidated Financial Statements in Item
14. Due to our acquisition of Taco Cabana on December 19, 2000 our results for
the year ended December 31, 2000 include the operations of Taco Cabana from
December 20, 2000.

   We use a 52-53 week fiscal year ending on the Sunday closest to December 31.
The years ended December 31, 2001, 2000 and 1999 each contains 52 weeks.

Significant Accounting Policies

   Financial Reporting Release No. 60, which was released by the Securities and
Exchange Commission in December 2001, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation
of financial statements. Note 1 of the consolidated financial statements,
included elsewhere in this Form 10-K, includes a summary of the significant
accounting policies and methods used in the preparation of our consolidated
financial statements. The following is a brief discussion of the more
significant accounting policies and methods used by the Company.

   The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make assumptions and estimates that can have a material impact on our results
of operations. Sales recognition at company operated restaurants is
straightforward as customers pay

                                      22

<PAGE>

for products at the time of sale and inventory turns over very quickly.
Payments to vendors for products sold in the restaurants are generally settled
within 30 days. The earnings reporting process is covered by our system of
internal controls, and generally does not require significant management
estimates and judgments. However, estimates and judgments are inherent in the
assessment and recording of insurance liabilities, accrued occupancy costs,
legal obligations and income taxes. While we apply our judgment based on
assumptions believed to be reasonable under the circumstances, actual results
could vary from these assumptions. It is possible that materially different
amounts would be reported using different assumptions.

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

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

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

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

Results of Operations

   The following table sets forth, for fiscal years 1999, 2000 and 2001,
selected operating results of Carrols as a percentage of total restaurant sales:

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                       ----------------------
                                                        1999    2000    2001
                                                       -----   -----    -----
   <S>                                                 <C>     <C>      <C>
   Restaurants sales:
      Burger King.....................................  81.8%    79.7%   60.5%
      Pollo Tropical..................................  18.2%    19.1%   13.9%
      Taco Cabana.....................................    --      1.2%   25.6%
                                                       -----   -----    -----
   Total restaurant sales............................. 100.0%   100.0%  100.0%
   Costs and expenses:
      Cost of sales...................................  30.1%    28.5%   29.0%
      Restaurant wages and related expenses...........  29.4%    29.1%   29.4%
      Other restaurant expenses including advertising.  24.1%    24.1%   23.8%
      General and administrative......................   5.1%     5.7%    5.4%
      Depreciation and amortization...................   5.2%     6.2%    6.6%
      Other expense (income)..........................    --      (.3)%   1.4%
                                                       -----   -----    -----
   Income from restaurant operations..................   6.1%     6.7%    4.4%
                                                       =====   =====    =====
</TABLE>


                                      23

<PAGE>

Fiscal 2001 Compared to Fiscal 2000

   We acquired three Burger King restaurants and opened two new Burger King
restaurants in 2001. We also opened four new Pollo Tropical restaurants and
five new Taco Cabana restaurants in 2001. In 2001 we also closed one
underperforming Burger King restaurant and one underperforming Taco Cabana
restaurant, in addition to our activities pertaining to the Phoenix, Arizona
market discussed above. The results of operations for Taco Cabana from December
20, 2000 are included in our consolidated operating results for 2000. Taco
Cabana had restaurant sales for this period of $5.6 million, pretax income of
$.5 million and EBITDA of $.9 million.

   Restaurant Sales.  Total revenues for the year ended December 31, 2001
increased 40.6% to $656.3 million from $466.9 million in 2000 due primarily to
the acquisition of Taco Cabana Inc. in the fourth quarter of 2000 which added
restaurant sales of $177.4 million for the year ended December 31, 2001. Burger
King restaurant sales increased $9.5 million to $380.9 million for the year
ended December 31, 2001 due in part to a 1.3% increase in sales at our
comparable Burger King restaurants (those units operating for the entirety of
the compared periods) and the net addition of seven Burger King restaurants in
2001 and 2000. Sales at our comparable Burger King restaurants increased 3.2%
in the fourth quarter of 2001. Pollo Tropical sales increased $7.5 million for
the year ended December 31, 2001, or 8.4%, compared to 2000. This increase was
due to the opening of eight Pollo Tropical restaurants during the year ended
December 31, 2001 and 2000. Sales trends at our Pollo Tropical restaurants were
negatively impacted following the tragedy on September 11, 2001 and its effect
on the tourism industry and the Florida economy. Sales at our comparable Pollo
Tropical restaurants decreased 3.8% in the fourth quarter of 2001 and 0.3% for
the year ended December 31, 2001.

   Operating Costs and Expenses.  Cost of sales (food and paper costs), as a
percentage of total restaurant sales, increased from 28.5% in 2000 to 29.0% in
2001. Burger King cost of sales, as a percentage of Burger King restaurant
sales, increased from 27.3% in 2000 to 28.1% in 2001 due to higher promotional
sales discounts, a 10.5% increase in beef commodity prices and lower supplier
rebates in 2001. The impact of higher beef costs was substantially offset by a
slight reduction in the size of the Burger King regular hamburger patty. These
factors were also partially offset by improvements in food costs achieved by
the implementation of new inventory control systems last year in our Burger
King restaurants and the effects of menu price increases in 2001 and the fourth
quarter of 2000. Pollo Tropical cost of sales, as a percentage of Pollo
Tropical restaurant sales, decreased to 32.2% in 2001 from 33.2% in 2000 due
primarily to lower commodity costs, including a decrease in our contracted
chicken prices in 2001. Taco Cabana cost of sales, as a percentage of Taco
Cabana restaurant sales, was 29.2% for the year ended December 31, 2001. The
inclusion of Taco Cabana, acquired in December 2000, caused total cost of
sales, as a percentage of total restaurant sales, to decrease 0.1% compared to
the year ended December 31, 2000.

   Restaurant wages and related expenses, as a percentage of total restaurant
sales, increased from 29.1% in 2000 to 29.4% in 2001. Burger King restaurant
wages and related expenses, as a percentage of Burger King restaurant sales,
increased from 30.5% in 2000 to 30.7% in 2001. The increase for our Burger King
restaurants was due primarily to higher restaurant level incentives in 2001
related to the attainment of cost and inventory control objectives and the
effect of labor rate increases on a comparable Burger King restaurant sales
increase of 1.3% in 2001. These factors were offset slightly by the effect of
menu price increases in 2001 and the fourth quarter of 2000. Pollo Tropical
restaurant wages and related expenses, as a percentage of Pollo Tropical
restaurant sales, increased from 23.5% in 2000 to 24.8% in 2001. This increase
was due to an increase in workers compensation costs in 2001 and the effect of
a comparable restaurant sales decrease of 0.3% in 2001 on fixed labor costs and
labor rate increases. These Pollo Tropical increases in 2001 over 2000 were
offset in part by lower medical insurance costs in 2001 compared to 2000. Taco
Cabana restaurant wages and related expenses, as a percentage of Taco Cabana
restaurant sales, were 28.8% for the year ended December 31, 2001. The
inclusion of Taco Cabana in 2001 caused total restaurant wages and related
expenses, as a percentage of total restaurant sales, to decrease 0.2% compared
to the year ended December 31, 2000.

                                      24

<PAGE>

   Other restaurant operating expenses, including advertising, as a percentage
of total restaurant sales, decreased to 23.8% in 2001 from 24.1% in 2000.
Burger King other restaurant operating expenses, including advertising, as a
percentage of Burger King restaurant sales, decreased to 25.3% in 2001 from
25.7% in 2000. This decrease was due to reductions in local advertising
expenditures in 2001 offset in part by an increase in utility costs in 2001, as
a percentage of Burger King restaurant sales, of 0.1%. Other restaurant
operating expenses, including advertising, at our Pollo Tropical restaurants
increased, as a percentage of Pollo Tropical restaurant sales, from 17.7% in
2000 to 18.5% in 2001. This increase was due to an increase in utility costs in
2001, as a percentage of Pollo Tropical restaurant sales, of 0.5% and the
effect of increases in operating costs on a 0.3% comparable restaurant sales
decrease in 2001, offset in part by lower advertising expenditures in 2001.
Other restaurant operating expenses, including advertising, at our Taco Cabana
restaurants for the year ended December 31, 2001 were 23.6%, as a percentage of
Taco Cabana restaurant sales. The inclusion of Taco Cabana in 2001 caused total
other restaurant operating expenses, as a percentage of total restaurant sales,
to decrease 0.1% compared to the year ended December 31, 2000.

   General and administrative expenses, as a percentage of total restaurant
sales, decreased to 5.4% in 2001 from 5.7% in 2000 due in part to lower
administrative bonus levels. General and administrative expenses in 2001
increased $9.0 million over 2000 due to administrative functions included as
part of the December 2000 acquisition of Taco Cabana.

   EBITDA.  Earnings before interest, taxes, depreciation and amortization,
non-cash extraordinary items and other income and expense ("EBITDA") increased
to $82.7 million in 2001 from $59.9 million in 2000. As a percentage of total
revenues, EBITDA margins were 12.6% in 2001 compared to 12.8% in 2000 as a
result of the factors discussed above.

   Other Expense.  Other expense in 2001 of $8.8 million is the result of
management's decision to close seven Taco Cabana restaurants in its Phoenix,
Arizona market and discontinue restaurant development underway in that market.
See Note 6 to the Consolidated Financial Statements in Item 14.

   Depreciation and Amortization.  Depreciation and amortization increased
$14.6 million in 2001 compared to 2000, of which $11.4 million is due to the
Company's acquisition of Taco Cabana in December 2000. The remaining increase
is due to our Burger King and Pollo Tropical capital expenditures of $76.5
million since the beginning of 2000.

   Interest Expense.  Interest expense increased $9.3 million to $33.0 million
in 2001 from $23.7 million in 2000 due to the acquisition of Taco Cabana in
December 2000. Lower interest rates in 2001 on our LIBOR based debt caused our
average weighted interest rate on all debt to decrease to 8.5% in 2001 from
9.4% in 2000.

   Income Taxes.  The provision for income taxes for the year ended December
31, 2001 of $1.4 million is due to the level of non-deductible amortization of
franchise rights and certain other intangible assets, relative to our pretax
loss, and state franchise taxes not based on income. Our effective income tax
rate for 2001 of 52.5% is higher than our effective tax rate for the year ended
December 31, 2000 of 50.7% due to the increase in the non-deductible
amortization of intangible assets resulting from our acquisition of Taco Cabana
in December 2000.

   Net Income (Loss).  As a result of the foregoing, the Company had a net loss
of $3,964,000 for the year ended December 31, 2001 compared to net income of
$3,968,000 for the year ended December 31, 2000. Net income in 2000 includes an
extraordinary loss of $350,000, which is net of income taxes, for the write-off
of unamortized debt issue costs related to the refinancing of our senior credit
facility in 2000.

Fiscal 2000 Compared to Fiscal 1999

   In addition to our acquisition of Taco Cabana in December 2000, we opened
seven Burger King restaurants and five Pollo Tropical restaurants in 2000. We
also closed four underperforming Burger King restaurants and

                                      25

<PAGE>

one Pollo Tropical restaurant was closed due to a fire. The results of
operations for Taco Cabana from December 20, 2000 are included in our
consolidated operating results for 2000. Taco Cabana had restaurant sales for
this period of $5.6 million, pretax income of $.5 million and EBITDA of $.9
million.

   Restaurant Sales.  Total revenues increased 2.3% from $456.5 million in 1999
to $466.9 in 2000 due to the increase in the number of restaurants we operate
and due to Taco Cabana restaurant sales of $5.6 million since our acquisition
in December 2000. Burger King restaurant sales for the year ended December 31,
2000 decreased .4% to $371.3 million from $372.7 million in 1999. Sales at our
comparable Burger King restaurants (those units operating for the entirety of
the compared periods) decreased 2.5% due to a decrease in customer traffic as
the 2000 Burger King national promotional activities did not generate traffic
above our 1999 levels. Pollo Tropical restaurant sales increased 7.5% for the
year ended December 31, 2000 to $89.0 million from $82.8 million in 1999. The
increase was due primarily to the opening of five new Pollo Tropical
restaurants in 2000 and from a 1.7% sales increase at comparable Pollo Tropical
restaurants.

   Operating Costs and Expenses.  Cost of sales (food and paper costs), as a
percentage of total restaurant sales, decreased to 28.5% in 2000 from 30.1% in
1999. Burger King cost of sales, as a percentage of Burger King sales,
decreased from 29.1% in 1999 to 27.3% in 2000 and Pollo Tropical cost of sales,
as a percentage of Pollo Tropical sales, decreased from 34.8% in 1999 to 33.2%
in 2000. These decreases, in part, are due to improvements in our food cost
management systems and related investments in restaurant information systems.
They also reflect menu price increases since the third quarter of 1999 at our
Burger King restaurants and menu price increases in the first quarter of 2000
of approximately 1% at our Pollo Tropical restaurants. These decreases are also
due to higher supplier rebates for both Burger King and Pollo Tropical,
including the amortization of rebates received in 2000 from our soft drink
suppliers, and due to favorable commodity costs, particularly chicken, for
Pollo Tropical. These factors were offset, in part, by an increase in beef
costs at our Burger King restaurants in 2000.

   Restaurant wages and related expenses, as a percentage of total restaurant
sales, decreased from 29.4% in 1999 to 29.1% in 2000. Burger King restaurant
wages and related expenses, as a percentage of Burger King sales, decreased to
30.5% in 2000 compared to 30.8% in 1999. The Burger King decrease was due to
labor efficiencies and to the effects of menu price increases since the end of
the third quarter of 1999. Labor efficiencies at our Burger King restaurants
reflected a 9.3% decrease in average restaurant labor hours due to operating
improvements, partially offset by a 3.3% increase in the hourly labor rate.
Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo
Tropical sales, increased to 23.5% of sales in 2000 from 23.2% of sales in
1999. This increase, as a percentage of sales, was due in part to higher
medical insurance costs.

   Other restaurant operating expenses, including advertising, as a percentage
of total restaurant sales, were 24.1% in both 1999 and 2000. Burger King
restaurant operating expenses were 25.6% of Burger King sales in both 1999 and
2000 due to slight increases in utility and maintenance costs being offset by
lower promotional advertising expenditures. Pollo Tropical other restaurant
expenses increased slightly from 17.6% of Pollo Tropical sales in 1999 to 17.7%
of Pollo Tropical sales in 2000 due primarily to higher utility costs.

   General and administrative expenses, as a percentage of total restaurant
sales, increased from 5.1% in 1999 to 5.7% in 2000. This increase is due in
part to lower sales volumes in our Burger King restaurants in 2000, increased
levels of information systems support associated with the installation of
restaurant point-of-sale systems and increases in management incentives.

   EBITDA.  EBITDA increased from $52.3 million in 1999 to $59.9 million in
2000. As a percentage of total revenues, EBITDA increased from 11.4% in 1999 to
12.8% in 2000 as a result of the factors discussed above.

   Other Income.  Other income of $1,365,000 in 2000 was a result of the
Company ending its supply agreement with Ameriserve Food Distribution, Inc.
This income represented the remaining unrecognized portion of contractual
payments previously received and deferred at the inception of the agreement.

                                      26

<PAGE>

   Depreciation and Amortization.  Depreciation and amortization increased $5.0
million in 2000 compared to 1999 due primarily to our capital expenditures of
$81.5 million since the beginning of 1999.

   Interest Expense.  Interest expense was $23.7 million in 2000 compared to
$22.4 million in 1999. The increase in 2000 was due in part to higher interest
rates in 2000 compared to 1999 and additional interest associated with the
acquisition of Taco Cabana in December 2000. Our average weighted interest rate
was 9.4% in 2000 compared to 8.9% in 1999.

   Income Taxes.  The provision for income taxes of $4.4 million in 2000 is
based on an estimated effective income tax rate for 2000 of 50.7%. This rate is
higher than the Federal statutory tax rate due to state franchise and income
taxes and the non-deductible amortization of certain franchise rights and
intangible assets pertaining to our acquisitions.

   Net Income.  Net income was $3,968,000 in 2000 compared to $1,053,000 in
1999. Net income in 2000 includes an extraordinary loss of $350,000, which is
net of income taxes, for the write-off of unamortized debt issue costs related
to the refinancing of our senior credit facility. Net income in 1999 includes
an extraordinary loss of $1,099,000, which is net of income taxes, for the
write-off of unamortized debt issue costs related to the refinancing of our
senior credit facility in 1999.

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 substantially conducted on a cash basis;

  .   rapid turnover results in a limited investment in inventories; and

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

   Our cash requirements arise primarily from:

  .   the need to finance the opening and equipping of new restaurants;

  .   ongoing capital reinvestment in our existing restaurants;

  .   the acquisition of restaurants; and

  .   servicing our debt.

   Our 2001 operations generated approximately $46.4 million in cash, compared
to $49.7 million during 2000 and $38.2 million in 1999.

   Our capital expenditures included the acquisitions of Taco Cabana for $154.7
million in December 2000 and Pollo Tropical in July 1998 for approximately $95
million. We also acquired three Burger King restaurants in 2001 and six Burger
King restaurants in 1999 for a total of $5.4 million.

   Capital expenditures represent a major investment of cash for us and
totaled, excluding acquisitions, $47.6 million in 2001, $36.2 million in 2000
and $45.3 million in 1999. Expenditures for new restaurant development were
$14.5 million in 2001, $11.3 million in 2000 and $14.1 million in 1999. These
expenditures included construction costs and related equipment for 17 new
Burger King restaurants and 14 new Pollo Tropical restaurants opened in the
past three years. These expenditures in 2001 also included construction costs
and related equipment for five new Taco Cabana restaurants.

                                      27

<PAGE>

   Our capital expenditures also include remodeling costs and capital
maintenance projects for the ongoing reinvestment and enhancement of our
restaurants. Remodeling expenditures for our Burger King restaurants have
totaled $42.7 million since the beginning of 1999. These expenditures have been
made to enhance the operations of our Burger King restaurants, reinvest in
properties associated with the renewal of franchises, including 48 restaurants
where we elected to renew their franchise agreements under Burger King
Corporation's early successor program, and for expenditures related to Burger
King transformation initiatives, which include new signage, drive-thru
improvements and kitchen initiatives. See Transformation Initiatives on page 14.

   In 2000, we completed the installation of restaurant point-of sale and
management systems for our Burger King restaurants, which began in 1999. In
1999, we substantially completed the upgrade of corporate information and
decision support systems for our Burger King restaurants. These projects
resulted in incremental capital investments that totaled $5.7 million and $11.9
million in 2000 and 1999, respectively.

   In December 2000, we generated $29.5 million from the sale and leaseback of
25 Taco Cabana restaurant properties. The proceeds were used to reduce the debt
associated with the Taco Cabana acquisition. During 1999, we generated $14.8
million from the sale and leaseback of eight Burger King restaurant properties
and five Pollo Tropical restaurant properties. The proceeds from the 1999
transaction were used to reduce outstanding debt.

   At December 31, 2001, we had total outstanding borrowings of $373.6 million
comprised of the $170.0 million principal amount of outstanding senior
subordinated notes, borrowings under our senior credit facility of $198.5
million and other debt, including capital leases, of $5.1 million.

   On December 19, 2000, we entered into a new senior credit facility with JP
Morgan Chase Bank, as agent and lender, and a syndicate of other lenders. This
new facility was used to finance the acquisition of Taco Cabana and to
refinance outstanding borrowings under our previous credit facility. The new
facility provides for total borrowings of $250 million and consists of a $100
million revolving credit facility (including a standby letter of credit
facility for up to $10 million), a $70 million term loan A facility and an $80
million term loan B facility. At December 31, 2001, $143 million was
outstanding on the term A and B facilities. At December 31, 2001, $37.1 million
was available for borrowings under our revolving credit facility, after
reserving $7.4 million for letters of credit guaranteed by the facility.

   The revolving credit and the term loan A facilities expire on December 31,
2005, however the revolving credit facility is eligible for a one-year
extension upon request and unanimous approval of the lenders. The term loan B
facility expires on December 31, 2007. The term loan A facility is repayable in
increasing quarterly installments through September 30, 2005 with a final
payment of $24.6 million due December 31, 2005. The term loan B facility is
repayable in increasing quarterly installments through September 30, 2007 with
a final payment of $13.8 million due December 31, 2007. Principal repayments
required in 2001 under the term A and B facilities totaled $7.0 million.
Borrowings under our credit facility bear interest, at our option, of either:

   (1) the greater of the prime rate, or the Federal Funds rate plus .50%, plus
       a margin ranging from .50% to 1.75% for the revolving credit facility
       and the term loan A facility, based on debt to cash flow ratios, and a
       fixed margin of 2.5% for the term loan B facility; or,

   (2) LIBOR plus a margin ranging from 2.00% to 3.25% for the revolving credit
       facility and the term loan A facility, based on debt to cash flow
       ratios, and a fixed margin of 4.0% for the term loan B facility.

   Both the senior subordinated notes and the senior credit facility contain
certain restrictive covenants, including limitations on certain restricted
payments and dividends. The senior credit facility also requires maintaining
certain financial ratios.

   In 2002, we anticipate total capital expenditures of approximately $58
million to $62 million, excluding the cost of any acquisitions that we may
make. These expenditures include approximately $21 million to $25 million for
the construction of new restaurants and related real estate applicable to our
three restaurant concepts as follows: $4 million to $5 million for Burger King;
$10 million to $12 million for Taco Cabana and $7 million to

                                      28

<PAGE>

$8 million for Pollo Tropical. Also included in 2002 capital expenditures is
approximately $15 million for remodeling existing Burger King restaurants and
approximately $7.5 million for expenditures related to Burger King
transformation initiatives. Other anticipated restaurant level capital
expenditures in 2002 for ongoing reinvestment in our three concepts total
approximately $13 million; with approximately $4 million applicable to our
Burger King restaurants, $7.5 million for Taco Cabana and $1.5 million for
Pollo Tropical. Taco Cabana 2002 expenditures include approximately $4 million
of expenditures pertaining to the installation of additional grills in our Taco
Cabana restaurants to facilitate the introduction of grilled chicken.

   Interest payments under our senior subordinated notes and other existing
debt obligations represent significant liquidity requirements for us. We
believe that cash generated from our operations and availability under our
revolving credit facility will provide sufficient cash availability to cover
our working capital needs, capital expenditures, planned development and debt
service requirements for fiscal 2002.

Inflation

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

   To the extent applicable, see Notes 1 and 5 to the Financial Statements.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The Index to Financial statements attached hereto is set forth in Item 14.

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

   There have been no changes in or disagreements with the Company's
independent accountants on accounting or financial disclosures.

                                      29

<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The following table sets forth information about our directors, executive
officers and other named officers:

<TABLE>
<CAPTION>
           Name          Age            Position with the Company
           ----          ---            -------------------------
   <S>                   <C> <C>
   Alan Vituli.......... 60  Chairman of the Board and Chief Executive Office
   Daniel T. Accordino.. 51  President, Chief Operating Officer and Director
   Paul R. Flanders..... 45  Vice President--Finance and Treasurer
   Joseph A. Zirkman.... 41  Vice President, General Counsel and Secretary
   Timothy J. LaLonde... 45  Vice President--Controller
   Nicholas A. Castaldo. 50  President and Chief Operating Officer--Pollo
                             Tropical
   Benjamin D. Chereskin 43  Director
   James M. Conlon...... 34  Director
   David J. Mathies, Jr. 54  Director
   Robin P. Selati...... 35  Director
   Clayton E. Wilhite... 56  Director
</TABLE>

   Certain biographical information regarding our directors, executive officers
and other officers is set forth below:

   Alan Vituli has been Chairman of the Board since 1986 and Chief Executive
Officer since March 1992. He is also a Director and Chairman of the Board of
Holdings. Between 1983 and 1985, Mr. Vituli was employed by Smith Barney,
Harris Upham & Co., Inc. as a Senior Vice President responsible for real estate
transactions. From 1966 until joining Smith Barney, Mr. Vituli was associated
with the accounting firm of Coopers & Lybrand, first as an employee and for the
last ten years as a partner. Among the positions held by Mr. Vituli at Coopers
& Lybrand was National Director of Mergers and Acquisitions. Before joining
Coopers & Lybrand, Mr. Vituli was employed in a family-owned restaurant
business. From 1993 through our acquisition of Pollo Tropical, Mr. Vituli
served on the Board of Directors of Pollo Tropical.

   Daniel T. Accordino has been President, Chief Operating Officer and a
Director since February 1993. Before that, Mr. Accordino served as Executive
Vice President--Operations from December 1986 and as Senior Vice President from
April 1984. From 1979 to April 1984 he was Vice President responsible for
restaurant operations, having previously served as our Assistant Director of
Restaurant Operations. Mr. Accordino has been an employee of the Company since
1972.

   Paul R. Flanders has been Vice President--Finance and Treasurer since April
1997. Before joining us, he was Vice President--Corporate Controller of Fay's
Incorporated, a retailing chain, from 1989 to 1997, and Vice
President--Corporate Controller for Computer Consoles, Inc., a computer systems
manufacturer, from 1982 to 1989. Mr. Flanders was also associated with the
accounting firm of Touche Ross & Co. from 1977 to 1982.

   Joseph A. Zirkman became Vice President and General Counsel in January 1993.
He was appointed Secretary in February 1993. Before joining us, Mr. Zirkman was
an associate with the New York City law firm of Baer Marks & Upham beginning in
1986.

   Nicholas A. Castaldo has been the President and Chief Operating Officer of
the Pollo Tropical Division since our acquisition of Pollo Tropical, Inc. in
July 1998. At that time, Mr. Castaldo had been the President of Pollo Tropical,
Inc. since October 1995 and its Chief Operating Officer since November 1, 1996.
Before joining Pollo Tropical and since August 1993, Mr. Castaldo was employed
as Vice President of Marketing for Denny's Inc., a restaurant company. From
1986 to 1993, Mr. Castaldo was employed by S&A Restaurant Corp., which includes
Steak & Ale and Bennigan's restaurant chains, and ultimately served as Senior
Vice President of Marketing and Business Development. Mr. Castaldo's career
spans 20 years and includes management positions at Burger King, Citicorp, and
Clairol Inc.

                                      30

<PAGE>

   Timothy J. LaLonde has been Vice President--Controller since July 1997.
Before joining us, he was a controller at Fay's Incorporated, a retailing
chain, from 1992 to 1997. Before that he was a Senior Audit Manager with the
accounting firm of Deloitte & Touche LLP, where he was employed since 1978.

   Benjamin D. Chereskin has served as a Director since March 1997. Mr.
Chereskin is a Managing Director of Madison Dearborn Partners, LLC, a private
equity firm, and co-founded the firm in 1993. Before that, Mr. Chereskin was
with First Chicago Venture Capital for nine years. Mr. Chereskin also serves on
the Board of Directors of Cornerstone Brands, Inc.; Tuesday Morning
Corporation; NWL Holdings, Inc.; Family Christian Stores, Inc.; and Auto DAQ.

   James M. Conlon has served as a Director since 1998. Mr. Conlon has served
as Managing Director of Dilmun Investments, Inc., an investment advisory firm,
since 1992. Since 1997, Mr. Conlon has been the Co-Head of the bank's U.S.
Merchant Banking group. Before joining Dilmun Investments, Inc., Mr. Conlon was
employed as an Investment Analyst in the Securities Division of TIAA-CREF. Mr.
Conlon also serves on the Boards of Directors of Capital Recovery Holdings,
Inc; Thompson Products, Inc; Independent Pictures, Inc.; Intimates Holdings,
Inc; and Springfield Services Corporation.

   David J. Mathies, Jr. has served as a Director since 1996. Mr. Mathies
presently consults for Dilmun Investments, Inc., an investment advisory firm,
on a part-time basis. Previously he served as President of Dilmun Investments,
Inc. from 1988 to February 2002. From 1971 to 1988, he was employed by Mellon
Bank, as head of their Pension Management Group, providing investment
management services to middle market clients.

   Robin P. Selati has served as a Director since March 1997. Mr. Selati is a
Managing Director of Madison Dearborn Partners, LLC, a private equity firm, and
joined the firm in 1993. Before 1993, Mr. Selati was associated with Alex Brown
& Sons Incorporated in the consumer/retail investment banking group. Mr. Selati
also serves on the Board of Directors of Peter Piper, Inc., Tuesday Morning
Corporation; NWL Holdings, Inc.; Beverages & More, Inc.; Family Christian
Stores, Inc.; and Ruth's Chris Steak House, Inc.

   Clayton E. Wilhite has served as a Director since July 1997. Since January
1998, Mr. Wilhite has been with CFI Group, Inc., has been its Managing Partner
since May 1998, and has served on its Board of Directors since September 1998.
CFI Group, Inc. is an international marketing and consulting firm specializing
in measuring customer satisfaction. Between 1996 and 1998, he was the Chairman
of Thurloe Holdings, L.L.C. Before 1996, Mr. Wilhite was with the advertising
firm of D'Arcy Masius Benton & Bowles, Inc. having served as its Vice Chairman
from 1995 to 1996, as President of DMB&B/North America from 1988 to 1995, and
as Chairman and Managing Director of DMB&B/St. Louis from 1985 to 1988. From
August 1996 through our acquisition of Pollo Tropical, Mr. Wilhite served on
the Board of Directors of Pollo Tropical, Inc.

   All directors hold office until the next annual meeting of stockholders or
until their successors have been elected and qualified. Our executive officers
are chosen by the Board and serve at its discretion. All of our directors also
serve as directors of Holdings.

                                      31

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

   The following tables set forth certain information for the fiscal years
ended December 31, 2001, 2000 and 1999 for our Chief Executive Officer and our
next four most highly compensated executive officers who were serving as
executive officers at December 31, 2001 and whose annual compensation exceeded
$100,000. Stock option data refers to the stock options of Holdings.

                          SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                           Long-Term
                                                                          Compensation
                                                                          ------------
                                                    Annual Compensation    Securities
                                                   ----------------------  Underlying
Name and Principal Position                        Year  Salary  Bonus(a)  Options(#)
---------------------------                        ---- -------- -------- ------------
<S>                                                <C>  <C>      <C>      <C>
Alan Vituli....................................... 2001 $500,004       --       --
 Chairman of the Board and Chief Executive Officer 2000  475,008 $498,758       --
                                                   1999  450,000       --       --
Daniel T. Accordino............................... 2001 $380,004       --       --
 President, Chief Operating Officer and Director   2000  360,000 $324,000       --
                                                   1999  340,000       --       --
Nicholas A. Castaldo.............................. 2001 $330,000       --
 President and Chief Operating Officer,            2000  315,000 $121,276       --
 Pollo Tropical Division                           1999  300,000  300,000       --
Paul R. Flanders.................................. 2001 $181,500       --    1,000
 Vice President, Finance and Treasurer             2000  162,500 $121,875      325
                                                   1999  152,503       --      300
Joseph A. Zirkman................................. 2001 $148,632       --    1,000
 Vice President, General Counsel and Secretary     2000  154,000 $115,500      300
                                                   1999  140,000       --      272
</TABLE>
--------
(a) We provide bonus compensation to executive officers based on an
    individual's achievement of certain specified objectives and our
    achievement of specified increases in stockholder value. Under the
    Company's executive bonus plans, bonuses earned above certain specified
    percentages of each executive's compensation are subject to deferral to be
    paid out in the three succeeding years provided that stockholder value
    (division stockholder value in the case of Mr. Castaldo) is at least equal
    to what it was in the year that the bonus was earned. Of the bonus earned
    in 2000 by Mr. Vituli, Mr. Accordino, Mr. Flanders and Mr. Zirkman,
    $120,177, $108,000, $40,625 and $38,500, respectively, was subject to
    deferral. Mr. Castaldo's 2000 bonus was not subject to any deferral;
    $150,000 of his 1999 bonus was subject to deferral.

<TABLE>
<CAPTION>
                                            Option Grants in Last Fiscal Year
                                        ----------------------------------------- -
                                                                                  Potential Realizable
                                                   % of Total                       Value at Assumed
                                        Number of   Options   Exercise            Annual Rates of Stock
                                        Securities  Granted    Price                Appreciation for
                                        Underlying     to      (Price                Option Term (b)
                                         Options   Employees    per    Expiration    ---------------
Name                                    Granted(a)  in 2001    Share)     Date        5%        10%
----                                    ----------  -------    ------     ----        --        ---
<S>                                     <C>        <C>        <C>      <C>        <C>        <C>
Paul R. Flanders.......................   1,000       17.0%   $113.00  12/31/2011 $71,065    $180,093
Joseph A. Zirkman......................   1,000       17.0%   $113.00  12/31/2011  71,065     180,093
</TABLE>
--------
(a) Stock option grants were granted under the 1996 Long-Term Incentive Plan.
    These options become exercisable at the rate of 25% per year beginning on
    December 31, 2001.
(b) Potential realizable value is based on an assumption that the price of
    Holdings' common shares appreciates at 5% and 10% annually (compounded)
    from the date of grant until the end of the option term. These calculations
    are based on requirements promulgated by the Commission and are not
    intended to forecast possible future appreciation of the stock price.

                                      32

<PAGE>

Compensation Committee Interlocks and Insider Participation

   During the last fiscal year, no executive officer of ours served as a
director of or member of a compensation committee of any entity for which any
of the persons serving on our Board of Directors or on the Compensation
Committee of the Board of Directors is an executive officer. The Compensation
Committee is comprised of Messrs. Chereskin, Mathies and Wilhite.

Board of Directors

   Directors' Compensation.  Directors who are our employees do not receive any
additional compensation for serving as directors. Directors who are not our
employees receive a fee of $15,000 per annum. All directors are reimbursed for
all reasonable expenses they incur while acting as directors, including as
members of any committee of the Board of Directors.

   Liability Limitation.  As permitted under the Delaware General Corporation
Law, our Restated Certificate of Incorporation provides that a director will
not be personally liable to us or our stockholders for monetary damages for
breach of a fiduciary duty owed to us or our stockholders. By its terms and in
accordance with the laws of the State of Delaware, however, this provision does
not eliminate or limit the liability of any of our directors:

  .   for any breach of the director's duty of loyalty to us or our
      stockholders;

  .   for an act or omission not in good faith or involving intentional
      misconduct or a knowing violation of law;

  .   for any transaction from which the director derived an improper personal
      benefit; or

  .   for an improper declaration of dividends or purchase or redemption of our
      securities.

   Indemnification.  Our Restated Certificate of Incorporation provides that we
will indemnify our directors and officers to the fullest extent permitted by
Delaware law.

Description of Plans

   Employee Retirement Plan.  We offer our Burger King Division and corporate
salaried employees the option to participate in the Carrols Corporation
Retirement Savings Plan, which as amended April 1, 1999, offers both a post-tax
savings option and a savings option pursuant to section 401(k) of the Internal
Revenue Code. Participating employees may contribute up to 18% of their salary
annually to either savings option, subject to certain limitations. In
accordance with the plan, we match up to $1,040 of an employee's mandatory
contributions by contributing $0.50 for each dollar contributed by the
employee. Employees are fully vested in their own contributions; employees
become vested in our contributions beginning in the fourth year of service and
are fully vested after seven years of service or upon retirement at age 65 with
five years service, death, or permanent or total disability. If any of the
foregoing events occurs, benefits may be paid out in a single cash lump sum or
in periodic installments over not more than the employee's assumed life
expectancy. The employee's contributions may be withdrawn at any time, subject
to restrictions on future contributions. Our matching contributions may be
withdrawn under certain conditions of financial necessity or hardship as
defined in the plan. Our contributions to the plan totaled $327,000, $344,000
and $245,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

   Pollo Tropical 401(k) Savings Plan.  Pollo Tropical has an employee savings
plan pursuant to Section 401(k) of the Internal Revenue Code. All employees who
are age 21 or older and who have been credited with at least 1,000 hours of
service within twelve consecutive months are eligible to participate in the
plan. Employees may elect to contribute an amount not to exceed the amount
permitted under the Internal Revenue Code. We make discretionary matching
contributions, which are allocated to participants based on the participant's
eligible

                                      33

<PAGE>

deferrals during the plan year. Employees are fully vested in their
contributions. Our contributions vest at a rate of 33% for each complete year
of service. Our contributions to this 401(k) plan totaled $24,000, $39,000 and
$29,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

   Taco Cabana 401(k) Savings Plan.  Under the Taco Cabana Savings and
Retirement Plan, all employees who are age 21 or older and who have been
credited with at least 1,000 hours of service within 12 consecutive months are
eligible to participate in the plan. Employees may contribute up to 15% of
their salary on a pre-tax basis, and may self-direct contributions to various
investment options. During 2000, the plan was modified to include a
contribution equal to $.25 for every $1.00 contributed to the plan up to 3% of
an employee's salary. Contributions vest at a rate of 20% per year over 5
years. Our contributions to this 401(k) plan totaled $33,000 in 2001.

   The Company is in the process of merging the three 401(k) plans described
above and expects this to be completed in 2002.

   Bonus Plans.  We have cash bonus plans designed to promote and reward
excellent performance by providing employees with incentive compensation. Key
senior management executives of each operating division can be eligible for
bonuses equal to varying percentages of their respective annual salaries
determined by our performance as well as the division's performance.

   Long-Term Incentive Plans.  Carrols Holdings Corporation maintains several
long-term incentive plans as follows:

<TABLE>
<CAPTION>
                                                                          Number of
                                                                           Options
                                                                          Authorized
                                                                          ----------
<S>                                                                       <C>
Carrols Holdings Corporation 1996 Long-Term Incentive Plan...............  111,250
Carrols Holdings Corporation 1998 Directors' Stock Option Plan...........   10,000
Carrols Holdings Corporation 1998 Pollo Tropical Long-Term Incentive Plan  100,000
Carrols Holdings Corporation 2001 Taco Cabana Long-Term Incentive Plan...  500,000
</TABLE>

   These plans are designed to advance our interests and the interests of
Holdings by providing an additional incentive to attract, retain and motivate
qualified and competent persons through the encouragement of stock ownership or
stock appreciation rights in Holdings. Under the terms of these plans, we may
grant awards such as "Incentive Stock Options" (as defined under Section 422 of
the Internal Revenue Code), nonqualified stock options, stock appreciation
rights, restricted stock, performance shares and performance units and other
stock-based awards to certain of our employees, including executive officers,
and our subsidiaries' officers and employees. Eligibility under the 1998
Directors' Plan is limited to non-employee Directors of our Board. Directors
that are our employees or employees of Holdings, Madison Dearborn Capital
Partners or BIB Holdings, or any of their respective affiliates are not
eligible under this plan.

   The 1996 Long-Term Incentive Plan and the 1998 Directors' Stock permits the
Compensation Committee of the Board of Directors of Holdings to grant, from
time to time, options to purchase shares of Holdings' Carrols class of common
stock. The 1998 Pollo Tropical plan provides for the granting of options to
purchase shares of Holdings' Pollo Tropical class of common stock and the 2001
Taco Cabana plan provides for the granting of options to purchase shares of
Holdings' Taco Cabana class of common stock.

   The vesting periods for options and the expiration dates for exercisability
of options granted under these plans are determined by Holdings' Compensation
Committee; however, the exercise period for an option granted may not exceed
ten years from the date of the grant. Holdings' Compensation Committee
determines the option exercise price per share of any option granted; however,
the option price per share of an option intended to

                                      34

<PAGE>

qualify as an Incentive Stock Option shall not be less than the fair market
value of the applicable class of Holdings' common stock on the date such option
is granted. Payment of such option exercise price shall be made:

   (1) in cash;

   (2) by delivering shares of Holdings' common stock already owned by the
       holder of such options;

   (3) by delivering a promissory note;

   (4) by a combination of any of the foregoing, in accordance with the terms
       of the particular plan, the applicable stock option agreement and any
       applicable guidelines of Holdings' Compensation Committee in effect at
       the time; or

   (5) by any other means approved by Holdings' Compensation Committee.

   If the holder of an option issued pursuant to these plans elects to pay the
exercise price of such option by delivering a promissory note, such promissory
note may be either:

   (1) unsecured and fully recourse against the holder of such option; or

   (2) nonrecourse with respect to payment of the principal amount, recourse
       with respect to the payment of interest, and secured by the shares of
       Holdings' common stock being purchased by such exercise and by other
       assets having a fair market value equal to not less than 40% of the
       exercise price of such option. In either event, such note shall mature
       on the fifth anniversary of the date of the note and bear interest at
       the rate provided under Section 1274(d) of the Internal Revenue Code of
       1986, as amended from time to time.

   Pursuant to these plans, in the event of a Change of Control (as defined in
the respective plan) any and all options issued and outstanding will vest and
become exercisable in full on the date of such Change of Control. Under the
terms of the 1998 Pollo Tropical plan a change of control includes both a
change of control of Holdings or a sale of the Pollo Tropical Group. Under the
terms of the 2001 Taco Cabana plan a change of control includes both a change
of control of Holdings or a sale of the Taco Cabana Group.

   As soon as practicable but no later than thirty days before such Change of
Control, Holdings' Compensation Committee shall notify any holder of an option
granted under the respective plan of such Change of Control. Further, upon a
Change of Control that qualifies as an Approved Sale (as defined in the
respective plan) in which the outstanding Holdings' common stock is converted
or exchanged for or becomes a right to receive any cash, property or securities
other than Illiquid Consideration (as defined in the respective plan),

   (1) each option granted under the respective plan shall become exercisable
       solely for the amount of such cash, property or securities that the
       holder of such option would have been entitled to had such option been
       exercised immediately prior to such event;

   (2) the holder of such option shall be given an opportunity to either:

      (a) exercise such option prior to the consummation of the Approved Sale
          and participate in such sale as a holder of the respective class of
          common stock; or

      (b) upon consummation of the Approved Sale, receive in exchange for such
          option consideration equal to the amount determined by multiplying:

          (x) the same amount of consideration per share received by the
              holders in connection with the Approved Sale less the exercise
              price per share of such option by

          (y) the number of shares of common stock represented by such option;
              and

   (3) to the extent such option is not exercised prior to or simultaneous with
       such Approved Sale, any such option shall be canceled.

                                      35

<PAGE>

Description of Employment Agreements

   Vituli and Accordino Employment Agreements.  Until March 27, 2002, we had
employment agreements with Alan Vituli, Chairman of the Board and Chief
Executive Officer, and with Daniel T. Accordino, President and Chief Operating
Officer. Mr. Vituli and Mr. Accordino have provided notice to us that they have
elected to not automatically renew these as provided for in the employment
agreements. Both Mr. Vituli and Mr. Accordino are still employed by us and
receiving the base salary that was in effect at the time that the employment
contracts ended. Mr. Vituli and Mr. Accordino are currently in discussions with
our Compensation Committee of the Board of Directors with respect to entering
into new agreements. We believe that these discussions will be concluded in the
near future and that new employment agreements will be put in place, however we
cannot be assured that such discussions will in fact be successfully concluded.
Since these executive officers have substantial experience in the quick-service
restaurant business in general and have extensive knowledge of Carrols'
business in particular, the loss of one or both of these executive officers
could have a material adverse effect on the Company.

   Vituli Employment Agreement.  On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., we entered into a Second Amended and Restated
Employment Agreement with Alan Vituli, which amended and restated an Amended
and Restated Employment Agreement dated April 3, 1996 between us and Mr.
Vituli. Pursuant to the amended employment agreement, Mr. Vituli continued to
serve as our Chairman of the Board and Chief Executive Officer. The amended
employment agreement was for an initial term of four years, commencing on March
27, 1997 and was subject to automatic renewals for successive one-year terms
unless either we or Mr. Vituli elected not to renew by giving written notice to
the other at least 90 days before a scheduled expiration date. Mr. Vituli
provided us notice that he elected to not automatically renew his employment
agreement and is presently in discussions with us regarding entering into a new
agreement. Pursuant to the amended employment agreement, Mr. Vituli received a
base salary of $400,000 for the first year of the term, which amount increased
annually by $25,000 on each January 1. Pursuant to the amended employment
agreement, Mr. Vituli participates in our Executive Bonus Plan and any of our
stock option plans applicable to executive employees. The amended employment
agreement also required that we be responsible for maintaining the premium
payments on a split-dollar life insurance policy on the life of Mr. Vituli
providing a death benefit of $1.5 million payable to an irrevocable trust
designated by Mr. Vituli. The amended employment agreement provided that if Mr.
Vituli's employment was terminated without Cause (as defined in the amended
employment agreement) following a Change of Control (as defined in the amended
employment agreement),

   (1) Mr. Vituli would receive a cash payment in the amount equal to 2.99
       times his Five Year Compensation Average (as defined in the amended
       employment agreement) if such Change of Control occurred during the
       first two years of the initial term of the amended employment agreement;
       and

   (2) a cash lump sum equal to his salary during the previous 12 months if
       terminated thereafter. The amended employment agreement included
       non-competition and non-solicitation provisions effective during the
       term of the amended employment agreement and for two years following its
       termination.

   Accordino Employment Agreement.  On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., we entered into a Second Amended and Restated
Employment Agreement with Daniel T. Accordino, which amended and restated an
Amended and Restated Employment Agreement dated April 3, 1996 between us and
Mr. Accordino. Pursuant to the amended employment agreement, Mr. Accordino
continued to serve as our President and Chief Operating Officer. The amended
employment agreement was for an initial term of four years, commencing on March
27, 1997 and was subject to automatic renewals for successive one-year terms
unless either we or Mr. Accordino elected not to renew by giving written notice
to the other at least 90 days before a scheduled expiration date. Mr. Accordino
provided us notice that he elected to not automatically renew his employment
agreement and is presently in discussions with us regarding entering into a new
agreement. Pursuant to the amended employment agreement, Mr. Accordino received
a base salary of $300,000 for the first year of the term, which amount

                                      36

<PAGE>

increased annually by $20,000 on each January 1. Pursuant to the amended
employment agreement, Mr. Accordino participates in our Executive Bonus Plan
and any of stock option plans applicable to executive employees. The amended
employment agreement also required that we be responsible for maintaining the
premium payments on a split-dollar life insurance policy on the life of Mr.
Accordino providing a death benefit of $1.0 million payable to an irrevocable
trust designated by Mr. Accordino. The amended employment agreement provided
that if Mr. Accordino's employment was terminated without Cause (as defined in
the amended employment agreement) following a Change of Control (as defined in
the amended employment agreement),

   (1) Mr. Accordino would receive a cash payment in the amount equal to 2.99
       times his Five Year Compensation Average (as defined in the amended
       employment agreement) if such change of control occurred during the
       first two years of the agreement; and

   (2) a cash lump sum equal to his salary during the previous 12 months if
       terminated thereafter. The agreement included non-competition and
       non-solicitation provisions effective during the term of the amended
       employment agreement and for two years following its termination.

   Castaldo Employment Agreement.  Effective July 20, 1998, in connection with
our acquisition of Pollo Tropical, we entered into an Amended and Restated
Employment Agreement with Nicholas A. Castaldo, which amended and restated an
Employment Agreement dated September 19, 1995, as amended May 5, 1997, between
Pollo Tropical and Mr. Castaldo. Pursuant to the amended agreement, Mr.
Castaldo serves as the President and Chief Operating Officer of our Pollo
Tropical Division. The agreement is for an initial term commencing on July 20,
1998 and ending September 30, 2003, and will be subject to renewal for up to
two additional one-year periods at our option, exercisable by giving written
notice to Mr. Castaldo by no later than July 31, 2003 or 2004, as applicable.
Pursuant to the agreement, Mr. Castaldo receives a base salary of $300,000 per
year during the term, which amount increases on each January 1st during the
term by at least 5% subject to additional increases that may be authorized by
our Board of Directors. Pursuant to the agreement, Mr. Castaldo is eligible to
receive an annual bonus of up to 100% of his base salary (of which not more
than 50% may be subject to deferral provisions in our Executive Bonus Plan (as
defined in the agreement)), which bonus will be payable in accordance with our
Executive Bonus Plan and is based solely upon the achievement by Mr. Castaldo
of certain corporate and individual performance standards during the relevant
period as reasonably established by us with Mr. Castaldo. Pursuant to the
agreement, Mr. Castaldo was granted non-qualified options to purchase 5% of
Holdings' Pollo Tropical common stock pursuant to the 1998 Pollo Tropical
Long-Term Incentive Plan. Mr. Castaldo's agreement provides that if Mr.
Castaldo's employment is terminated by us without Cause (as defined in the
agreement) or by Mr. Castaldo for Good Reason (as defined in the agreement), or
if the term of the agreement expires, then Mr. Castaldo is entitled to the
following payments and benefits:

   (1) An amount equal to the greater of:

      (a) Mr. Castaldo's base salary then in effect, from the date on which his
          employment is terminated or expires under the terms of the agreement
          until 12 months after such termination date; or

      (b) Mr. Castaldo's base salary from such termination date through the end
          of the initial term. The foregoing will be payable as follows: a lump
          sum equal to one year's then current base salary payable within ten
          days of such termination date and the balance, if any, payable in 24
          equal monthly installments.

   (2) Mr. Castaldo's stock options granted under the Option Agreement (as
       defined in the agreement) shall vest as set forth in and in accordance
       with the terms and provisions of the Option Agreement;

   (3) Mr. Castaldo's health and medical insurance benefits will be continued
       at our expense through the date which is 24 months following the
       termination date; and

   (4) any portion of bonus that was deferred under the Pollo Tropical
       Executive Bonus Plan will be payable in a lump sum within ten days of
       the termination date.

                                      37

<PAGE>

   Mr. Castaldo's agreement includes non-competition and non-solicitation
provisions effective during the term of the agreement and for two years
following its termination.

Option Agreements Pursuant to the 1996 Long-term Incentive Plan

   Vituli and Accordino Plan Option Agreements.  On December 30, 1996, pursuant
to the Securities Purchase Agreement dated as of March 6, 1996 among Holdings,
the stockholders of Holdings, BIB Holdings and us, Holdings granted to Mr.
Vituli and Mr. Accordino, under the 1996 Long-Term Incentive Plan, options to
purchase 43,350 and 28,900 shares of Holdings' common stock, respectively. On
January 22, 1997, Mr. Vituli contributed his options to the Vituli Family Trust
for the benefit of his children.

   In connection with the investment by Madison Dearborn Capital Partners, L.P.
and Madison Dearborn Capital Partners II, L.P. in 1997, Holdings granted
options to purchase 43,350 and 28,900 shares of Holdings' common stock under
the 1996 Long-Term Incentive Plan at an exercise price of $101.7646 per share
in exchange for the options held by the Vituli Family Trust and Mr. Accordino,
respectively. These options have a term of ten years from the date of grant and
became exercisable at varying rates through December 31, 2000 at which time
they became fully vested.

Other Option Agreements

   Non-Plan Option Agreements.  In connection with the investment by Madison
Dearborn Partners, L.P. and Madison Dearborn Capital Partners II, L.P. in 1997,
Holdings granted to Mr. Vituli, Mr. Accordino and Mr. Zirkman nonqualified
stock options to purchase 29,480, 2,579 and 368 shares, respectively, of
Holdings' Carrols common stock at an exercise price of $101.7646 per share. The
options have a term of ten years from the date of grant and become exercisable
in five equal parts on the five consecutive anniversaries of the date of grant.
These options have substantially the same terms as options issued under the
1996 Long-Term Incentive Plan with respect to: (1) the method of payment of the
exercise price of the option; and, (2) the effect of a Change of Control (as
defined in the 1996 Long-Term Incentive Plan).

   Castaldo Option Agreement.  In conjunction with Mr. Castaldo's employment
agreement Holdings granted Mr. Castaldo a nonqualified stock option to purchase
50,000 shares of Holdings' Pollo Tropical class of common stock under the 1998
Pollo Tropical Long-Term Incentive Plan. The option:

    1) has a term of ten years from the date of grant;

    2) became exercisable:

      (a) on July 19, 1999 with regard to 20,000 shares of Holdings' Pollo
          Tropical common stock at an exercise price of $77.50 per share; and

      (b) on July 19, 2000 with regard to 7,500 shares of Holdings' Pollo
          Tropical common stock at an exercise price of $88.80 per share;

      (c) on July 19, 2001 with regard to 7,500 shares of Holdings' Pollo
          Tropical common stock at an exercise price of $102.90 per share; and

    3) will become exercisable:

      (a) on July 19, 2002 with regard to 7,500 shares of Holdings' Pollo
          Tropical common stock at an exercise price of $119.50 per share; and

      (b) on July 19, 2003 with regard to 7,500 shares of Holdings' Pollo
          Tropical common stock at an exercise price of $137.00 per share.

                                      38

<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The following tables set forth the number and percentage of shares of our
voting stock and Holdings' voting common stock beneficially owned, as of March
15, 2002, by:

   (1) all persons known by us to be the beneficial owners of more than 5% of
       the shares of such voting common stock;

   (2) each of our directors who owns shares of such voting common stock;

   (3) each of our executive officers included in the Summary Compensation
       Table above; and

   (4) all of our executive officers and directors as a group.

<TABLE>
<CAPTION>
                                                              Shares Beneficially
                                                                     Owned
                                                              ------------------
                                                               Number  Percentage
                                                              -------  ----------
<S>                                                           <C>      <C>        <C>       <C>
Stockholders of Carrols Corporation:
   Carrols Holdings Corporation..............................      10      100%
   968 James Street
   Syracuse, New York 13203

                                                                 Carrols Class    Pollo Tropical Class
                                                              ------------------  -------------------
                                                               Number  Percentage  Number   Percentage
                                                              -------  ---------- ------    ----------
Stockholders of Carrols Holdings Corporation(a):
   BIB Holdings (Bermuda) Ltd.(b)............................ 566,667     44.4%
   c/o Dilmun Investments
   Metro Center
   One Station Place
   Stamford, CT 06902
   Madison Dearborn Capital Partners, L.P.................... 283,333     22.2%
   Three First National Plaza
   Suite 3800
   Chicago, IL 60602
   Madison Dearborn Capital Partners II, L.P................. 283,334     22.2%
   (Same address as Madison Dearborn Capital Partners, L.P.)
   Executive Officers and Directors:
   Alan Vituli(c)............................................  82,657      6.5%
   Daniel T. Accordino.......................................  32,339      2.5%
   Nicholas A. Castaldo......................................      --       --    35,000       3.5%
   Paul R. Flanders..........................................   2,245        *
   Joseph A. Zirkman.........................................   2,637        *
   Clayton E. Wilhite........................................   1,750        *
   Directors and executive officers of Carrols...............
   as a group (11 persons)................................... 122,707      9.6%   35,000       3.5%
</TABLE>
--------
 *  Less than one percent.
(a) The number of shares shown in the table includes stock options which are
    currently exercisable or exercisable within 60 days to purchase: 72,830
    shares held by Mr. Vituli; 31,479 shares held by Mr. Accordino; 35,000 held
    by Mr. Castaldo; 2,637 shares held by Mr. Flanders; 2,122 shares held by
    Mr. Zirkman; and 1,750 shares held by Mr. Wilhite.
(b) These 566,667 shares of Holdings' common stock were previously owned by
    Atlantic Restaurants, Inc. which was formed to effect the acquisition of
    the company in 1996. Atlantic Restaurants, Inc., which was a wholly-owned
    subsidiary of BIB Holdings, was merged into BIB Holdings on February 10,
    1999.
(c) Includes 43,350 vested stock options contributed to and held by the Vituli
    Family Trust.

                                      39

<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Stockholders Agreement.  On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., all holders of Holdings' voting common stock entered
into a Stockholders Agreement. The agreement provides that all holders of
Holdings' voting common stock will vote their common stock in order to cause
the following individuals to be elected to the Board of Directors of Holdings
and each of its subsidiaries (including us):

   (a) three representatives designated collectively by Madison Dearborn
       Capital Partners, L.P. and Madison Dearborn

   (b) three representatives designated by BIB Holdings; and

   (c) two representatives designated by Mr. Vituli as long as Mr. Vituli is
       our Chief Executive Officer, subject in each case to adjustment if the
       percentage holdings of each decreases below a certain threshold.

   In addition, the agreement provides for certain limitations on the ability
of holders of Holdings' common stock to sell, transfer, assign, pledge or
otherwise dispose of their common stock. The agreement contains covenants
requiring us to obtain the prior consent of Madison Dearborn Capital Partners,
L.P., Madison Dearborn Capital Partners II, L.P., and BIB Holdings before
taking certain actions including the redemption, purchase or other acquisition
of Holdings' capital budget approved by Holdings' Board of Directors for that
year or the entry into the ownership, active management or operation of any
business other than Burger King franchise restaurants.

   Registration Rights Agreement.  On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., those entities, BIB Holdings, Alan Vituli, Daniel T.
Accordino and Joseph A. Zirkman entered into a registration agreement with
Holdings. The registration agreement provides for demand and piggyback rights
with respect to Holdings' common stock. The Madison Dearborn Capital Partners,
L.P. and Madison Dearborn Capital Partners II, L.P. or BIB Holdings may demand
registration under the Securities Act of all or any portion of their shares of
Holdings' common stock or options for shares of Holdings' common stock (the
"Registrable Securities"), provided that:

   (1) in the case of the first demand registration, Madison Dearborn Capital
       Partners, L.P., and Madison Dearborn Capital Partners II, L.P. and BIB
       Holdings must consent to a demand registration unless Holdings has
       completed a registered public offering of the Holdings' common stock; and

   (2) all demand registrations on Form S-1 must be underwritten.

   Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital
Partners II, L.P., collectively, and BIB Holdings are each entitled to request:

   (1) three demand registrations on Form S-1 in which Holdings will pay all
       registration expenses, provided that the offering value of the
       Registrable Securities is at least $15 million; and

   (2) an unlimited number of demand registrations on Form S-3 in which
       Holdings will pay all registration expenses, provided that the offering
       value of the Registrable Securities is at least $5 million with an
       underwritten offering equal to at least $10 million.

   Whenever Holdings proposes to register any of its securities (other than
pursuant to a demand registration) and the registration form may be used for
the registration of Registrable Securities, Holdings shall give prompt written
notice to all holders of Registrable Securities of its intention to effect such
a registration and shall include in such registration all Registrable
Securities to which Holdings has received written requests for inclusion in
such registration within 20 days after receipt of Holdings' notice. Holdings
shall pay the registration expenses of the holders of Registrable Securities in
all such piggyback registrations. The Registration Agreement contains typical
"cut back" provisions in connection with both demand registrations and
piggyback registrations. We will provide the holders of the Registrable
Securities with typical indemnification in the event of certain misstatements
or omissions made in connection with both demand registrations and piggyback
registrations.

                                      40

<PAGE>

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

(a)  Financial Statements

<TABLE>
<CAPTION>
                                                                Page
                                                                ----
    <S>                                                         <C>
    CARROLS CORPORATION AND SUBSIDIARIES
       Opinion of Independent Certified Public Accountants..... F-1
       Financial Statements:
           Consolidated Balance Sheets......................... F-2
           Consolidated Statements of Operations............... F-3
           Consolidated Statements of Stockholder's Equity..... F-4
           Consolidated Statements of Cash Flows............... F-5
           Notes to Consolidated Financial Statements.......... F-6 to F-31
</TABLE>

(b)  Financial Statement Schedules

<TABLE>
<CAPTION>
                Schedule            Description            Page
                --------            -----------            ----
                <C>      <S>                               <C>
                   II    Valuation and Qualifying Accounts F-32
</TABLE>

   Schedules other than those listed are omitted for the reason that they are
not required, not applicable, or the required information is shown in the
financial statements or notes thereto.

   Separate financial statements of the Company are not filed for the reasons
that (1) consolidated statements of the Company and its consolidated
subsidiaries are filed and (2) the Company is primarily an operating Company
and all subsidiaries included in the consolidated financial statements filed
are wholly-owned.

(a) (3)  Exhibits

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                                           Description
------                                           -----------
<C>     <S>

    2.1 Agreement and Plan of Merger dated June 3, 1998 by and between Carrols Corporation and Pollo
          Tropical, Inc. (incorporated by reference to Exhibit (c)(1) to the Tender Offer Statement on
          Schedule 14 (d)(1) dated July 3, 1998)

    2.2 Agreement and Plan of Merger among Carrols Corporation, Spur Acquisition Corp. and Taco
          Cabana, Inc. dated October 6, 2000 (incorporated by reference to Exhibit 2.2 to Carrols
          Corporation's Form 8-K filed October 11, 2000).

    3.1 Restated By-laws (incorporated by reference to Exhibit 3.(3)(b) to Carrols Corporation's 1986
          Annual Report on Form 10-K)

    3.3 Certificate of Amendment to the Restated Certificate of Incorporation of Carrols Holdings
          Corporation (incorporated by reference to Exhibit 3.3 to Carrols Corporation's September 30,
          2001 Quarterly Report on Form 10-Q)

    4.1 Indenture, dated as of November 24, 1998, between Carrols Corporation, the Guarantors named
          therein and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to
          Exhibit 4.1 to Carrols Corporation's Form S-4 filed February 2, 1999)
</TABLE>

                                      41

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                                               Description
------                                               -----------
<C>      <S>

     4.2 Exchange and Registration Rights Agreement, dated as of November 24, 1998, among Carrols
           Corporation and Chase Securities Inc. and NationsBanc Montgomery Securities LLC
           (incorporated by reference to Exhibit 4.2 to Carrols Corporation's Form S-4 filed on February 2,
           1999

     4.3 Form of 9 1/2% Senior Subordinated Note due 2008 (incorporated by reference to Exhibit 4.3 to
           Carrols Corporation's Form S-4 filed February 2, 1999)

     4.4 First Supplement to Indenture dated as of December 19, 2000 (incorporated by reference to Exhibit
           4.4 to Carrols Corporation's March 31, 2001 Quarterly Report on Form 10-Q)

     4.5 Form of Stockholders Agreement by and among Carrols Holdings Corporation, Madison Dearborn
           Capital Partners, L.P., Madison Dearborn Capital Partners II, L.P., Atlantic Restaurants, Inc.,
           Alan Vituli, Daniel T. Accordino and Joseph A. Zirkman (incorporated by reference to Exhibit
           10.23 to Carrols Corporation's 1996 Annual Report on Form 10-K)

     4.6 Form of Registration Agreement by and among Carrols Holdings Corporation, Atlantic Restaurants,
           Inc., Madison Dearborn Capital Partners, L.P., Madison Dearborn Capital Partners II, L.P., Alan
           Vituli, Daniel T. Accordino and Joseph A. Zirkman (incorporated by reference to Exhibit 10.24
           to Carrols Corporation's 1996 Annual Report on Form 10-K)

    10.1 Stock Purchase Agreement dated as of February 25, 1997 by and among Madison Dearborn Capital
           Partners, L.P., Madison Dearborn Capital Partners II, L.P., Atlantic Restaurants, Inc. and Carrols
           Holdings Corporation (incorporated by reference to Exhibit 10.12 to Carrols Corporation's 1996
           Annual Report on Form 10-K)

 (1)10.2 Amended and Restated Employment Agreement dated as of July 20, 1998 by and between Carrols
           Corporation and Nicholas A. Castaldo (incorporated by reference to Exhibit 10.11 to Carrols
           Corporation's Form S-4 filed February 2, 1999)

 (1)10.3 Carrols Corporation 1996 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.20 to
           Carrols Corporation's 1996 Annual Report on Form 10-K)

 (1)10.4 Stock Option Agreement dated as of December 30, 1996 by and between Carrols Corporation and
           Alan Vituli (incorporated by reference to Exhibit 10.21 to Carrols Corporation's 1996 Annual
           Report on Form 10-K)

 (1)10.5 Stock Option Agreement dated as of December 30, 1996 by and between Carrols Corporation and
           Daniel T. Accordino (incorporated by reference to Exhibit 10.22 to Carrols Corporation's 1996
           Annual Report on Form 10-K)

 (1)10.8 Form of Second Amended and Restated Employment Agreement dated March 27, 1997 by and
           between Carrols Corporation and Alan Vituli (incorporated by reference to Exhibit 10.25 to
           Carrols Corporation's 1996 Annual Report on Form 10-K)

 (1)10.9 Form of Second Amended and Restated Employment Agreement dated March 27, 1997 by and
           between Carrols Corporation and Daniel T. Accordino (incorporated by reference to Exhibit
           10.26 to Carrols Corporation's 1996 Annual Report on Form 10-K)

   10.10 Form of Carrols Holdings Corporation 1996 Long-Term Incentive Plan (incorporated by reference
           to Exhibit 10.27 to Carrols Corporation's 1996 Annual Report on Form 10-K)

(1)10.11 Form of Stock Option Agreement by and between Carrols Holdings Corporation and Alan Vituli
           (incorporated by reference to Exhibit 10.28 to Carrols Corporation's 1996 Annual Report on
           Form 10-K)

(1)10.12 Form of Stock Option Agreement by and between Carrols Holdings Corporation and Daniel T.
           Accordino (incorporated by reference to Exhibit 10.29 to Carrols Corporation's 1996 Annual
           Report on Form 10-K)
</TABLE>

                                      42

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                                                       Description
------                                                       -----------
<C>            <S>

(1)10.13       Form of Unvested Stock Option Agreement by and between Carrols Holdings Corporation and Alan
                 Vituli (incorporated by reference to Exhibit 10.30 to Carrols Corporation's 1996 Annual Report
                 on Form 10-K)

(1)10.14       Form of Unvested Stock Option Agreement by and between Carrols Holdings Corporation and
                 Daniel T. Accordino (incorporated by reference to Exhibit 10.31 to Carrols Corporation's 1996
                 Annual Report on Form 10-K)

(1)10.15       Form of Unvested Stock Option Agreement by and between Carrols Holdings Corporation and
                 Joseph A. Zirkman (incorporated by reference to Exhibit 10.32 to Carrols Corporation's 1996
                 Annual Report on Form 10-K)

   10.16       First Amendment to the Stock Purchase Agreement dated March 27, 1997 by and among Carrols
                 Holdings Corporation, Atlantic Restaurants, Inc., Madison Dearborn Capital Partners, L.P. and
                 Madison Dearborn Capital Partners II, L.P. (incorporated by reference to Exhibit 10.38 to Carrols
                 Corporation's current report on Form 8-K filed March 27, 1997)

   10.17       Purchase and Sale Agreement dated as of January 15, 1997 by and between Carrols Corporation, as
                 Purchaser, Omega Services, Inc. as Seller and Mr. Harold W. Hobgood as Omega's Agent
                 (incorporated by reference to Exhibit 10.39 to Carrols Corporation's current report on Form 8-K
                 filed March 27, 1997)

   10.18       Purchase and Sale Agreement dated as of January 15, 1997 by and between Carrols Corporation, as
                 Purchaser, Omega Services, Inc. as Seller and Mr. Harold W. Hobgood as Omega's Agent
                 (incorporated by reference to Exhibit 10.40 to Carrols Corporation's current report on Form 8-K
                 filed March 27, 1997)

   10.19       Purchase Agreement dated as of July 7, 1997 among Carrols Corporation, as Purchaser, and the
                 individuals and trusts listed on Exhibit A attached thereto, as Sellers, the individuals and entities
                 listed on Exhibit B attached thereto, as Affiliated Real Property Owners, and Richard D. Fors, Jr.
                 and Charles J. Mund, as the Seller's representatives (incorporated by reference to Exhibit 10.41
                 to Carrols Corporation's current report on Form 8-K filed August 20, 1997)

(1)10.20       Carrols Holdings Corporation 1998 Directors' Stock Option Plan (incorporated by reference to
                 Exhibit 10.29 to Carrols Corporation's Form S-4 filed February 2, 1999)

   10.21       Supply Agreement between AmeriServe Food Distribution, Inc. and Carrols Corporation dated
                 January 31, 1999 (incorporated by reference to Exhibit 10.31 to Carrols Corporation's June 30,
                 1999 Quarterly Report on Form 10-Q)

(1)10.22       Carrols Holdings Corporation 1998 Pollo Tropical Long-Term Incentive Plan (incorporated by reference
                 to Exhibit 10.1 to Carrols Corporation's September 30, 1999 Quarterly Report on Form 10-Q)

(1)10.23       Carrols Corporation Retirement Savings Plan dated April 1, 1999 (incorporated by reference to
                 Exhibit 10.29 to Carrols Corporation's 1999 Annual Report on Form 10-K)

   10.24       Loan Agreement dated as of December 19, 2000 among Carrols Corporation, The Chase Manhattan
                 Bank, Bank of America, N.A., Suntrust Bank, Atlanta, Manufacturers and Traders Trust
                 Company, and the other lenders now or hereafter parties hereto (incorporated by reference to
                 Exhibit 10.30 to Carrols Corporation's Form 8-K filed January 3, 2001).

(2)10.25       Carrols Holdings Corporation 2001 Taco Cabana Long-Term Incentive Plan

    21.1       List of Subsidiaries (incorporated by reference to Exhibit 21.1 to Carrols Corporation's 2000
                 Annual Report on Form 10-K)
</TABLE>
--------
(1) Management contract or compensatory plan or arrangement identified pursuant
    to this report.
(2) Filed herewith.

(b)  Reports on Form 8-K

   No current reports on Form 8-K were filed during the quarter ended December
31, 2001.

                                      43

<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholder
of Carrols Corporation:

   In our opinion, the consolidated financial statements listed in the index
appearing under Item 14, page 41, present fairly, in all material respects, the
financial position of Carrols Corporation and its subsidiaries at December 30,
2001 and December 31, 2000 and the results of their operations and their cash
flows for each of the three years in the period ended December 30, 2001 in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14, page 41, present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

/s/  PRICEWATERHOUSECOOPERS LLP

Syracuse, New York
February 21, 2002

                                      F-1

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                          December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                ASSETS
                                                                                   2001          2000
                                                                               ------------  ------------
<S>                                                                            <C>           <C>
Current assets:
   Cash and cash equivalents.................................................. $  2,405,000  $  2,712,000
   Trade and other receivables, net of reserves of $128,000 and $130,000,
     respectively.............................................................    1,741,000     1,912,000
   Inventories................................................................    5,094,000     5,917,000
   Prepaid rent...............................................................    2,115,000     2,284,000
   Prepaid expenses and other current assets..................................    4,262,000     4,122,000
   Refundable income taxes....................................................    1,133,000     2,605,000
   Deferred income taxes (Note 7).............................................    6,797,000     8,451,000
                                                                               ------------  ------------
       Total current assets...................................................   23,547,000    28,003,000
                                                                               ------------  ------------
Property and equipment, at cost less accumulated depreciation and amortization
  of $124,744,000 and $97,968,000, respectively (Note 2)......................  213,346,000   203,284,000
Franchise rights, at cost less accumulated amortization of $43,341,000 and
  $38,539,000, respectively...................................................   94,844,000    98,931,000
Intangible assets, at cost less accumulated amortization of $10,056,000 and
  $5,004,000, respectively (Note 2)...........................................  122,433,000   127,417,000
Deferred income taxes (Note 7)................................................    8,384,000     6,406,000
Other assets..................................................................   11,449,000    12,871,000
                                                                               ------------  ------------
Total assets.................................................................. $474,003,000  $476,912,000
                                                                               ============  ============

                                    LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
   Accounts payable........................................................... $ 16,620,000  $ 13,369,000
   Accrued interest...........................................................    1,518,000     2,247,000
   Accrued payroll, related taxes and benefits................................   12,872,000    12,471,000
   Accrued acquisition costs..................................................      354,000     5,612,000
   Other liabilities..........................................................   15,352,000    12,104,000
   Current portion of long-term debt (Notes 4 and 5)..........................   10,029,000     8,143,000
                                                                               ------------  ------------
       Total current liabilities..............................................   56,745,000    53,946,000
Long-term debt, net of current portion (Notes 4 and 5)........................  363,615,000   362,995,000
Deferred income--sale/leaseback of real estate (Note 4).......................    3,881,000     4,171,000
Accrued postretirement benefits (Note 12).....................................    2,310,000     2,117,000
Other liabilities (Note 3)....................................................   32,397,000    34,664,000
                                                                               ------------  ------------
Total liabilities.............................................................  458,948,000   457,893,000
Commitments and contingencies (Notes 4 and 10)
Stockholder's equity (Note 8):
   Common stock, par value $1; authorized 1,000 shares, issued and
     outstanding--10 shares...................................................           10            10
   Additional paid-in capital.................................................   24,484,990    24,484,990
   Accumulated deficit........................................................   (9,430,000)   (5,466,000)
                                                                               ------------  ------------
       Total stockholder's equity.............................................   15,055,000    19,019,000
                                                                               ------------  ------------
Total liabilities and stockholder's equity.................................... $474,003,000  $476,912,000
                                                                               ============  ============
</TABLE>

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


                                      F-2

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                 Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                     2001          2000          1999
                                                                 ------------  ------------  ------------
<S>                                                              <C>           <C>           <C>
Revenues:
   Restaurant sales............................................. $654,710,000  $465,862,000  $455,440,000
   Franchise royalty revenues and fees..........................    1,579,000     1,039,000     1,039,000
                                                                 ------------  ------------  ------------
       Total revenues...........................................  656,289,000   466,901,000   456,479,000
                                                                 ------------  ------------  ------------
Costs and expenses:
   Cost of sales................................................  189,947,000   132,646,000   137,279,000
   Restaurant wages and related expenses........................  192,214,000   135,787,000   134,125,000
   Other restaurant operating expenses..........................  127,181,000    91,595,000    89,093,000
   Advertising expense..........................................   28,830,000    20,554,000    20,618,000
   General and administrative...................................   35,393,000    26,403,000    23,102,000
   Depreciation and amortization................................   43,495,000    28,856,000    23,898,000
   Other expense (income) (Note 6)..............................    8,841,000    (1,365,000)           --
                                                                 ------------  ------------  ------------
       Total operating expenses.................................  625,901,000   434,476,000   428,115,000
                                                                 ------------  ------------  ------------
Income from operations..........................................   30,388,000    32,425,000    28,364,000
Interest expense................................................   32,988,000    23,666,000    22,386,000
                                                                 ------------  ------------  ------------
Income (loss) before income taxes and extraordinary loss........   (2,600,000)    8,759,000     5,978,000
Provision for income taxes (Note 7).............................    1,364,000     4,441,000     3,826,000
                                                                 ------------  ------------  ------------
Net income (loss) before extraordinary loss.....................   (3,964,000)    4,318,000     2,152,000
Extraordinary loss on extinguishment of debt, net of tax benefit
  (Note 5)......................................................           --       350,000     1,099,000
                                                                 ------------  ------------  ------------
Net income (loss)............................................... $ (3,964,000) $  3,968,000  $  1,053,000
                                                                 ============  ============  ============
</TABLE>


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

                                      F-3

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

                 Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                      Additional                    Total
                               Common  Paid-In-   Accumulated   Stockholder's
                               Stock   Capital      Deficit        Equity
                               ------ ----------- ------------  -------------
  <S>                          <C>    <C>         <C>           <C>
  Balance at January 1, 1999..  $10    24,484,990  (10,487,000)   13,998,000
     Net income...............   --            --    1,053,000     1,053,000
                                ---   ----------- ------------   -----------
  Balance at December 31, 1999  $10    24,484,990   (9,434,000)   15,051,000
     Net income...............   --            --    3,968,000     3,968,000
                                ---   ----------- ------------   -----------
  Balance at December 31, 2000  $10   $24,484,990 $ (5,466,000)  $19,019,000
     Net loss.................   --           ---   (3,964,000)   (3,964,000)
                                ---   ----------- ------------   -----------
  Balance at December 31, 2001  $10   $24,484,990 $ (9,430,000)  $15,055,000
                                ===   =========== ============   ===========
</TABLE>





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


                                      F-4

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                 Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                    2001          2000           1999
                                                                ------------  -------------  ------------
<S>                                                             <C>           <C>            <C>
Cash flows provided from operating activities:
Net income (loss).............................................. $ (3,964,000) $   3,968,000  $  1,053,000
Adjustments to reconcile net income (loss) to net cash provided
  from operating activities:
   Loss on disposal of property and equipment..................      390,000             --       102,000
   Depreciation and amortization...............................   43,495,000     28,856,000    23,898,000
   Other expense (Note 6)......................................    7,053,000             --            --
   Extraordinary loss on extinguishment of debt, net of tax....           --        350,000     1,099,000
   Deferred income taxes.......................................     (599,000)     2,922,000     1,675,000
Changes in operating assets and liabilities:
   Refundable income taxes.....................................    1,522,000        816,000     4,632,000
   Accounts payable............................................    3,251,000     (9,071,000)    8,183,000
   Accrued payroll, related taxes and benefits.................      214,000      1,843,000    (2,123,000)
   Accrued acquisition costs...................................   (5,534,000)     5,612,000            --
   Other liabilities--current..................................    2,194,000        339,000      (851,000)
   Accrued interest............................................     (729,000)       327,000       (92,000)
   Other liabilities--long-term................................   (1,549,000)    14,852,000     1,953,000
   Other.......................................................      691,000     (1,094,000)   (1,356,000)
                                                                ------------  -------------  ------------
Net cash provided from operating activities....................   46,435,000     49,720,000    38,173,000
                                                                ------------  -------------  ------------
Cash flow used for investing activities:
Capital expenditures:
   Purchase of Taco Cabana, Inc. net of cash acquired..........           --   (154,668,000)           --
   New restaurant development..................................  (14,525,000)   (11,328,000)  (14,085,000)
   Restaurant remodeling.......................................  (21,895,000)   (10,957,000)   (9,795,000)
   Corporate and restaurant information systems................   (1,452,000)    (5,663,000)  (11,883,000)
   Other capital expenditures..................................   (9,703,000)    (8,209,000)   (9,569,000)
   Acquisition of Burger King restaurants......................   (1,612,000)            --    (3,833,000)
Proceeds from dispositions of property and equipment...........       31,000          7,000       230,000
                                                                ------------  -------------  ------------
Net cash used for investing activities......................... $(49,156,000) $(190,818,000) $(48,935,000)
                                                                ------------  -------------  ------------
Cash flows provided from financing activities:
   Proceeds (payments) on revolving credit facility, net....... $  9,900,000  $  11,500,000  $ (4,519,000)
   Proceeds from term loans....................................           --    150,000,000            --
   Principal payments on term loans............................   (7,000,000)    (3,000,000)   (3,000,000)
   Retirement of term loans....................................           --    (44,000,000)           --
   Proceeds (payments) from other notes payable, net...........      127,000      1,703,000      (185,000)
   Principal payments on capital leases........................     (524,000)      (257,000)     (324,000)
   Proceeds from sale-leaseback transactions...................           --     29,523,000    14,800,000
   Financing costs associated with issuance of debt............      (89,000)    (3,560,000)     (886,000)
                                                                ------------  -------------  ------------
Net cash provided from financing activities....................    2,414,000    141,909,000     5,886,000
                                                                ------------  -------------  ------------
Net increase (decrease) in cash and cash equivalents...........     (307,000)       811,000    (4,876,000)
Cash and cash equivalents, beginning of year...................    2,712,000      1,901,000     6,777,000
                                                                ------------  -------------  ------------
Cash and cash equivalents, end of year......................... $  2,405,000  $   2,712,000  $  1,901,000
                                                                ============  =============  ============
Supplemental disclosures:
   Interest paid on debt....................................... $ 33,717,000  $  23,339,000  $ 22,739,000
   Income taxes paid, net of refunds........................... $  1,230,000  $   1,294,000  $  1,594,000
</TABLE>

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

                                      F-5

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 Years Ended December 31, 2001, 2000 and 1999

1.  Summary of Significant Accounting Policies

   Basis of Consolidation.  The consolidated financial statements include the
accounts of Carrols Corporation and its subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated in consolidation.
The Company is a wholly-owned subsidiary of Carrols Holdings Corporation
("Holdings").

   At December 31, 2001 the Company operated, as franchisee, 359 quick-service
restaurants under the trade name "Burger King" in thirteen Northeastern,
Midwestern and Southeastern states. At December 31, 2001 the Company also owned
and operated 53 Pollo Tropical restaurants located in Florida and franchised 26
Pollo Tropical restaurants in Puerto Rico, Ecuador, Aruba, El Salvador and
Florida. As described in Note 13, during 2000 the Company purchased Taco
Cabana, Inc. ("Taco Cabana"). At December 31, 2001, the Company owned and
operated 120 Taco Cabana restaurants located in Texas, Oklahoma and Arizona and
franchised 10 restaurants in Texas, New Mexico, Georgia and Indiana.

   Cash and Cash Equivalents.  The Company considers all highly liquid
investments with an original maturity of three months or less when purchased to
be cash equivalents.

   Inventories.  Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories are primarily comprised of food and paper.

   Property and Equipment.  Property and equipment are recorded at cost.
Depreciation and amortization is provided using the straight-line method over
the following estimated useful lives:
<TABLE>
  <S>                            <C>
  Building and improvements..... 5 to 30 years
  Leasehold improvements........ Remaining life of lease including renewal
                                 options or life of asset whichever is shorter
  Equipment..................... 3 to 15 years
  Computer hardware and software 3 to 7 years
  Capital leases................ Remaining life of lease
</TABLE>

   Burger King Franchise Rights.  Fees for initial franchises and renewals are
amortized using the straight-line method over the term of the agreement,
generally twenty years. Acquisition costs allocated to franchise rights are
amortized using the straight-line method, principally over the remaining lives
of the acquired leases including renewal options, but not in excess of 40 years.

   Intangible Assets.  Intangible assets consist of the excess purchase price
over net assets acquired, beneficial leases and trademarks. The excess purchase
price over net assets acquired and trademarks are amortized using the
straight-line method over 40 years with the exception of the excess cost over
fair value associated with the acquisition of Taco Cabana, Inc. which is
amortized over 20 years. Beneficial leases and unfavorable leases are amortized
using the straight-line method over the lives of the leases including renewal
options, but not in excess of 40 years.

   In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, Business
Combinations, and SFAS 142, Goodwill and Other Intangible Assets, which
supercede Accounting Principles Board Opinion 16, Business Combinations and
Opinion 17, Intangible Assets. SFAS 141 requires that all business combinations
be accounted for under the purchase method. The statement further requires
separate recognition of intangible assets that meet certain criterion, as
defined in

                                      F-6

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999

the statement. This statement applies to all business combinations initiated
after June 30, 2001. Under SFAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized, but are to be tested at least
annually for impairment. Separable intangible assets with defined lives will
continue to be amortized over their useful lives. The provisions of SFAS 142
will apply to goodwill and intangible assets acquired before and after the
statement's effective date. SFAS 142 allows up to six months from the date of
adoption to complete Step 1 of the transitional goodwill impairment test. Step
1 requires the comparison of the fair value of a reporting unit to its carrying
value (using amounts measured as of the beginning of the year of adoption) to
determine whether there is an indicated transitional goodwill impairment. If a
reporting unit's fair value is below its carrying value, the Company will need
to complete Step 2 of the transitional goodwill impairment test by the end of
fiscal 2002. Step 2 requires the calculation of an "implied" fair value for a
reporting unit's goodwill. If the implied fair value of the reporting unit's
goodwill is less than its recorded goodwill, a transitional goodwill impairment
charge is recognized and reported as a cumulative effect of a change in
accounting principle. The provisions of SFAS 142 are required to be adopted by
the first quarter of 2002. We are currently evaluating the effect that such
adoption will have on our results of operations and financial position.

   Long-Lived Assets.  The Company assesses the recoverability of property and
equipment, franchise rights and intangible assets by determining whether the
amortization of these assets, over their respective remaining lives, can be
recovered through undiscounted future operating cash flows. Impairment is
reviewed whenever events or changes in circumstances indicate the carrying
amounts of these assets may not be fully recoverable. In June 2001, the FASB
issued SFAS 143, Accounting for Asset Retirement Obligations. This new standard
requires entities to recognize the fair value of an asset retirement obligation
in the period which it is incurred if a reasonable estimate of fair value can
be made. The provisions of SFAS 143 are effective for fiscal years beginning
after June 15, 2002. We have not yet determined the impact, if any, of the
adoption of SFAS 143.

   In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This new standard supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. SFAS 144 requires that all long-lived assets be measured at the
lower of the carrying amount or fair value less cost to sell. The provisions of
SFAS 144 are effective for fiscal years beginning after December 15, 2001. We
have not yet determined the impact, if any, of the adoption of SFAS 144.

   Deferred Financing Costs.  Financing costs, that are included in other
assets and were incurred in obtaining long-term debt are capitalized and
amortized over the life of the related debt on an effective interest basis for
costs associated with the Company's unsecured senior subordinated notes and on
a straight-line basis for costs associated with the Company's senior credit
facility.

   Franchise Fees associated with Pollo Tropical restaurants.  Franchise fees
are typically collected upon execution of an area development and/or franchise
agreement. Franchise fees are initially recorded as deferred revenue and are
recognized in earnings when the franchised restaurants are opened, or upon
forfeiture of such fees by the franchisees pursuant to the terms of the
franchise development agreements.

   Royalty Revenues associated with Pollo Tropical and Taco Cabana
restaurants.  Royalty revenues are based on a percent of gross sales and are
recorded as income when earned.

   Income Taxes.  The Company and its subsidiaries file consolidated federal
income tax returns.

   Advertising Costs.  All advertising costs are expensed as incurred.

   Self Insurance.  The Company is generally self-insured for workers
compensation, general liability and medical insurance. The Company maintains
stop loss coverage for both individual and aggregate claim amounts.

                                      F-7

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999

Losses are accrued based upon the Company's estimates of the aggregate
liability for claims based on Company experience and certain actuarial methods
used to measure such estimates.

   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 and senior notes are based on quoted market prices.
      The fair values at December 31, 2001 and 2000 are approximately
      $166,175,000 and $110,075,000, respectively.

  .   Revolving and Term Loan Facilities.  Rates currently available to the
      Company for debt with similar terms and remaining maturities are used to
      estimate fair value. The recorded amounts, as of December 31, 2001 and
      2000, approximated fair value.

   Stock-Based Compensation.  Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," (SFAS 123) permits entities to
recognize as an expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123 also allowed
entities to continue to apply the provisions of APB 25 and provide pro forma
net income disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS 123 has been applied. The Company has
elected to continue applying the provisions of APB 25 and provide the pro forma
disclosure provisions of SFAS 123.

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

   Fiscal Year.  The Company uses a 52-53 week fiscal year ending on the Sunday
closest to December 31. The financial statements included herein are as of
December 30, 2001 and December 31, 2000. All references herein to the fiscal
years (52 weeks) ended January 2, 2000, December 31, 2000 and December 30, 2001
will be referred to as the fiscal years ended December 31, 1999, 2000 and 2001,
respectively.

   Reclassifications.  Certain amounts for prior years have been reclassified
to conform to the current year presentation.

                                      F-8

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999


2.  Property and Equipment and Intangible Assets

   Property and equipment at December 31, net of accumulated depreciation and
amortization, consist of the following:

<TABLE>
<CAPTION>
                                                     2001           2000
                                                 -------------  ------------
  <S>                                            <C>            <C>
  Land.......................................... $  28,245,000  $ 22,943,000
  Buildings and improvements....................    44,442,000    40,576,000
  Leasehold improvements........................    97,752,000    89,888,000
  Equipment.....................................   153,245,000   133,438,000
  Capital leases................................    14,406,000    14,407,000
                                                 -------------  ------------
                                                   338,090,000   301,252,000
  Less accumulated depreciation and amortization  (124,744,000)  (97,968,000)
                                                 -------------  ------------
                                                 $ 213,346,000  $203,284,000
                                                 =============  ============
</TABLE>

   Depreciation expense for the years ended December 31, 2001, 2000 and 1999
was $30,890,000, $19,855,000 and $15,314,000, respectively.

   Intangible assets at December 31, net of accumulated amortization, consist
of the following:

<TABLE>
<CAPTION>
                                                      2001         2000
                                                  ------------ ------------
     <S>                                          <C>          <C>
     Goodwill.................................... $121,335,000 $126,228,000
     Trademarks..................................      242,000      452,000
     Other.......................................      856,000      737,000
                                                  ------------ ------------
                                                  $122,433,000 $127,417,000
                                                  ============ ============
</TABLE>

   Amortization expense of intangible assets for the years ended December 31,
2001, 2000 and 1999 was $5,048,000, $1,808,000 and $1,710,000, respectively.

3.  Other Liabilities, Long-Term

   Other liabilities, long-term, at December 31, consist of the following:

<TABLE>
<CAPTION>
                                                      2001        2000
                                                   ----------- -----------
      <S>                                          <C>         <C>
      Unearned purchase discounts................. $15,571,000 $16,530,000
      Accrued occupancy costs.....................  10,566,000  12,410,000
      Other.......................................   6,260,000   5,724,000
                                                   ----------- -----------
                                                   $32,397,000 $34,664,000
                                                   =========== ===========
</TABLE>

   Unearned purchase discounts are amortized as a reduction of cost of sales
either over the life of the supplier contract or the estimated purchase
commitment period. In 2000, Burger King Corporation arranged for the Coca-Cola
Company and Dr. Pepper/Seven-Up, Inc. to provide funding to franchisees in
connection with Burger King's transformation initiatives. The Company received
approximately $19.8 million in 2000 and $1.6 million in 2001 under this
arrangement with these suppliers. The total amount of these purchase discounts
amortized for the years ended December 31, 2001 and 2000 was $2,014,000 and
$1,977,000, respectively.

                                      F-9

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999


   Accrued occupancy costs include obligations pertaining to closed restaurant
locations, contingent rent and accruals to expense operating lease rental
payments on a straight-line basis over the lease term.

4.  Leases

   The Company utilizes land and buildings in its operations under various
lease agreements. These leases generally contain an initial term of twenty
years and, in most cases, contain renewal options. The rent payable under such
leases includes a minimum rent provision and, in some cases, includes a
percentage of sales provision. In addition, most leases require payment of
property taxes, insurance and utilities.

   Deferred gains have been recorded as a result of sale/leaseback transactions
and are being amortized over the lives of the related leases. These related
leases have been classified as operating leases and generally contain a
twenty-year initial term with renewal options.

   Minimum rent commitments under capital and non-cancelable operating leases
at December 31, 2001 were as follows:

<TABLE>
<CAPTION>
   Years Ending                                       Capital     Operating
   ------------                                      ----------  ------------
   <S>                                               <C>         <C>
   2002............................................. $  826,000  $ 34,638,000
   2003.............................................    684,000    33,721,000
   2004.............................................    555,000    32,662,000
   2005.............................................    534,000    30,806,000
   2006.............................................    438,000    27,664,000
   Thereafter.......................................    533,000   170,513,000
                                                     ----------  ------------
   Total minimum lease payments..................... $3,570,000  $330,004,000
                                                                 ============
     Less amount representing interest..............   (937,000)
                                                     ----------
   Total obligations under capital leases...........  2,633,000
     Less current portion...........................   (551,000)
                                                     ----------
   Long-term obligations under capital leases....... $2,082,000
                                                     ==========
</TABLE>

   Accumulated amortization pertaining to capital lease assets at December 31,
2001 and 2000 was $12,027,000 and $11,393,000, respectively.

   Total rent expense on operating leases, including percentage rent on both
operating and capital leases, for the past three fiscal years was as follows:

<TABLE>
<CAPTION>
                                                     2001        2000        1999
                                                  ----------- ----------- -----------
<S>                                               <C>         <C>         <C>
Minimum rent on real property.................... $36,847,000 $27,213,000 $25,775,000
Additional rent based on a percentage of sales...   3,682,000   3,113,000   3,901,000
Equipment rent...................................     255,000      42,000     226,000
                                                  ----------- ----------- -----------
                                                  $40,784,000 $30,368,000 $29,902,000
                                                  =========== =========== ===========
</TABLE>

                                     F-10

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999


5.  Long-Term Debt

   Long-term debt at December 31 consisted of:

<TABLE>
<CAPTION>
                                                   2001          2000
                                               ------------  ------------
      <S>                                      <C>           <C>
      Collateralized:
         Revolving credit facility............ $ 55,500,000  $ 45,600,000
         Term loan A facility.................   64,000,000    70,000,000
         Term loan B facility.................   79,000,000    80,000,000
         Other notes payable..................    2,511,000     2,383,000
      Unsecured 9.5% senior subordinated notes  170,000,000   170,000,000
      Capital leases..........................    2,633,000     3,155,000
                                               ------------  ------------
                                                373,644,000   371,138,000
      Less current portion....................  (10,029,000)   (8,143,000)
                                               ------------  ------------
                                               $363,615,000  $362,995,000
                                               ============  ============
</TABLE>

  Senior Credit Facility:

   On December 19, 2000, the Company entered into a senior credit facility with
JP Morgan Chase Bank, as agent and lender, and other lenders as parties
thereto. This senior credit facility was used to finance the acquisition of
Taco Cabana, Inc. and to refinance outstanding amounts under the Company's
previous credit facility. The facility provides for total borrowings of $250
million and consists of a $100 million revolving credit facility (including a
standby letter of credit facility for up to $10 million), a $70 million term
loan A facility and an $80 million term loan B facility.

   Borrowings under the revolving credit facility may be used to finance
permitted acquisitions and new store development, or for working capital and
general corporate purposes. The average weighted interest rate on outstanding
borrowings under our revolving credit facility at December 31, 2001 and 2000
was 5.3% and 10.0%, respectively. After reserving $7,410,000 for letters of
credit guaranteed by the facility, $37,090,000 is available for borrowings
under the revolving credit facility.

   Borrowings under the senior credit facility bear interest at a per annum
rate, at the Company's option, of either:

    1) the greater of the prime rate or the federal funds rate plus .50% plus a
       margin ranging from .50% to 1.75% for the revolving credit facility and
       the term loan A facility based on debt to cash flow ratios, and at a
       fixed margin of 2.5% for the term loan B facility; or

    2) LIBOR plus a margin ranging from 2.00% to 3.25% for the revolving credit
       facility and the term loan A facility based on debt to cash flow ratios,
       and at a fixed margin of 4.0% for the term loan B facility.

   The revolving credit facility and the term loan A facility expire on
December 31, 2005. However, the revolving credit facility is eligible for a
one-year extension based upon request and unanimous approval of the lenders.
The term loan B facility expires on December 31, 2007. Amounts under the term
loan A facility are repayable as follows:

    1) an aggregate of $7.5 million payable in four quarterly installments in
       2002;

    2) an aggregate of $10.0 million payable in four quarterly installments in
       2003;

    3) an aggregate of $12.5 million payable in four quarterly installments in
       2004;

                                     F-11

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999


    4) an aggregate of $9.4 million payable in three quarterly installments in
       2005; and

    5) a final payment of $24.6 million payable upon the term loan A facility's
       maturity on December 31, 2005.

   Amounts under the term loan B facility are repayable as follows:

    1) an aggregate of $1.0 million payable in four quarterly installments for
       each year in 2002 through 2005;

    2) an aggregate of $35.0 million payable in four quarterly installments in
       2006;

    3) an aggregate of $26.2 million payable in three quarterly installments in
       2007; and

    4) a final payment of $13.8 million payable upon the term loan B facility's
       maturity on December 31, 2007.

   In general, the Company's obligations under the senior credit facility are
collateralized by all of the Company's assets, a pledge of the Company's common
stock and the stock of each of the Company's subsidiaries.

   In connection with the Company's refinancing of its senior credit facilities
in 2000 and 1999, the Company has recognized extraordinary losses of $350,000
in 2000 (net of a $225,000 income tax benefit) and $1,099,000 in 1999 (net of a
$726,000 income tax benefit). These losses represent the write-off of
unamortized debt issue costs related to the previously existing senior credit
facility.

  Senior Subordinated Notes:

   The Company also has $170 million of unsecured senior subordinated notes.
The senior subordinated notes bear interest at a rate of 9.5% payable
semi-annually on June 1 and December 1 and mature on December 1, 2008. The
notes are redeemable at the option of the Company in whole or in part on or
after December 1, 2003 at a price of 104.75% of the principal amount if
redeemed before December 1, 2004, 103.167% of the principal amount if redeemed
after December 1, 2004 but before December 1, 2005, 101.583% of the principal
amount if redeemed after December 1, 2005 but before December 1, 2006 and at
100% of the principal amount after December 1, 2006.

   Restrictive covenants under the senior subordinated notes and the senior
credit facility 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. In addition, the senior credit facility
requires the Company to meet certain financial ratio tests.

  Other Notes Payable:

   The Company, as required by Burger King Corporation, purchased frozen Coke
machines in 2001 and 2000 for all of its Burger King restaurants. The Company
has financed these purchases under an arrangement with Burger King Corporation
and Coca-Cola Financial. These notes are generally for a 39-month term and bear
interest at annual interest rates ranging from 8.2% to 9.5%. At December 31,
2001 and 2000, these notes totaled $1,942,000 and $1,816,000, respectively.

                                     F-12

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999


   At December 31, 2001, principal payments required on all long-term debt are
as follows:

<TABLE>
           <S>                                          <C>
           2002........................................ $ 10,029,000
           2003........................................   12,300,000
           2004........................................   14,022,000
           2005........................................   90,911,000
           2006........................................   35,360,000
           Thereafter..................................  211,022,000
                                                        ------------
                                                        $373,644,000
                                                        ============
</TABLE>

   The average weighted interest rate on all debt for the years ended December
31, 2001, 2000 and 1999 was 8.5%, 9.4% and 8.9%, respectively.

6.  Other Expense/Income

   During the fourth quarter of 2001, management made the decision to close
seven Taco Cabana restaurants in the Phoenix, Arizona market and discontinue
restaurant development underway in that market. This decision resulted in a
charge to other expense of $8.8 million in the fourth quarter, representing
$7.1 million in asset impairments, primarily leasehold improvements, and $1.7.
million in future occupancy costs and other costs associated with ongoing exit
activities estimated to be incurred over a two-year period. The Company closed
one restaurant in December 2001 and the remaining six restaurants in February
2002. For the year ended December 30, 2001, these seven restaurants had net
sales of $3.9 million and losses before interest, income taxes, depreciation
and amortization of $1.0 million.

   During 2000, the Company ended its supply agreement with Ameriserve Food
Distribution, Inc. and recognized $1,365,000 in other income representing the
remaining unrecognized portion of contractual payments previously received and
deferred at the inception of the agreement.


                                     F-13

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999


7.  Income Taxes

   The income tax provision was comprised of the following for the years ended
December 31:

<TABLE>
<CAPTION>
                                                 2001        2000       1999
                                              ----------  ---------- ----------
 <S>                                          <C>         <C>        <C>
 Current:
    Federal.................................. $  493,000  $  121,000 $  288,000
    Foreign..................................    283,000     260,000    239,000
    State....................................    912,000     848,000    744,000
                                              ----------  ---------- ----------
                                               1,688,000   1,229,000  1,271,000
                                              ----------  ---------- ----------
 Deferred (prepaid):
    Federal..................................    (76,000)  2,784,000  2,188,000
    State....................................   (248,000)    428,000    367,000
                                              ----------  ---------- ----------
                                                (324,000)  3,212,000  2,555,000
                                              ----------  ---------- ----------
                                              $1,364,000  $4,441,000 $3,826,000
                                              ==========  ========== ==========
</TABLE>

   The components of deferred income tax assets and liabilities at December 31,
are as follows:

<TABLE>
<CAPTION>
                                                         2001         2000
                                                      -----------  -----------
 <S>                                                  <C>          <C>
 Current deferred tax assets:
    Accounts receivable and other reserves........... $   319,000  $   238,000
    Accrued vacation benefits........................   1,248,000    1,083,000
    Other non-deductible accruals....................   1,708,000    1,564,000
    Net operating loss carryforwards.................   3,522,000    5,425,000
    Other............................................          --      141,000
                                                      -----------  -----------
        Total current deferred tax assets............   6,797,000    8,451,000
                                                      -----------  -----------
 Long term deferred tax assets/(liabilities):
    Deferred income on sale/leaseback of real estate.   1,486,000    1,666,000
    Postretirement benefit expenses..................     884,000      845,000
    Property and equipment depreciation..............  (7,610,000)  (7,221,000)
    Net operating loss carryforwards.................   4,161,000    3,819,000
    Amortization of intangible assets................  (3,567,000)  (3,448,000)
    Non-deductible occupancy costs...................   5,988,000    6,642,000
    Tax credit carryforwards.........................   4,773,000    3,926,000
    Unearned purchase discounts......................   1,599,000           --
    Other............................................     670,000      177,000
                                                      -----------  -----------
        Total long-term net deferred tax assets......   8,384,000    6,406,000
                                                      -----------  -----------
        Total net deferred tax assets................ $15,181,000  $14,857,000
                                                      ===========  ===========
</TABLE>

   The Company has net operating loss carryforwards for income tax purposes of
approximately $18.5 million at December 31, 2001. The net operating loss
carryforwards expire in varying amounts beginning in 2004 through 2019. The
Company is generally limited, for Federal income tax purposes, to an annual
utilization of net operating losses of $10.7 million. The Company has net
operating losses of approximately $15.4 million available to be utilized in
2002 due to this limit not being fully utilized in prior years. In addition,
the Company has

                                     F-14

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999

available Federal alternative minimum tax credit carryforwards with no
expiration date and other Federal tax credit carryforwards which begin to
expire in 2018.

   Realization of the deferred income tax assets relating to net operating
losses and tax credit carryforwards is dependent on generating sufficient
taxable income prior to the expiration of these carryforwards. Based upon
results of operations, management believes it is more likely than not that the
Company will generate sufficient future taxable income to fully realize the
benefit of deferred tax assets, although there can be no assurance of this.

   A reconciliation of the statutory federal income tax rate to the effective
tax rates for the years ended December 31, is as follows:

<TABLE>
<CAPTION>
                                                  2001               2000              1999
                                           -----------------   ----------------  ---------------
<S>                                        <C>         <C>     <C>         <C>   <C>        <C>
Statutory federal income tax rate......... $ (884,000) (34.0)% $2,978,000  34.0% $2,034,000 34.0%
State income taxes, net of Federal benefit   (356,000) (13.7)     569,000   6.5     526,000  8.8
Nondeductible expenses....................  2,299,000   88.4    1,003,000  11.4     956,000 16.0
Foreign taxes.............................    284,000   10.9      172,000   2.0     158,000  2.6
Miscellaneous.............................     21,000    0.9     (281,000) (3.2)    152,000  2.6
                                           ----------  -----   ----------  ----  ---------- ----
                                           $1,364,000   52.5%  $4,441,000  50.7% $3,826,000 64.0%
                                           ==========  =====   ==========  ====  ========== ====
</TABLE>

   Nondeductible expenses consist primarily of amortization of certain
franchise rights and other intangibles.

8.  Stockholder's Equity

  The Company

   The Company has 1,000 shares of common stock authorized of which 10 shares
are issued and outstanding. The Company is 100% owned by Holdings. Dividends on
the Company's common stock are restricted to amounts permitted by various loan
agreements and the indenture entered into with respect to the senior
subordinated notes.

  Holdings

   During 1999, Holdings amended its Restated Certificate of Incorporation and
its stockholders approved and adopted the following actions: (1) 7,250 shares
of Holdings' Class A 10% Cumulative Redeemable Preferred Stock which were
authorized but unissued, were canceled; (2) Holdings' authorized common stock
was increased from 3,000,000 shares to 5,000,000 shares; and, (3) 100,000
shares of Preferred Stock, par value $0.01, were authorized. In 2001, Holdings
further amended its Restated Certificate of Incorporation and its stockholders
approved and adopted a resolution to increase Holdings' authorized common stock
from 5,000,000 shares to 7,000,000 shares.

   Holdings' common stock was designated to consist of three series comprised
of 3,000,000 shares of Carrols Stock, par value $0.01 per share, 2,000,000
shares of Pollo Tropical Stock, par value $0.01 per share, and 2,000,000 shares
of Taco Cabana Stock, par value $0.01 per share. In 1999, the existing common
stock of Holdings was redesignated, on a share for share basis, for shares of
the Carrols class of common stock. The holders of the Carrols Stock will have
exclusive voting rights; no holders of the Pollo Tropical Stock or the Taco
Cabana Stock will have voting rights, except as may be required pursuant to
Delaware law.

   The Pollo Tropical and Taco Cabana classes of Holdings' stock are considered
tracking stocks, which is a class of stock intended to track the separate
performance of the Company's Pollo Tropical division and Taco Cabana division
respectively. This tracking stock was adopted as a separate series of equity
securities in order to

                                     F-15

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999

provide a framework for structuring employee incentive plans and to tie such
incentives to the business results and performance of those divisions.

   The number of shares of Pollo Tropical stock that initially represents 100%
of the common stockholders' equity of Holdings attributable to the Pollo
Tropical Group, was established at 1,000,000 shares by the Board of Directors.
Of the 1,000,000 shares that are issuable, none have been issued, and 100,000
have been reserved for grants under the 1998 Pollo Tropical Long-Term Incentive
Plan, which is a Holdings stock option plan.

   The number of shares of Taco Cabana stock that initially represents 100% of
the common stockholders' equity in Holdings attributable to the Taco Cabana
Group was established at 10,000,000 shares by the Board of Directors. Of the
10,000,000 shares that are issuable, none have been issued, and 500,000 have
been reserved for grants under the 2001 Taco Cabana Long-Term Incentive Plan,
which is a Holdings stock option plan.

   The Carrols class of Holdings' stock consists of the interest of Holdings in
all of its assets, liabilities and businesses, other than the assets,
liabilities and businesses attributed to the Pollo Tropical Group or Taco
Cabana Group. Until the issuance of any Pollo Tropical or Taco Cabana Stock,
the rights, preferences and liabilities of the Pollo Tropical and Taco Cabana
Stock will be retained by Holdings. To the extent that less than 100% of the
authorized shares of Pollo Tropical or Taco Cabana Stock are issued, the
rights, preferences, assets and liabilities of the shares not issued remain
with Holdings and its existing Carrols class stockholders.

   Of the 7,000,000 common shares authorized, 1,144,144 shares of Holdings'
Carrols common stock are issued and outstanding.

  Stock Options for Carrols Class Stock

   In 1996, Holdings adopted a stock option plan entitled the 1996 Long-Term
Incentive Plan ("1996 Plan") and authorized a total of 106,250 shares to be
granted at prices ranging from $101.76 to $140.00 per share. The number of
shares reserved and authorized under this plan was increased to 111,250 in
2001. Options under this plan generally vest over a four-year period. In 1998,
Holdings adopted the 1998 Directors' Stock Option Plan ("1998 Directors' Plan")
authorizing to grant up to 10,000 options to non-employee Directors. Options
under this plan are exercisable over four years. In addition, in conjunction
with the 1997 sale of Holdings common stock to Madison Dearborn, additional
options not part of the 1996 Plan for 32,427 shares at a price of $101.76 were
granted with vesting over a five-year period. As a result of the adoption of
the Pollo Tropical tracking stock, the stock options under these plans were
redesignated as options of Holdings' Carrols class common stock.

  Stock Options for Pollo Tropical Tracking Stock

   Holdings has also adopted the 1998 Pollo Tropical Long-Term Incentive Plan
("1998 Pollo Plan") authorizing to grant up to 100,000 shares of Holdings'
Pollo Tropical class of common stock. Options under this plan generally vest
over a five-year period.

  Stock Options for Taco Cabana Tracking Stock

   Holdings has also adopted the 2001 Taco Cabana Long-Term Incentive Plan
("2001 Taco Plan") authorizing to grant up to 500,000 shares of Holdings' Taco
Cabana class of common stock. Options under this plan generally vest over a
five-year period.

                                     F-16

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999


   A summary of all option activity under Holdings' stock option plans for the
years ended December 31, 2001, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                 NonPlan           Directors  Pollo     Taco
                                 Options 1996 Plan   Plan     Plan      Plan
                                 ------- --------- --------- -------  --------
<S>                              <C>     <C>       <C>       <C>      <C>
Outstanding at December 31, 1998  32,427   95,765     2,000   70,000
   Granted......................      --    6,245       500    6,250
   Canceled.....................      --   (3,587)   (1,000)      --
                                 ------- --------   -------  -------
Outstanding at December 31, 1999  32,427   98,423     1,500   76,250
   Granted......................      --    7,590       500    5,750
   Canceled.....................      --   (1,315)       --       --
                                 ------- --------   -------  -------
Outstanding at December 31, 2000  32,427  104,698     2,000   82,000        --
   Granted......................      --    5,880       500       --   201,000
   Canceled.....................      --   (1,399)       --   (3,750)   (6,000)
                                 ------- --------   -------  -------  --------
Outstanding at December 31, 2001  32,427  109,179     2,500   78,250   195,000
Grant Prices:
   1999......................... $    -- $ 126.00   $126.00  $109.00  $     --
   2000.........................      --   124.00    124.00   127.00        --
   2001.........................      --   113.00    113.00       --     11.50
Average Option Price:
   At December 31, 1999......... $101.76 $ 106.28   $115.33  $ 93.68  $     --
   At December 31, 2000.........  101.76   107.37    117.50    95.73        --
   At December 31, 2001.........  101.76   107.51    116.60    96.60     11.50
Options Exercisable:
   At December 31, 1999.........  12,972   68,057       625   24,000        --
   At December 31, 2000.........  19,457   94,275     1,125   36,750        --
   At December 31, 2001.........  25,943   99,678     1,750   48,550    39,000
</TABLE>

   Had compensation cost been determined based upon the fair value of the stock
options at grant date consistent with the method of SFAS 123, the Company's
pro-forma net income (loss) would have been ($4,269,000), $3,511,000 and
$534,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

   The fair value of each option grant was estimated using the minimum value
option pricing model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                     2001     2000     1999
                                                    -------  -------  -------
  <S>                                               <C>      <C>      <C>
  Risk-free interest rate..........................    4.99%    6.26%    5.51%
  Annual dividend yield............................       0%       0%       0%
  Expected life.................................... 5 years  5 years  5 years
</TABLE>

9.  Business Segment Information

   The Company is engaged in the quick-service restaurant industry, with three
restaurant concepts: Burger King operating as a franchisee, Pollo Tropical and
Taco Cabana, both Company owned concepts. The Company's Burger King restaurants
are all located in the United States, primarily in the Northeast, Southeast and
Midwest. Pollo Tropical is a regional quick-service restaurant chain featuring
grilled marinated chicken and

                                     F-17

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999

authentic "made from scratch" side dishes. Pollo Tropical's core markets are
located in south and central Florida. Taco Cabana is a regional quick-service
restaurant chain featuring Mexican style food, including, flame-grilled beef
and chicken fajitas, quesadillas and other Tex-Mex dishes. Taco Cabana's core
markets are primarily in Texas.

   For 1999, segment information includes both Burger King and Pollo Tropical
for the full year. For 2000, segment information includes both Burger King and
Pollo Tropical for the full year and Taco Cabana for the period December 20,
2000 through December 31, 2000. For 2001, segment information includes all
three concepts for the full year. The "Other" column includes corporate related
items not allocated to reportable segments and for income from operations,
principally corporate depreciation and amortization. Other identifiable assets
consist primarily of franchise rights and intangible assets. Non-operating
expenses, comprised of interest expense, interest income, and refinancing
expenses and the extraordinary loss are corporate related items and therefore
have not been allocated to the reportable segments.

<TABLE>
<CAPTION>
                                                 Burger
                                                  King      Pollo     Taco
                                               Restaurants Tropical  Cabana   Other    Consolidated
                                               ----------- -------- -------- --------  ------------
<S>                                            <C>         <C>      <C>      <C>       <C>
                                                                   ($ in 000's)
Year Ended December 31, 2001:
Revenues......................................  $380,875   $97,611  $177,803 $     --    $656,289
Cost of sales.................................   107,054    31,048    51,845       --     189,947
Restaurant wages and related expenses.........   117,115    23,961    51,138       --     192,214
Depreciation and amortization.................    24,186     2,882     7,447    8,980      43,495
Other expense.................................        --        --     8,841       --       8,841
Income from operations........................    15,583    16,741     7,044   (8,980)     30,388
Identifiable assets...........................   215,249    31,668    60,776  166,310     474,003
Capital expenditures, excluding acquisitions..    28,992     8,352     8,401    1,830      47,575

Year Ended December 31, 2000:
Revenues......................................  $371,335   $90,004  $  5,562 $     --    $466,901
Cost of sales.................................   101,520    29,533     1,593       --     132,646
Restaurant wages and related expenses.........   113,215    20,950     1,622       --     135,787
Depreciation and amortization.................    22,057     2,129       255    4,415      28,856
Income from operations........................    19,848    16,372       620   (4,415)     32,425
Identifiable assets...........................   208,533    26,198    67,035  175,146     476,912
Capital expenditures, excluding acquisitions..    27,359     7,577        --    1,221      36,157

Year Ended December 31, 1999:
Revenues......................................   372,689    83,790        --       --     456,479
Cost of sales.................................   108,489    28,790        --       --     137,279
Restaurant wages and related expenses.........   114,935    19,190        --       --     134,125
Depreciation and amortization.................    18,404     1,948        --    3,546      23,898
Income from operations........................    17,451    14,459        --   (3,546)     28,364
Identifiable assets...........................   207,172    21,599        --   91,256     320,027
Capital expenditures, excluding acquisitions..    32,159     9,522        --    3,651      45,332
</TABLE>

                                     F-18

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999

10.  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, under Title VII of the Civil Rights Act of 1964, as amended, against the
Company. The complaint alleges that the Company has engaged in a pattern and
practice of unlawful discrimination, harassment and retaliation against former
and current female employees of the Company over the course of many years. At
present the EEOC had identified approximately 400 individuals it believes
represent the class of claimants; however, that number may increase as the
litigation progresses. The EEOC is seeking monetary and injunctive relief from
the Company.

   The case is in the later stages of written discovery. It is too early to
make an evaluation of the likelihood of an unfavorable outcome and or estimate
the amount or range of potential loss. Consequently it is not possible to
predict what adverse impact, if any, this case could have on the Company's
financial condition. The Company is contesting the case vigorously and believes
it is without merit.

   The Company is a party to various other legal proceedings arising from the
normal course of business. It is the Company's policy to accrue costs
associated with significant outstanding legal proceedings, which are able to be
estimated. Based on information currently available, management believes
adverse decisions relating to litigation and contingencies in the aggregate
would not materially affect the Company's results of operations, cash flows or
financial condition.

11.  Retirement Plans

   The Company offers three retirement plans, a savings plan for its salaried
Burger King employees (the "Carrols Corporation Retirement Savings Plan") and
401(k) plans for its Pollo Tropical employees (the "Pollo Tropical 401(k)
Retirement Savings Plan") and its Taco Cabana employees (the "Taco Cabana
Savings and Retirement Plan").

   In 1999, the Carrols Corporation Retirement Savings Plan was amended. Under
this amendment, the plan was modified to include a savings option pursuant to
section 401(k) of the Internal Revenue Code in addition to a post tax savings
option. Under the amended plan, participating employees may contribute up to
18% of their salary annually to either of the savings options, subject to other
limitations. The Company's contributions, which begin to vest after three years
and fully vest after seven years of service, are equal to 50% of the employee's
contributions to a maximum Company contribution of $520 annually. The employees
have various investment options available under a trust established by the
plan. The plan expense, including Company contributions, was $327,000, $344,000
and $245,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

   Under the Pollo Tropical 401(k) Retirement Plan, all employees who are age
21 or older and who have been credited with at least 1,000 hours of service
within 12 consecutive months are eligible to participate in the 401K Plan.
Employees may contribute up to 15% of their salary on a pre-tax basis, and may
self-direct contributions to various investment options. The Company makes
discretionary matching contributions, which are allocated to participants based
on the participant's eligible deferrals during the plan year. Company
contributions vest at a rate of 33% for each year of service. Company
contributions to this plan totaled, $24,000, $39,000 and $29,000, for the years
ended December 31, 2001, 2000 and 1999, respectively.

   Under the Taco Cabana Savings and Retirement Plan, all employees who are age
21 or older and who have been credited with at least 1,000 hours of service
within 12 consecutive months are eligible to participate in the plan. Employees
may contribute up to 15% of their salary on a pre-tax basis, and may
self-direct contributions to various investment options. During 2000, the plan
was modified to include a Company contribution equal to $.25 for every $1.00
contributed to the plan up to 3% of an employee's salary. Company contributions
vest at a

                                     F-19

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999

rate of 20% per year over 5 years. Company contributions to this plan totaled
$33,000 for the year ended December 31, 2001.

12.  Postretirement Benefits

   The Company provides postretirement medical and life insurance benefits
covering substantially all Burger King administrative and restaurant management
salaried employees. The following is the plan status and accumulated
postretirement benefit obligation (APBO) at December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                         2001        2000
                                                      ----------  ----------
   <S>                                                <C>         <C>
   Change in benefit obligation:
      Benefit obligation at beginning of the year.... $1,901,000  $1,683,000
      Service cost...................................    167,000     142,000
      Interest cost..................................    147,000     125,000
      Plan participant's contributions...............      2,000       2,000
      Amendments, curtailments, special terminations.    (87,000)         --
      Actuarial loss.................................    649,000       4,000
      Benefits paid..................................    (69,000)    (55,000)
                                                      ----------  ----------
      Benefit obligation at end of the year..........  2,710,000   1,901,000
   Change in plan assets:
      Fair value of plan assets at end of year.......         --          --
                                                      ----------  ----------
      Funded status..................................  2,710,000   1,901,000
      Unrecognized prior service cost................    193,000     136,000
      Unrecognized actuarial net (loss) gain.........   (593,000)     80,000
                                                      ----------  ----------
      Accrued benefit cost........................... $2,310,000  $2,117,000
                                                      ==========  ==========
   Weighted average assumptions as of December 31:
      Discount rate..................................       7.25%       7.50%
                                                      ==========  ==========
</TABLE>

   For measurement purposes, the annual rates of increase are assumed to be
9.5% for medical benefits and 14% for prescriptions drug benefits beginning in
2002 and decreasing gradually to 5% in 2010, and remaining at that level
thereafter.

<TABLE>
<CAPTION>
                                                      2001      2000      1999
                                                    --------  --------  --------
<S>                                                 <C>       <C>       <C>
Components of net periodic benefit cost:
   Service cost.................................... $167,000  $142,000  $141,000
   Interest cost...................................  147,000   125,000   115,000
   Amortization of gains and losses................       --        --     4,000
   Amortization of unrecognized prior service cost.  (30,000)  (24,000)  (24,000)
                                                    --------  --------  --------
Net periodic postretirement benefit cost........... $284,000  $243,000  $236,000
                                                    ========  ========  ========
</TABLE>

                                     F-20

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999


   Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A 1% change in the health care cost
trend rates would have the following effects:

<TABLE>
<CAPTION>
                                                          Increase Decrease
                                                          -------- ---------
  <S>                                                     <C>      <C>
  Effect on total of service and interest cost components $ 65,000 $ (52,000)
  Effect on postretirement benefit obligation............  482,000  (393,000)
</TABLE>

13.  Acquisitions

   On December 19, 2000, the Company acquired Taco Cabana, Inc. The total
transaction was valued at approximately $154.7 million including the purchase
of the 11.9 million outstanding common shares, employee stock options and the
assumption of Taco Cabana's outstanding debt which was approximately $43
million. The Taco Cabana acquisition has been accounted for by the purchase
method of accounting and, accordingly, the results of operations of Taco Cabana
from December 20, 2000 are included in the accompanying consolidated financial
statements. The excess purchase price over net assets acquired is included in
intangible assets and is amortized over 20 years using the straight-line
method. The Company entered into its current senior credit facility in 2000, as
described in Note 5, to finance the Taco Cabana acquisition.

   The following, unaudited proforma results of operations for the periods
presented below assume this acquisition occurred as of the beginning of the
respective periods presented:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                    -------------------------
                                                        2000         1999
                                                    ------------ ------------
                                                           (unaudited)
  <S>                                               <C>          <C>
  Revenues......................................... $632,030,000 $614,368,000
                                                    ============ ============
  Cost of sales.................................... $181,853,000 $184,818,000
                                                    ============ ============
  Restaurant wages and related expenses............ $182,444,000 $177,840,000
                                                    ============ ============
  Depreciation and amortization.................... $ 41,051,000 $ 36,165,000
                                                    ============ ============
  Income from operations........................... $ 46,205,000 $ 41,541,000
                                                    ============ ============
  Net income before extraordinary items............ $  6,792,000 $  3,646,000
                                                    ============ ============
</TABLE>

   The preceding, unaudited proforma financial information is not necessarily
indicative of the operating results that would have occurred if the acquisition
had been consummated as of the beginning of the periods presented, nor are they
necessarily indicative of future operating results. The Company subsequently
sold 25 fee owned Taco Cabana properties in a sale/leaseback transaction, the
proceeds from which were $29.5 million. The proceeds, which were received in
December 2000, were used to reduce the debt incurred for the acquisition. The
proforma effects of that transaction have not been included in these proforma
statements.

                                     F-21

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999


   Assets acquired and liabilities assumed in the Taco Cabana acquisition were
as follows:

<TABLE>
           <S>                                         <C>
           Accounts receivable........................ $    901,000
           Inventory..................................      971,000
           Prepaid expenses...........................    2,483,000
           Refundable income taxes....................    2,514,000
           Deferred income taxes, current.............    2,700,000
           Property and equipment.....................   96,807,000
           Intangible assets including goodwill.......   66,802,000
           Deferred income taxes, long-term...........    9,812,000
           Other non-current assets...................      756,000
           Accounts payable...........................   (3,095,000)
           Accrued payroll, related taxes and benefits   (3,361,000)
           Other current liabilities..................   (5,704,000)
           Accrued occupancy costs....................  (14,907,000)
           Other liabilities, long-term...............   (2,011,000)
                                                       ------------
                                                       $154,668,000
                                                       ============
</TABLE>

14.  Guarantor Financial Statements

   The $170 million senior subordinated notes of the Company are guaranteed by
certain of the Company's subsidiaries ("Guarantor Subsidiaries"), all of which
are wholly-owned by the Company. These subsidiaries are:

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

   The following supplemental financial information sets forth on a condensed
consolidating basis, consolidating balance sheets, statements of operations and
statements of cash flows for the Parent Company only, Guarantor Subsidiaries
and for the Company as of December 31, 2001 and 2000 and for the years ended
December 31, 2001, 2000 and 1999.

                                     F-22

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                          CONSOLIDATING BALANCE SHEET

                               December 31, 2001


<TABLE>
<CAPTION>
                                                         Parent
                                                         Company     Guarantor       Combined
                                                          Only      Subsidiaries      Total
                                                       ------------ -------------  ------------
<S>                                                    <C>          <C>            <C>
                     ASSETS
Current assets:
   Cash and cash equivalents.......................... $    921,000 $   1,484,000  $  2,405,000
   Trade and other receivables........................      423,000     1,318,000     1.741,000
   Inventories........................................    3,572,000     1,522,000     5,094,000
   Prepaid rent.......................................    1,260,000       855,000     2,115,000
   Prepaid expenses and other current assets..........    1,435,000     2,827,000     4,262,000
   Refundable income taxes............................    1,133,000            --     1,133,000
   Deferred income taxes..............................    6,797,000            --     6,797,000
                                                       ------------ -------------  ------------
       Total current assets...........................   15,541,000     8,006,000    23,547,000
                                                       ------------ -------------  ------------
Property and equipment, net...........................  117,186,000    96,160,000   213,346,000
Franchise rights, net.................................   94,844,000            --    94,844,000
Intangible assets, net................................    1,568,000   120,865,000   122,433,000
Intercompany receivable (payable).....................  181,226,000  (181,226,000)           --
Deferred income taxes.................................    8,384,000            --     8,384,000
Other assets..........................................    8,849,000     2,600,000    11,449,000
                                                       ------------ -------------  ------------
       Total assets................................... $427,598,000 $  46,405,000  $474,003,000
                                                       ============ =============  ============

      LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
   Accounts payable................................... $ 10,118,000 $   6,502,000  $ 16,620,000
   Accrued interest...................................    1,518,000            --     1,518,000
   Accrued payroll, related taxes and benefits........    8,278,000     4,594,000    12,872,000
   Accrued acquisition costs..........................      177,000       177,000       354,000
   Other liabilities..................................    6,614,000     8,738,000    15,352,000
   Current portion of long-term debt..................    9,762,000       267,000    10,029,000
                                                       ------------ -------------  ------------
       Total current liabilities......................   36,467,000    20,278,000    56,745,000
Long-term debt, net of current portion................  362,426,000     1,189,000   363,615,000
Deferred income, sale/leaseback of real estate........    3,881,000            --     3,881,000
Accrued postretirement benefits.......................    2,310,000            --     2,310,000
Other liabilities.....................................   16,705,000    15,692,000    32,397,000
                                                       ------------ -------------  ------------
       Total liabilities..............................  421,789,000    37,159,000   458,948,000
Stockholder's equity..................................    5,809,000     9,246,000    15,055,000
                                                       ------------ -------------  ------------
       Total liabilities and stockholder's equity..... $427,598,000 $  46,405,000  $474,003,000
                                                       ============ =============  ============
</TABLE>


                                     F-23

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          CONSOLIDATING BALANCE SHEET

                               December 31, 2000

<TABLE>
<CAPTION>
                                                          Parent      Guarantor       Combined
                                                       Company Only  Subsidiaries      Total
                                                       ------------  -------------  ------------
<S>                                                    <C>           <C>            <C>
                     ASSETS
Current assets:
   Cash and cash equivalents.......................... $    785,000  $   1,927,000  $  2,712,000
   Trade and other receivables........................      207,000      1,705,000     1,912,000
   Inventories........................................    4,521,000      1,396,000     5,917,000
   Prepaid rent.......................................    1,200,000      1,084,000     2,284,000
   Prepaid expenses and other current assets..........    1,311,000      2,811,000     4,122,000
   Refundable income taxes............................       91,000      2,514,000     2,605,000
   Deferred income taxes..............................    5,984,000      2,467,000     8,451,000
                                                       ------------  -------------  ------------
       Total current assets...........................   14,099,000     13,904,000    28,003,000
                                                       ------------  -------------  ------------

Property and equipment, net...........................  105,704,000     97,580,000   203,284,000
Franchise rights, net.................................   98,931,000             --    98,931,000
Intangible assets, net................................    1,503,000    125,914,000   127,417,000
Intercompany receivable (payable).....................  208,860,000   (208,860,000)           --
Deferred income taxes.................................   (3,406,000)     9,812,000     6,406,000
Other assets..........................................   10,275,000      2,596,000    12,871,000
                                                       ------------  -------------  ------------
       Total assets................................... $435,966,000  $  40,946,000  $476,912,000
                                                       ============  =============  ============

      LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
   Accounts payable................................... $  8,883,000  $   4,486,000  $ 13,369,000
   Accrued interest...................................    2,247,000             --     2,247,000
   Accrued payroll, related taxes and benefits........    7,711,000      4,760,000    12,471,000
   Accrued acquisition costs..........................    4,470,000      1,142,000     5,612,000
   Other liabilities..................................    6,098,000      6,006,000    12,104,000
   Current portion of long-term debt..................    7,902,000        241,000     8,143,000
                                                       ------------  -------------  ------------
       Total current liabilities......................   37,311,000     16,635,000    53,946,000

Long-term debt, net of current portion................  361,538,000      1,457,000   362,995,000
Deferred income, sale/leaseback of real estate........    4,171,000             --     4,171,000
Accrued postretirement benefits.......................    2,117,000             --     2,117,000
Other liabilities.....................................   16,220,000     18,444,000    34,664,000
                                                       ------------  -------------  ------------
       Total liabilities..............................  421,357,000     36,536,000   457,893,000

Stockholder's equity..................................   14,609,000      4,410,000    19,019,000
                                                       ------------  -------------  ------------
       Total liabilities and stockholder's equity..... $435,966,000  $  40,946,000  $476,912,000
                                                       ============  =============  ============
</TABLE>

                                     F-24

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                     CONSOLIDATED STATEMENT OF OPERATIONS

                         Year Ended December 31, 2001

<TABLE>
<CAPTION>
                                             Parent      Guarantor     Combined
                                          Company Only  Subsidiaries    Total
                                          ------------  ------------ ------------
<S>                                       <C>           <C>          <C>
Revenues:
   Restaurant sales...................... $380,875,000  $273,835,000 $654,710,000
   Franchise royalty revenues and fees...           --     1,579,000    1,579,000
                                          ------------  ------------ ------------
       Total revenues....................  380,875,000   275,414,000  656,289,000
                                          ------------  ------------ ------------
Costs and expenses:
   Cost of sales.........................  107,054,000    82,893,000  189,947,000
   Restaurant wages and related expenses.  117,115,000    75,099,000  192,214,000
   Other restaurant operating expenses...   80,119,000    47,062,000  127,181,000
   Advertising expense...................   16,236,000    12,594,000   28,830,000
   General and administrative............   20,582,000    14,811,000   35,393,000
   Depreciation and amortization.........   27,264,000    16,231,000   43,495,000
   Other expense.........................           --     8,841,000    8,841,000
                                          ------------  ------------ ------------
       Total operating expenses..........  368,370,000   257,531,000  625,901,000
                                          ------------  ------------ ------------
Income from operations...................   12,505,000    17,883,000   30,388,000
   Interest expense......................   32,406,000       582,000   32,988,000
   Intercompany allocations..............   (6,947,000)    6,947,000           --
                                          ------------  ------------ ------------
Income (loss) before income taxes........  (12,954,000)   10,354,000   (2,600,000)
   Provision (benefit) for income taxes..   (4,154,000)    5,518,000    1,364,000
                                          ------------  ------------ ------------
Net income (loss)........................ $ (8,800,000) $  4,836,000 $ (3,964,000)
                                          ============  ============ ============
</TABLE>


                                     F-25

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                     CONSOLIDATING STATEMENT OF OPERATIONS

                         Year Ended December 31, 2000

<TABLE>
<CAPTION>
                                                                   Parent
                                                                   Company      Guarantor     Combined
                                                                    Only       Subsidiaries    Total
                                                                 ------------  ------------ ------------
<S>                                                              <C>           <C>          <C>
Revenues:
   Restaurant sales............................................. $371,335,000  $94,527,000  $465,862,000
   Franchise royalty revenues and fees..........................           --    1,039,000     1,039,000
                                                                 ------------  -----------  ------------
       Total revenues...........................................  371,335,000   95,566,000   466,901,000
                                                                 ------------  -----------  ------------
Costs and expenses:
   Cost of sales................................................  101,520,000   31,126,000   132,646,000
   Restaurant wages and related expenses........................  113,216,000   22,571,000   135,787,000
   Other restaurant operating expenses..........................   78,444,000   13,151,000    91,595,000
   Advertising expense..........................................   16,854,000    3,700,000    20,554,000
   General and administrative...................................   20,764,000    5,639,000    26,403,000
   Depreciation and amortization................................   24,446,000    4,410,000    28,856,000
   Other income.................................................   (1,365,000)          --    (1,365,000)
                                                                 ------------  -----------  ------------
       Total operating expenses.................................  353,879,000   80,597,000   434,476,000
                                                                 ------------  -----------  ------------
Income from operations..........................................   17,456,000   14,969,000    32,425,000
   Interest expense.............................................   23,666,000           --    23,666,000
   Intercompany allocations.....................................   (6,950,000)   6,950,000            --
                                                                 ------------  -----------  ------------
Income before income taxes and extraordinary loss...............      740,000    8,019,000     8,759,000
Provision for income taxes......................................      389,000    4,052,000     4,441,000
                                                                 ------------  -----------  ------------
Income before extraordinary loss................................      351,000    3,967,000     4,318,000
Extraordinary loss on extinguishment of debt, net of tax benefit      350,000           --       350,000
                                                                 ------------  -----------  ------------
Net income...................................................... $      1,000  $ 3,967,000  $  3,968,000
                                                                 ============  ===========  ============
</TABLE>



                                     F-26

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                     CONSOLIDATING STATEMENT OF OPERATIONS

                         Year Ended December 31, 1999

<TABLE>
<CAPTION>
                                                                   Parent
                                                                   Company      Guarantor     Combined
                                                                    Only       Subsidiaries    Total
                                                                 ------------  ------------ ------------
<S>                                                              <C>           <C>          <C>
Revenues:
   Restaurant sales............................................. $372,689,000  $82,751,000  $455,440,000
   Franchise royalty revenues and fees..........................           --    1,039,000     1,039,000
                                                                 ------------  -----------  ------------
       Total revenues...........................................  372,689,000   83,790,000   456,479,000
                                                                 ------------  -----------  ------------
Costs and expenses:
   Cost of sales................................................  108,489,000   28,790,000   137,279,000
   Restaurant wages and related expenses........................  114,935,000   19,190,000   134,125,000
   Other restaurant operating expenses..........................   77,839,000   11,254,000    89,093,000
   Advertising expense..........................................   17,285,000    3,333,000    20,618,000
   General and administrative...................................   18,286,000    4,816,000    23,102,000
   Depreciation and amortization................................   20,043,000    3,855,000    23,898,000
                                                                 ------------  -----------  ------------
       Total operating expenses.................................  356,877,000   71,238,000   428,115,000
                                                                 ------------  -----------  ------------
Income from operations..........................................   15,812,000   12,552,000    28,364,000
   Interest expense.............................................   22,386,000           --    22,386,000
   Intercompany allocations.....................................   (7,362,000)   7,362,000            --
                                                                 ------------  -----------  ------------
Income before income taxes and extraordinary loss...............      788,000    5,190,000     5,978,000
Provision for income taxes......................................    1,810,000    2,016,000     3,826,000
                                                                 ------------  -----------  ------------
Income (loss) before extraordinary loss.........................   (1,022,000)   3,174,000     2,152,000
Extraordinary loss on extinguishment of debt, net of tax benefit    1,099,000           --     1,099,000
                                                                 ------------  -----------  ------------
Net income (loss)............................................... $ (2,121,000) $ 3,174,000  $  1,053,000
                                                                 ============  ===========  ============
</TABLE>


                                     F-27

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                     CONSOLIDATING STATEMENT OF CASH FLOWS

                         Year Ended December 31, 2001

<TABLE>
<CAPTION>
                                                             Parent
                                                             Company      Guarantor      Combined
                                                              Only       Subsidiaries     Total
                                                           ------------  ------------  ------------
<S>                                                        <C>           <C>           <C>
Cash flows provided from operating activities:
   Net income (loss)...................................... $ (8,800,000) $  4,836,000  $ (3,964,000)
   Adjustments to reconcile net income (loss) to net cash
     provided from operating activities:
       Loss on disposal of property and equipment.........           --       390,000       390,000
       Other expense (Note 6).............................           --     7,053,000     7,053,000
       Depreciation and amortization......................   27,264,000    16,231,000    43,495,000
       Deferred income taxes..............................     (599,000)           --      (599,000)
   Changes in operating assets and liabilities............   11,184,000   (11,124,000)       60,000
                                                           ------------  ------------  ------------
Net cash provided from operating activities...............   29,049,000    17,386,000    46,435,000
                                                           ------------  ------------  ------------
Cash flow used for investing activities:
   Capital expenditures:
       New restaurant development.........................   (3,163,000)  (11,362,000)  (14,525,000)
       Restaurant remodeling..............................  (21,895,000)           --   (21,895,000)
       Corporate and restaurant information systems.......   (1,007,000)     (445,000)   (1,452,000)
       Other capital expenditures.........................   (3,923,000)   (5,780,000)   (9,703,000)
       Acquisition of restaurants.........................   (1,612,000)           --    (1,612,000)
   Proceeds from dispositions of property and equipment...       31,000            --        31,000
                                                           ------------  ------------  ------------
Net cash used for investing activities....................  (31,569,000)  (17,587,000)  (49,156,000)
                                                           ------------  ------------  ------------
Cash flows provided from (used for) financing activities:
   Proceeds on revolving credit facility, net.............    9,900,000            --     9,900,000
   Principal payments and retirements of term loans.......   (7,000,000)           --    (7,000,000)
   Proceeds from other notes payable, net.................      127,000            --       127,000
   Principal payments on capital leases...................     (282,000)     (242,000)     (524,000)
   Financing costs associated with issuance of debt.......      (89,000)           --       (89,000)
                                                           ------------  ------------  ------------
Net cash provided from (used for) financing activities....    2,656,000      (242,000)    2,414,000
                                                           ------------  ------------  ------------
Net decrease in cash and cash equivalents.................      136,000      (443,000)     (307,000)
Cash and cash equivalents, beginning of year..............      785,000     1,927,000     2,712,000
                                                           ------------  ------------  ------------
Cash and cash equivalents, end of year.................... $    921,000  $  1,484,000  $  2,405,000
                                                           ============  ============  ============
</TABLE>


                                     F-28

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                     CONSOLIDATING STATEMENT OF CASH FLOWS

                         Year Ended December 31, 2000

<TABLE>
<CAPTION>
                                                                  Parent
                                                                  Company      Guarantor     Combined
                                                                   Only       Subsidiaries    Total
                                                               -------------  ------------ -------------
<S>                                                            <C>            <C>          <C>
Cash flows provided from operating activities:
   Net income................................................. $       1,000  $ 3,967,000  $   3,968,000
   Adjustments to reconcile net income to net cash provided
     from operating activities:
       Depreciation and amortization..........................    24,446,000    4,410,000     28,856,000
       Extraordinary loss on extinguishment of debt,
        net of tax............................................       350,000           --        350,000
       Deferred income taxes..................................     2,689,000      233,000      2,922,000
       Changes in operating assets and liabilities............    13,754,000     (130,000)    13,624,000
                                                               -------------  -----------  -------------
Net cash provided from operating activities...................    41,240,000    8,480,000     49,720,000
                                                               -------------  -----------  -------------
Cash flow used for investing activities:
   Capital expenditures:
       Purchase of Taco Cabana, Inc. net of cash acquired.....  (154,668,000)          --   (154,668,000)
       New restaurant development.............................    (4,610,000)  (6,718,000)   (11,328,000)
       Restaurant remodeling..................................   (10,957,000)          --    (10,957,000)
       Corporate and restaurant information systems...........    (5,266,000)    (397,000)    (5,663,000)
       Other capital expenditures.............................    (7,338,000)    (871,000)    (8,209,000)
   Proceeds from dispositions of property and equipment.......         7,000           --          7,000
                                                               -------------  -----------  -------------
Net cash used for investing activities........................  (182,832,000)  (7,986,000)  (190,818,000)
                                                               -------------  -----------  -------------
Cash flows provided from financing activities:
   Proceeds on revolving credit facility, net.................    11,500,000           --     11,500,000
   Proceeds from term loans...................................   150,000,000           --    150,000,000
   Payments on term loans.....................................    (3,000,000)          --     (3,000,000)
   Retirement of term loans...................................   (44,000,000)          --    (44,000,000)
   Proceeds from other notes payable, net.....................     1,703,000           --      1,703,000
   Principal payments on capital leases.......................      (257,000)          --       (257,000)
   Proceeds from sale-leaseback transactions..................    29,523,000           --     29,523,000
   Financing costs associated with issuance of debt...........    (3,560,000)          --     (3,560,000)
                                                               -------------  -----------  -------------
Net cash provided from financing activities...................   141,909,000           --    141,909,000
                                                               -------------  -----------  -------------
Net increase in cash and cash equivalents.....................       317,000      494,000        811,000
Cash and cash equivalents, beginning of year..................       468,000    1,433,000      1,901,000
                                                               -------------  -----------  -------------
Cash and cash equivalents, end of year........................ $     785,000  $ 1,927,000  $   2,712,000
                                                               =============  ===========  =============
</TABLE>

                                     F-29

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                     CONSOLIDATING STATEMENT OF CASH FLOWS

                         Year Ended December 31, 1999

<TABLE>
<CAPTION>
                                                                       Parent
                                                                       Company      Guarantor      Combined
                                                                        Only       Subsidiaries     Total
                                                                     ------------  ------------  ------------
<S>                                                                  <C>           <C>           <C>
Cash flows provided from operating activities:
   Net income (loss)................................................ $ (2,121,000) $  3,174,000  $  1,053,000
   Adjustments to reconcile net income to net cash
     Provided from operating activities:
       Loss (gain) on disposal of property and equipment............      102,000            --       102,000
       Depreciation and amortization................................   20,043,000     3,855,000    23,898,000
       Extraordinary loss on extinguishment of debt, net of tax.....    1,099,000            --     1,099,000
       Deferred income taxes........................................   (1,482,000)    3,157,000     1,675,000
   Changes in operating assets and liabilities......................    9,551,000       795,000    10,346,000
                                                                     ------------  ------------  ------------
Net cash provided from operating activities.........................   27,192,000    10,981,000    38,173,000
                                                                     ------------  ------------  ------------
Cash flow used for investing activities
   Capital expenditures:
       New restaurant development...................................   (9,194,000)   (4,891,000)  (14,085,000)
       Restaurant remodeling........................................   (9,795,000)           --    (9,795,000)
       Corporate and restaurant information systems.................  (10,845,000)   (1,038,000)  (11,883,000)
       Other capital expenditures...................................   (5,119,000)   (4,450,000)   (9,569,000)
       Acquisition of Burger King restaurants.......................   (3,833,000)           --    (3,833,000)
Proceeds from dispositions of property and equipment................      230,000            --       230,000
                                                                     ------------  ------------  ------------
Net cash used for investing activities..............................  (38,556,000)  (10,379,000)  (48,935,000)
                                                                     ------------  ------------  ------------
Cash flows provided from financing activities:
   Payments on revolving credit facility, net.......................   (4,519,000)           --    (4,519,000)
   Principal payments on term loans.................................   (3,000,000)           --    (3,000,000)
   Principal payment on other notes payable, net....................     (185,000)           --      (185,000)
   Principal payments on capital leases.............................     (324,000)           --      (324,000)
   Proceeds from sale/leaseback transactions........................   14,800,000            --    14,800,000
   Financing costs associated with issuance of debt.................     (886,000)           --      (886,000)
                                                                     ------------  ------------  ------------
Net cash provided from financing activities.........................    5,886,000            --     5,886,000
                                                                     ------------  ------------  ------------
Net increase (decrease) in cash and cash equivalents................   (5,478,000)      602,000    (4,876,000)
Cash and cash equivalents, beginning of year........................    5,946,000       831,000     6,777,000
                                                                     ------------  ------------  ------------
Cash and cash equivalents, end of year.............................. $    468,000  $  1,433,000  $  1,901,000
                                                                     ============  ============  ============
</TABLE>


                                     F-30

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                 Years Ended December 31, 2001, 2000 and 1999


Note 15.  Selected Quarterly Financial Data (Unaudited) (in 000's)

<TABLE>
<CAPTION>
                                                                 Quarter Ended
                                                  ------------------------------------------
     2001                                         March 31  June 30  September 30 December 31
     ----                                         --------  -------- ------------ -----------
<S>                                               <C>       <C>      <C>          <C>
 Total revenues.................................. $155,112  $167,037   $170,531    $163,609
 Gross profit (1)................................   25,729    31,989     30,115      30,284
 Income (loss) before extraordinary loss (2).....   (1,532)    1,856        420      (4,708)
 Net income (loss) (2)...........................   (1,532)    1,856        420      (4,708)

                                                                 Quarter Ended
                                                  ------------------------------------------
     2000                                         March 31  June 30  September 30 December 31
     ----                                         --------  -------- ------------ -----------
 Total revenues.................................. $109,751  $120,079   $116,175    $120,896
 Gross profit (1)................................   17,765    23,108     22,085      23,361
 Income (loss) before extraordinary loss.........     (513)    3,136      1,277         418
 Net income (loss)...............................     (513)    3,136      1,277          68
</TABLE>
--------
(1) Gross profit is defined as total revenues less cost of sales, restaurant
    wages, other operating and advertising expenses.
(2) Fourth quarter of 2001 includes a charge to other expense of $8.8 million
    to close seven Taco Cabana restaurants in its Phoenix, Arizona market and
    discontinue restaurant development underway in that market.

                                     F-31

<PAGE>

                     CARROLS CORPORATION AND SUBSIDIARIES

                SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                 Years Ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
Col. A                                               Col. B     Col. C       Col. D         Col. E
------                                             ---------- ----------   ----------     ----------
                                                   Balance at Charged to                  Balance at
                                                   Beginning  Costs and                     End of
Description                                        of Period   Expenses    Deductions       Period
-----------                                        ---------- ----------   ----------     ----------
<S>                                                <C>        <C>          <C>            <C>
Year ended December 31, 2001:
   Reserve for doubtful trade accounts receivable.  $130,000   $ 31,000    $ (33,000) (c)  $128,000
   Reserve for note receivable (a)................   238,000         --           --        238,000
   Reserve for inventory (b)......................   150,000     12,000      (80,000)        82,000

Year ended December 31, 2000:
   Reserve for doubtful trade accounts receivable.    53,000     14,000      (43,000) (c)   130,000
                                                                106,000(d)
   Reserve for note receivable (a)................   238,000         --           --        238,000
   Reserve for inventory (b)......................   293,000     42,000     (185,000)       150,000

Year ended December 31, 1999:
   Reserve for doubtful trade accounts receivable.    93,000         --      (40,000) (c)    53,000
   Reserve for note receivable (a)................   238,000         --           --        238,000
   Reserve for inventory (b)......................    78,000    286,000      (71,000)       293,000
</TABLE>
--------
(a) Included in other assets.

(b) Included in inventory.

(c) Represents write-offs of accounts.

(d) Represents reserves acquired in the 2000 Taco Cabana acquisition.

                                     F-32

<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized on the first day of
April 2002.

                                               CARROLS CORPORATION

                                               By:       /s/  ALAN VITULI
                                                   -----------------------------
                                                            Alan Vituli
                                                   Chairman and Chief Executive
                                                              Officer

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

          Signature                             Title                 Date
          ---------                             -----                 ----

      /S/  ALAN VITULI              Director, Chairman and Chief  April 1, 2002
-----------------------------         Executive Officer
          Alan Vituli                 (Principal Executive
                                      Officer)

  /S/  DANIEL T. ACCORDINO          Director, President and Chief April 1, 2002
-----------------------------         Operating Officer
      Daniel T. Accordino

 /S/  BENJAMIN D. CHERESKIN         Director                      April 1, 2002
-----------------------------
     Benjamin D. Chereskin

    /S/  JAMES M. CONLON            Director                      April 1, 2002
-----------------------------
        James M. Conlon

 /S/  DAVID J. MATHIES, JR.         Director                      April 1, 2002
-----------------------------
     David J. Mathies, Jr.

    /S/  ROBIN P. SELATI            Director                      April 1, 2002
-----------------------------
        Robin P. Selati

   /S/  CLAYTON E. WILHITE          Director                      April 1, 2002
-----------------------------
       Clayton E. Wilhite

    /S/  PAUL R. FLANDERS           Vice President--Finance and   April 1, 2002
-----------------------------         Treasurer (Principal
        Paul R. Flanders              Financial Officer and
                                      Principal Accounting
                                      Officer)

   /S/  TIMOTHY J. LALONDE          Vice President--Controller    April 1, 2002
-----------------------------
       Timothy J. LaLonde

                                     II-1