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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



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ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For Fiscal Year Ended December 31, 2003



Commission File Number: 0-25629



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CARROLS CORPORATION

(Exact name of Registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 16-0958146                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|968 James Street Syracuse, New York                            |  | 13203                               
|(Address of principal executive office)                        |  | (Zip Code)                          
|                                                               |  |                                     



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



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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



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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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act)    Yes ̈No  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 of the registrants common stock outstanding as of April 30, 2004 is 10.



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The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience,
all references herein to the fiscal years ended December 30, 2001, December 29, 2002 and December 28, 2003 will hereinafter be referred to as the fiscal years ended December 31, 2001, 2002 and 2003, respectively.



PART I



This 2003 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 Company 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 particularly at the retail level, 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 Company to manage its growth and successfully implement its
business strategy, environmental conditions and regulations, weather conditions, significant disruptions in service or supply by any of our suppliers, risks associated with the expansion of our business, general risks associated with the food
industry, our inability to integrate any businesses we acquire, our borrowing costs and credit ratings, which may be influenced by credit ratings of our competitors, the risk of events similar to these of September 11, 2001 or an outbreak or
escalation of any insurrection or armed conflict involving the United States or any other national or international calamity, factors that affect the food industry generally, including recalls if products became adulterated or misbranded, liability
if product consumption causes injury, ingredient disclosure and labeling laws and regulations and the possibility that consumers could lose confidence in the safety and quality of certain food products, as well as recent publicity concerning the
health implications of obesity and transfatty acids, the availability and terms of necessary or desirable financing or refinancing and other risks and uncertainties that are discussed herein.



We use the terms EBITDA, Adjusted EBITDA, restaurant level EBITDA and EBITDA
margins because we believe they are useful financial indicators for measuring the ability to service and/or incur indebtedness. They 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. These terms are more fully described under Managements Discussion and Analysis of Financial Condition and Results of Operations. See Reconciliation of Non-GAAP
Financial Measures on Page 32.



Restatement



We have restated our financial statements including applicable footnotes for
periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98 Accounting for Leases rather than as sale/leaseback transactions
as previously reported. The impact of the restatement is to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions, (including the gains previously
deferred) as a form of debt financing. The restatement also impacted our operating results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously
reported as rent expense for these restaurants as principal repayments and interest expense. There was no impact on sale/leaseback transactions that were consummated in 2002 and 2003.



As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants
under our senior secured credit facility. We have obtained a waiver from our senior secured lenders of any prior non-compliance and defaults resulting from the restatement. In addition, our senior secured credit facility has been amended to exclude
all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization has occurred.



The restatement discussed above was due to lease provisions in certain of our
sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the lease. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as
originally intended. However, no such assurances can be made as to when or whether any or all of such leases will be amended.



See Note 2 to the Consolidated Financial Statements for a complete discussion of the restatement. All previously reported amounts affected by the
restatement that appear in this Annual Report on Form 10-K have been restated.



ITEM 1. BUSINESS



Overview



Who We Are



We are one of the largest restaurant companies in the United States
operating 532 restaurants in 16 states as of December 31, 2003. We operate three restaurant concepts that provide balance in terms of our revenues and diversification with regard to restaurant concept as well as the geographic location of our
restaurants. We are the largest Burger King®
franchisee in the world and have operated Burger King restaurants since 1976. We also own and operate two regional Hispanic restaurant companies: Taco Cabana and Pollo Tropical. At December 31, 2003, we operated 351 Burger King restaurants located
in 13 Northeastern, Midwestern and Southeastern states. Our Burger King restaurant sales were $353.3 million in 2003, or 55% of our total revenues. Our Hispanic restaurant brands collectively operate or franchise more than 200 restaurants and
comprised 45% of 2003 revenues.



In 1998 we acquired Pollo
Tropical Inc., a restaurant chain featuring grilled marinated chicken and authentic made from scratch side dishes, for a cash purchase price of approximately $95 million. Since the acquisition, we have expanded this concept by over 65%
by opening 24 new Pollo Tropical restaurants. At December 31, 2003 we operated 60 company owned Pollo Tropical restaurants in Florida and franchised 24 Pollo Tropical restaurants, 19 of which are in Puerto Rico. Total Pollo Tropical revenues were
$110.2 million in 2003.



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. At December 31, 2003 we operated 121
company owned Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. Since the acquisition we have opened 21 new Taco Cabana restaurants and have closed 15 restaurants, including seven restaurants in the
Phoenix, Arizona market. Total Taco Cabana revenues were $181.5 million in 2003.



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Due primarily to our acquisition of Taco Cabana in 2000 as well as the construction of new restaurants
over the past five years, total revenues for our Hispanic brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame total Adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization
and other income and expense) from our Hispanic brands has increased over 250% from $18.6 million in 1999 to $47.0 million in 2003. See Reconciliation of Non-GAAP Financial Measures on page 32.



We are a Delaware corporation incorporated in 1968.



The Industry



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



According to Technomic Information Services (Technomic), the quick-service
segment of the restaurant industry had sales of approximately $136.3 billion in 2002. According to Technomic, sales in this segment grew at a compound annual rate of 4.6% between 1997 and 2002 and are projected to increase at a compound annual rate
of 4.5% between 2002 and 2007, including an increase of 3.0% in the hamburger segment. We believe that this growth reflects consumers desire for a convenient, reasonably priced restaurant experience. In addition, the consumers need for
meals prepared outside of the home, including takeout, has increased significantly over past historical levels as a result of the greater numbers of working women and single parent families.



Hispanic Brands



Our Hispanic brands will also benefit from additional factors such as the
growing baby boomer demand for quick-casual dining and increasing consumer demand for, and acceptance of, variety and ethnic foods. To a lesser extent, we also believe that our Hispanic brands will benefit from the growing U.S. Hispanic population.
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.



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Taco Cabana



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 café concept with its first
restaurant in San Antonio, Texas in 1978 and of the 121 restaurants we operated at December 31, 2003, 115 are located in Texas. For the year ended December 31, 2003, Taco Cabanas average restaurant sales were approximately $1.52 million.



Our acquisitions of Taco Cabana and Pollo Tropical have
allowed us to:



| |  | diversify our revenue base;
| | - | ---------------------------



| |  | enhance our overall operating margins and cash flow;
| | - | ----------------------------------------------------



| |  | expand our geographic presence into areas with high population growth;
| | - | ----------------------------------------------------------------------



| |  | capitalize on the significant growth of the Hispanic population in the United States; and
| | - | -----------------------------------------------------------------------------------------



| |  | increase our opportunities to build additional restaurants.
| | - | -----------------------------------------------------------



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.



Pollo Tropical opened its first company-owned restaurant in 1988 in Miami and its first international franchised restaurant in 1995 in Puerto Rico. At
December 31, 2003, we owned and operated a total of 60 restaurants, 51 of which are located in south Florida under the trade name Pollo Tropical and nine under the trade name TropiGrill in central Florida. We also franchised 24 Pollo Tropical
restaurants, 19 of which are located in Puerto Rico, four in Ecuador and one in Miami. For the year ended December 31, 2003, Pollo Tropicals average restaurant sales were approximately $1.84 million, which we believe is among the highest in
its industry segment.



Burger King



Burger King Corporation (BKC) is the second largest
quick-service hamburger restaurant chain in the world. According to BKC, at December 31, 2003 there were approximately 11,300 restaurants in 58 countries worldwide, including approximately 7,800 throughout the United States. Total worldwide
restaurant sales for the year ended June 30, 2003 were approximately $11.1 billion, of which approximately $7.9 billion were in the United States. Burger King restaurants are quick-service restaurants of distinctive design that feature flame-broiled
hamburgers and serve several widely known, trademarked products, the most popular being the WHOPPER® sandwich.



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



| |  | brand recognition;
| | - | ------------------



| |  | convenience of location;
| | - | ------------------------



| |  | speed of service;
| | - | -----------------



| |  | quality; and
| | - | ------------



| |  | price.
| | - | ------



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Competitive Strengths



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



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



Our Hispanic
Brands -Pollo Tropical is one of the most highly recognized quick-casual restaurant brands in its core markets of south and central Florida. Taco Cabana is also a highly recognized quick-casual brand in its core Texas markets. Of the 121 Taco
Cabana restaurants we currently operate, a total of 115 restaurants are concentrated in five major markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. We believe that the following factors have led to the success of both of these
concepts:



| |  | strong brand awareness in their respective core markets;
| | - | --------------------------------------------------------



| |  | high quality, freshly prepared food;
| | - | ------------------------------------



| |  | high frequency of visits and loyalty among their core customers; and
| | - | --------------------------------------------------------------------



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



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. We believe strong brand recognition, coupled with the quality and value of the food and convenience of its restaurants, provide opportunities for growth for the Burger King brand.



Stable and Diversified Cash Flows -We believe that the stability of
our operating cash flows is due to the proven success of our restaurant concepts and our consistent focus on restaurant operations. Over the past five years, our restaurant level EBITDA (Adjusted EBITDA before general and administrative expenses)
margins for our Burger King restaurants ranged between 15.3% and 17.5% and averaged 16.6%. Over the same period, restaurant level EBITDA margins for our Pollo Tropical restaurants have ranged between 25.3% and 28.3% and averaged 26.8%. For the past
three years the restaurant level EBITDA margins for our Taco Cabana restaurants have ranged between 19.3% and 21.2% and averaged 20.2%. Our aggregate cash flow from operations has increased from $39.1 million in 1999 to $48.2 million in 2003. We
believe that the stability and diversification of our cash flows provide us with adequate liquidity to meet our cash flow requirements. See Reconciliation of Non-GAAP Financial Measures on page 32.



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, 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.



Largest Burger King Franchisee - We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and an
extensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to continue to develop new restaurants and to
selectively acquire additional Burger King restaurants.



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 limited-service restaurants for the Company. Our management team owns (on a diluted basis) approximately 16% of Carrols Holdings Corporation (Carrols Holdings), which owns 100% of
our stock.



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Business Strategy



Our business strategy is to continue to increase revenues and cash flow through the construction of new restaurants, selective acquisitions, improvements
in operating efficiencies and enhancements in our marketing and product development activities. 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:



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



| |  | strong recognition of the Pollo Tropical and Taco Cabana brands in their core markets;
| | - | --------------------------------------------------------------------------------------



| |  | ability to manage brand awareness, marketing and product development for our Hispanic brands;
| | - | ---------------------------------------------------------------------------------------------



| |  | widespread recognition of the Burger King brand and flagship WHOPPER® product supported by the amount and penetration of BKCs advertising; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  | ability to capitalize on BKCs research and development and product development capabilities.
| | - | ---------------------------------------------------------------------------------------------



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 restaurants. We are able to control restaurant labor and food costs through the use of our
sophisticated management information and point-of-sale systems as well as to effectively manage our restaurant operations and ensure consistent application of operating controls. Our size enables us to realize benefits from improved bargaining power
for purchasing and cost management initiatives. 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. We have uniform operating standards and restaurant-level objectives in each of our brands for the following areas:



| |  | food quality;
| | - | -------------



| |  | preparation and selection of menu items;
| | - | ----------------------------------------



| |  | speed of service;
| | - | -----------------



| |  | 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. At each of our brands we also employ external services to visit our restaurants on an unannounced basis to measure and evaluate our execution of these operating policies.



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Open Additional Restaurants - We believe that many of our existing markets will continue to
provide opportunities for the development of new restaurants. We look to develop restaurants in markets we believe are underpenetrated and where the demographic characteristics are favorable for the development of new restaurants. Our staff of real
estate and construction professionals are responsible for 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 increase brand awareness and effectively leverage our restaurant management oversight, corporate infrastructure and local marketing expenditures.



We believe there may be opportunities to expand our
Burger King store units selectively as franchisees seek liquidity through the sale of their restaurants. We believe that selective acquisitions of additional Burger King restaurants could result in operating efficiencies from our proven abilities to
improve controls over restaurant food costs, efficiently utilize labor, and achieve increased economies of scale by leveraging our infrastructure and control systems.



Overview of Restaurant Concepts



Burger King Restaurants



Have It Your Way® service, flame broiling, generous portions and competitive prices characterize the Burger King system marketing strategy. Our Burger King restaurants
feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER® 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:



| |  | brand recognition;
| | - | ------------------



| |  | convenience of location;
| | - | ------------------------



| |  | speed of service;
| | - | -----------------



| |  | quality; and
| | - | ------------



| |  | price.
| | - | ------



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



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Our Burger King restaurants consist of one of several building types with various seating capacities.
BKCs traditional freestanding 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, 2003, 340 of our 351
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 roast pork, a line of TropiChops® (a bowl containing rice, black beans, chicken or pork), a line of premium sandwiches and grilled ribs that feature a selection of barbeque sauces. 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 uniquely Hispanic 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, dinner and late night orders seven days per week from 11:00 AM to midnight 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 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 parties in excess of 25 people.



Our Pollo Tropical restaurants typically provide seating for 80 to 100 customers and provide drive-thru service. All of our Pollo Tropical restaurants are
freestanding buildings except for four locations contained within strip shopping centers and one street-level storefront location in an office building. Our typical 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, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh, hot flour tortillas. Most of the menu items offered at each of our Taco Cabana restaurants are
prepared at each restaurant from fresh meat and produce ingredients delivered by suppliers to the restaurant, usually three times each week. Taco Cabana is committed to differentiating itself from other quick-casual competitors by utilizing fresh,
high quality ingredients as well as preparing 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.



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Taco Cabana restaurants average approximately 3,200 square feet (exclusive of the exterior dining area)
and provide seating for approximately 80 customers, with additional outside 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. Our Taco Cabana restaurants feature 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 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.



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. Depending on 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.



Our Taco Cabana restaurants provide the convenience of drive-thru windows as well as the ability for customers to dine-in or take-out, as they choose. A
majority of our Taco Cabana restaurants are open 24 hours a day. Our hours of operation are continually evaluated for economic viability on a market and individual restaurant basis.



Restaurant Economics



Burger King Restaurants



For the year ended December 31, 2003, our Burger King restaurants generated average sales of approximately $1,003,000 and average restaurant level EBITDA
of approximately $161,000. Drive-thru sales contributed 61.8% of all restaurant sales. In all but 14 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, 2003:



|                            |  |          
|--------------------------- |  | ---------
|Breakfast                   |  | 14.6%    
|Lunch                       |  | 33.4%    
|Dinner                      |  | 26.9%    
|Late Afternoon & Late Night |  | Remainder



The average sales
transaction was $4.47 in 2003.



The cost of the franchise fee,
equipment, seating, signage and other interior costs of a standard new Burger King restaurant is approximately $385,000 (excluding the cost of the land, building, and site improvements). The cost of land generally ranges from $400,000 to $525,000.
The cost of building and site improvements generally ranges from $550,000 to $625,000. We typically lease the real estate associated with our Burger King restaurants.



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Pollo Tropical Restaurants



For the year ended December 31, 2003, our Pollo Tropical restaurants generated average sales of approximately $1,838,000 and
average restaurant level EBITDA of approximately $464,000. Pollo Tropical restaurant sales are well balanced by method of service and by day part. For 2003, drive-thru sales contributed 42.2% of restaurant sales and take-out sales accounted for
20.8% of total sales. Percentages of total sales by day part are as follows:



|                      |  |      |  
|--------------------- |  | ---- | -
|Lunch                 |  | 45.9 | %
|Dinner and Late Night |  | 54.1 | %



The average sales
transaction was $8.18 in 2003.



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 $750,000. The cost of
building and site improvements generally ranges from $650,000 to $800,000. We generally lease the real estate associated with our Pollo Tropical restaurants.



Taco Cabana Restaurants



For the year ended December 31, 2003, our Taco Cabana restaurants generated average restaurant sales of $1,523,000 and average restaurant level EBITDA of
$293,000. Drive-thru sales contributed 46.6% of all restaurant sales.



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:



|                                       |  |          
|-------------------------------------- |  | ---------
|Breakfast                              |  | 15.8%    
|Lunch                                  |  | 22.7%    
|Dinner                                 |  | 25.3%    
|Late Night (9pm to Midnight)           |  | 14.5%    
|Other (2pm to 5pm and Midnight to 6am) |  | Remainder



The average sales
transaction was $6.66 in 2003.



The cost of equipment, seating,
signage and other interior costs of a standard new Taco Cabana restaurant total approximately $420,000 (excluding the cost of the land, building and site improvements). The cost of the land generally ranges from $650,000 to $800,000. The cost of
building and site improvements generally ranges from $750,000 to $850,000. We generally lease the real estate associated with our Taco Cabana restaurants.



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Restaurant Locations



The following table sets forth the locations of the 351 Burger King restaurants we operated at December 31, 2003:



|               |  |                  
|-------------- |  | -----------------
|State          |  | Total Restaurants
|Connecticut    |  | 1                
|Indiana        |  | 5                
|Kentucky       |  | 10               
|Maine          |  | 5                
|Massachusetts  |  | 1                
|Michigan       |  | 26               
|New Jersey     |  | 2                
|New York       |  | 145              
|North Carolina |  | 40               
|Ohio           |  | 82               
|Pennsylvania   |  | 12               
|South Carolina |  | 21               
|Vermont        |  | 1                
|               |  |                  
|Total          |  | 351              
|               |  |                  



As of December 31,
2003, we owned and operated 60 Pollo Tropical restaurants, all located in Florida. In addition, of our 24 franchised Pollo Tropical restaurants, 19 are located in Puerto Rico; four are located in Ecuador and one in Miami.



As of December 31, 2003, we owned and operated 121 Taco Cabana restaurants
and franchised nine Taco Cabana restaurants located in the following states:



|           |  |       |  |            |  |      
|---------- |  | ----- |  | ---------- |  | -----
|           |  | Owned |  | Franchised |  | Total
|Texas      |  | 115   |  | 5          |  | 120  
|Oklahoma   |  | 6     |  |           |  | 6    
|New Mexico |  |      |  | 2          |  | 2    
|Georgia    |  |      |  | 1          |  | 1    
|Indiana    |  |      |  | 1          |  | 1    
|           |  |       |  |            |  |      
|Total      |  | 121   |  | 9          |  | 130  
|           |  |       |  |            |  |      



11



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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 and our Taco Cabana headquarters in San Antonio, Texas. Our Burger King operations are overseen by four Regional Directors, three of whom are Vice Presidents, that have an average of 24
years of Burger King restaurant experience. Forty-five district supervisors that have an average of 19 years of restaurant management experience in the Burger King system support the Regional Directors. The management structure for Pollo Tropical
consists of an Executive Vice President, who has over 30 years experience in the restaurant industry, and a Vice President of Operations supported by seven district supervisors. The management structure of Taco Cabana consists of an Executive Vice
President of Operations, who has over 30 years of restaurant experience, and two Regional Vice Presidents supported by 17 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 approximately 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, as a franchisee.



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 our three concepts. Our size also affords us the ability to
maintain an in-house staff of information and restaurant systems professionals dedicated to continuously enhancing our systems. In addition, these capabilities allow us to integrate newly developed or acquired restaurants and to leverage our
investments in information technology over a large base of restaurants.



Our restaurants generally employ 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.



12



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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 which enables 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, seven-day help desk at our corporate headquarters that enables us to provide
systems and operational support to our 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;
| | - | --------------------------------------------------------------------------------------------------------



| |  | 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; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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. Management personnel at all levels, from the restaurant manager through senior management, monitor 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 sites on many
critical criteria including accessibility, visibility, costs, surrounding traffic patterns, competition and demographic characteristics. Our senior management determines the acceptability of all acquisition prospects and new sites, based upon
analyses prepared by our real estate and financial professionals and operations personnel.



13



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Burger King Franchise Agreements



Each of our Burger King restaurants operates under a separate franchise agreement with Burger King Corporation. Our
franchise agreements with BKC require, among other things, that all restaurants comply with specified design criteria 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 current BKC operating and image
standards. The successor BKC franchise agreement fee is currently $50,000. BKC may not cancel or terminate our franchise agreements unless we are in default of the terms of the agreements. 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 restaurant to bring it up to BKCs 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. We have three franchise agreements expiring in 2004, 24 franchise agreements expiring in 2005 and 17 franchise agreements expiring in 2006.



We believe that we will be able to 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 all of our
requests for successor franchise agreements. We cannot assure you, however, that BKC will continue to grant each of our requests for successor franchise agreements.



In addition to the initial franchise fee, we generally pay to BKC a monthly royalty of 31/2% of the gross revenues from our Burger King 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 and regional 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 Burger King restaurants in any defined territory. Although 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 affect any
single Burger King restaurant that we operate.



We are required
to obtain BKCs consent before we acquire existing Burger King restaurants 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 from other franchisees, except for two instances when it exercised its right of first refusal.



Franchise Fees 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 is 4% of sales for the first 10 years of the agreement and 41/2% of sales
for the balance of the term.



14



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For new restaurants, the transitional period was from July 1, 2000 through June 30, 2003. As of July 1,
2003, the royalty rate became 41/2% of sales for the full term of new restaurant franchise agreements. As of
July 1, 2001, existing restaurants that renewed their franchise agreements pay a royalty of 41/2% of sales for
the full term of the renewed agreement. The advertising contribution remained 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 Incentive Program, the renewal
franchise fee remained at $40,000. The royalty rate under this program remained at 31/2% through March 31, 2002,
at which time it was 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 Incentive Program, the renewal franchise fee increased to $50,000. The royalty rate remained at 31/2% through September 30, 2002, at which time it was 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.



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 Incentive Programs. Our capital expenditures related to these renewals were substantially completed in 2002. Burger King royalties, as a percentage of restaurant sales, decreased to 3.4% in 2003 and 2002 from 3.5% in
2001 and are anticipated to be 3.4% in 2004 as a result of our renewals under these programs.



Transformation Initiatives



Over the past three 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 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 have committed:



| |  | to install the new signage in substantially all of our restaurants;
| | - | -------------------------------------------------------------------



| |  | to spruce up our restaurants 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 an 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).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



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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.



We had completed all of the initiatives above, with the exception of signage
and the Phase II kitchen initiatives, by the end of 2002. We are substantially complete with respect to the installation of new signage as of December 31, 2003. Total expenditures related to these activities over the past four years were $12.8
million. Phase II kitchen initiatives (installation of a new broiler) have not yet been mandated by BKC.



Pollo Tropical Franchise Operations



At December 31, 2003 Pollo Tropical had three franchisees operating a total of 24 Pollo Tropical restaurants located in Puerto Rico, Ecuador and Miami. While our existing franchisees may open new restaurants from time
to time, we are not actively expanding our franchise 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 a specified percentage of 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 development area;
| | - | ---------------------------------------------



| |  | 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, 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, 2003, Taco Cabana had five franchisees operating a total of nine Taco Cabana restaurants. Taco Cabana did not enter into any new
franchise agreements during 2003 and we are not actively expanding our franchise operations at the present time.



16



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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. The market concentration of Pollo Tropical restaurants allows us to maximize 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 unique promotional and public relations programs. Pollo Tropical spent approximately 3.6%, 3.6% and 3.7% of restaurant sales on advertising in 2003, 2002
and 2001, respectively. We anticipate our 2004 Pollo Tropical advertising expenditures to be near a comparable level, as a percentage of restaurant sales.



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 and television advertising in its major markets. Combination value meals are also utilized as well as limited time offer menu item promotions. As a percentage of restaurant sales, Taco
Cabanas advertising expenditures were approximately 4.7% in 2003, 4.3% in 2002 and 5.1% in 2001. Advertising expenditures, as a percentage of restaurant sales, increased in 2003 from fiscal 2002 levels, as a percentage of restaurant sales, due
to additional promotions in certain markets. We anticipate our Taco Cabana advertising expenditures to range from 4.3% to 4.5% of restaurant sales in 2004.



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 that acts as the purchasing agent for approved distributors to the Burger King system and serves to negotiate the lowest cost for the system. We use our purchasing power to negotiate directly with certain other
vendors, to obtain favorable pricing and terms for supplying our restaurants.



17



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For our Burger King restaurants, we are required to purchase all of our foodstuffs, paper goods and
packaging materials from BKC-approved suppliers. We currently utilize four suppliers to supply our Burger King restaurants with the majority of their foodstuffs in various geographical areas. 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.



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 restaurants
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 December 31, 2005. For our Pollo Tropical restaurants, Henry Lee, a division of Gordon Food Service, serves as the primary distributor of food and paper products under an agreement which expires
on March 16, 2007.



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 concepts we focus our operations on achieving a high level of customer satisfaction with speed, order accuracy and quality of service
that is closely monitored. Our senior management and restaurant management staffs 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.



18



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Trademarks



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



We
have registered our principal trademarks for Pollo Tropical®, TropiGrill® and TropiChops® in the United States and presently have applications pending or registrations granted in various foreign countries in which we conduct business or may conduct business through our franchise system. In certain
foreign countries, we have been involved in trademark opposition proceedings to defend our 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. None of the applicable
environmental laws or regulations has 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.



19



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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 industry segments 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.



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 and quick-casual restaurant industry segments 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, 2003, McDonalds U.S. operations comprised approximately 13,700 restaurants and had
U.S. systemwide sales for the year ended December 31, 2003 of approximately $22.1 billion. As of December 31, 2002, Wendys U.S. operations comprised 5,549 restaurants and had total U.S. systemwide sales for the year ended December 31, 2002 of
$7.0 billion.



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



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.



20



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Employees



At December 31, 2003, we employed approximately 15,900 persons of whom approximately 400 were administrative personnel and 15,500 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, 2003 we owned or leased the following restaurant properties:



|                               |  |                            |  |                             |  |                                 |  |      
|------------------------------ |  | -------------------------- |  | --------------------------- |  | ------------------------------- |  | -----
|                               |  | Owned Land; Owned Building |  | Leased Land; Owned Building |  | Leased Land; Leased Building(a) |  | Total
|Restaurantsoperating          |  | 25                         |  | 65                          |  | 442                             |  | 532  
|Restaurants under construction |  | 1                          |  | 2                           |  |                                |  | 3    
|Excess properties:             |  |                            |  |                             |  |                                 |  |      
|Leased to others               |  |                           |  |                            |  | 3                               |  | 3    
|Available for sale or lease    |  | 2                          |  | 2                           |  |                                |  | 4    
|                               |  |                            |  |                             |  |                                 |  |      
|Total restaurant properties    |  | 28                         |  | 69                          |  | 445                             |  | 542  
|                               |  |                            |  |                             |  |                                 |  |      

---

|(a) | Includes 15 restaurants located in mall shopping centers.
|--- | ---------------------------------------------------------



As of December 31, 2003 we leased 95% of our Burger King restaurant locations, all of our Pollo Tropical restaurant locations and 94% 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 expiration of
that locations Burger King franchise agreement.



Most
leases require us, as lessee, to pay utility and water charges and real estate taxes. Certain leases also require contingent rentals based upon a percentage of gross sales that exceed specified minimums. In some of our mall locations, we are also
required to pay certain other charges such as a pro rata share of the malls common area maintenance costs, insurance and security costs.



In addition to the restaurant locations set forth under Business-Restaurant Locations, we own a building with approximately 25,300 square feet
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 17,700 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.



21



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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 (the Court), under Title VII of the Civil Rights Act of 1964, as amended, against the Company. The complaint alleges that the Company has engaged in a pattern and practice of unlawful
discrimination, harassment and retaliation against former and current female employees of the Company over the course of many years. At present, the EEOC has identified approximately 450 individuals it believes represent the class of claimants. The
EEOC is seeking monetary and injunctive relief from the Company.



On January 15, 2004, we filed a renewed Motion for Summary Judgment (the Motion). The Court held oral argument on the Motion on March 12, 2004 and has taken the Motion under submission. It is not possible to predict whether we
will prevail on the Motion, which subject to possible appeals by the EEOC would effectively end the case. If we do not prevail on the Motion, the case will proceed to trial. It is too early to make an evaluation of the likelihood of an unfavorable
outcome or estimate of the amount or range of potential loss. Consequently, it is not possible to predict what adverse impact, if any, this case could have on our financial condition or results of operations and cash flows. We intend to continue to
contest the case vigorously and believe it is without merit.



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



ITEM 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 AND ISSUER PURCHASES OF EQUITY SECURITIES



There is no established trading market for our capital
stock. Carrols Holdings owns 10 shares of our common stock (representing 100% of our capital stock).



There were no cash dividends paid during fiscal 2003 and 2002. We have no present intention to declare or pay any cash dividends on shares in the
foreseeable future. Certain restrictive covenants contained in agreements governing our long-term indebtedness currently limit our ability to make dividend payments and certain other payments.



22



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ITEM 6. SELECTED FINANCIAL DATA



We have restated our financial statements including applicable footnotes for periods ended prior to December 31, 2003 to
report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98 Accounting for Leases rather than as sale/leaseback transactions as previously reported. The impact of the
restatement is to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions, (including the gains previously deferred) as a form of debt financing. The
restatement also impacted our operating results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously reported as rent expense for these restaurants as
principal repayments and interest expense. There was no impact on sale/leaseback transactions that were consummated in 2002 and 2003.



As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under our senior secured
credit facility. We have obtained a waiver from our senior secured lenders of any prior non-compliance and defaults resulting from the restatement. In addition, our senior secured credit facility has been amended to exclude all adjustments resulting
from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization has occurred.



The restatement discussed above was due to lease provisions in certain of our sale/leaseback transactions, which in our
opinion have minimal commercial impact upon the relevant terms of the lease. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, no such
assurances can be made as to when or whether any or all of such leases will be amended.



The following summary of selected financial information has been revised to reflect this restatement. See Note 2 to the Consolidated Financial Statements for the restatement adjustments for the years ended 2001 and
2002.



Our acquisition of Taco Cabana was completed in December
2000 and, as a result, our 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 restated selected financial information should be read in
conjunction with our restated Consolidated Financial Statements and accompanying Notes as of December 31, 2003 and 2002 and for the fiscal years ended December 31, 2003, 2002 and 2001 in Item 15 and Managements Discussion and Analysis of
Financial Condition and Results of Operations in Item 7.



|                                      |  |                         |         |   |                 |   |         |              |  |   |              |   |      |   |         |  |   |        
|------------------------------------- |  | ----------------------- | ------- | - | --------------- | - | ------- | ------------ |  | - | ------------ | - | ---- | - | ------- |  | - | -------
|                                      |  | Year Ended December 31,
|                                      |  | Restated1999(1)         |         |   | Restated2000(1) |   |         | Restated2001 |  |   | Restated2002 |   | 2003
|                                      |  | (Dollars in thousands) 
|Statement of Operations Data:         |  |                         |         |   |                 |   |         |              |  |   |              |   |      |   |         |  |   |        
|Restaurant sales                      |  | $                       | 455,440 |   |                 | $ | 465,862 |              |  | $ | 654,710      |   |      | $ | 655,545 |  | $ | 643,579
|Franchise royalty revenues and fees   |  |                         | 1,039   |   |                 |   | 1,039   |              |  |   | 1,579        |   |      |   | 1,482   |  |   | 1,406  
|                                      |  |                         |         |   |                 |   |         |              |  |   |              |   |      |   |         |  |   |        
|Total revenues                        |  |                         | 456,479 |   |                 |   | 466,901 |              |  |   | 656,289      |   |      |   | 657,027 |  |   | 644,985
|                                      |  |                         |         |   |                
|Costs and expenses:                   |  |                         |         |   |                 |   |         |              |  |   |              |   |      |   |         |  |   |        
|Cost of sales                         |  |                         | 137,279 |   |                 |   | 132,646 |              |  |   | 189,947      |   |      |   | 183,976 |  |   | 181,182
|Restaurant wages and related expenses |  |                         | 134,125 |   |                 |   | 135,787 |              |  |   | 192,918      |   |      |   | 196,258 |  |   | 194,315
|Restaurant rent expense               |  |                         | 24,267  |   |                 |   | 24,187  |              |  |   | 31,207       |   |      |   | 30,494  |  |   | 31,383 
|Other restaurant operating expenses   |  |                         | 59,716  |   |                 |   | 61,500  |              |  |   | 86,435       |   |      |   | 87,335  |  |   | 89,880 
|Advertising expense                   |  |                         | 20,618  |   |                 |   | 20,554  |              |  |   | 28,830       |   |      |   | 28,041  |  |   | 27,351 
|General and administrative            |  |                         | 23,102  |   |                 |   | 26,403  |              |  |   | 35,393       |   |      |   | 36,610  |  |   | 37,123 
|Depreciation and amortization         |  |                         | 26,499  |   |                 |   | 31,815  |              |  |   | 47,966       |   |      |   | 44,051  |  |   | 47,253 
|Other expense (income) (2)            |  |                         |        |   |                 |   | (1,365  | )            |  |   | 8,841        |   |      |   |        |  |   |       
|                                      |  |                         |         |   |                 |   |         |              |  |   |              |   |      |   |         |  |   |        
|Total operating expenses              |  |                         | 425,606 |   |                 |   | 431,527 |              |  |   | 621,537      |   |      |   | 606,765 |  |   | 608,487
|                                      |  |                         |         |   |                 |   |         |              |  |   |              |   |      |   |         |  |   |        
|Income from operations                |  |                         | 30,873  |   |                 |   | 35,374  |              |  |   | 34,752       |   |      |   | 50,262  |  |   | 36,498 
|Interest expense                      |  |                         | 26,844  |   |                 |   | 28,696  |              |  |   | 40,552       |   |      |   | 34,955  |  |   | 32,363 
|Loss on extinguishment of debt        |  |                         | 1,825   |   |                 |   | 575     |              |  |   |             |   |      |   |        |  |   |       
|                                      |  |                         |         |   |                 |   |         |              |  |   |              |   |      |   |         |  |   |        
|Income (loss) before income taxes     |  |                         | 2,204   |   |                 |   | 6,103   |              |  |   | (5,800       | ) |      |   | 15,307  |  |   | 4,135  
|Provision for income taxes            |  |                         | 2,342   |   |                 |   | 3,407   |              |  |   | 274          |   |      |   | 5,593   |  |   | 1,767  
|                                      |  |                         |         |   |                 |   |         |              |  |   |              |   |      |   |         |  |   |        
|Net income (loss)                     |  | $                       | (138    | ) |                 | $ | 2,696   |              |  | $ | (6,074       | ) |      | $ | 9,714   |  | $ | 2,368  
|                                      |  |                         |         |   |                 |   |         |              |  |   |              |   |      |   |         |  |   |        



23



---

|                                                     |  |                         |         |    |                 |   |          |              |  |   |              |    |  |      |         |    |  |   |         |   
|---------------------------------------------------- |  | ----------------------- | ------- | -- | --------------- | - | -------- | ------------ |  | - | ------------ | -- |  | ---- | ------- | -- |  | - | ------- | --
|                                                     |  | Year Ended December 31, |        
|                                                     |  | Restated1999(1)         |         |    | Restated2000(1) |   |          | Restated2001 |  |   | Restated2002 |    |  | 2003 |        
|                                                     |  | (Dollars in thousands)  |        
|Balance Sheet Data (At Period End):                  |  |                         |         |    |                 |   |          |              |  |   |              |    |  |      |         |    |  |   |         |   
|Total assets                                         |  | $                       | 373,978 |    |                 | $ | 558,971  |              |  | $ | 552,111      |    |  | $    | 547,388 |    |  | $ | 486,874 |   
|Working capital deficiency                           |  |                         | (22,835 | )  |                 |   | (24,476  | )            |  |   | (34,967      | )  |  |      | (34,975 | )  |  |   | (40,857 | ) 
|                                                     |  |                         |         |    |                 |   |          |              |  |   |              |    |  |      |         |    |  |   |         |   
|Senior and senior subordinated debt                  |  |                         | 251,100 |    |                 |   | 365,600  |              |  |   | 368,500      |    |  |      | 357,300 |    |  |   | 294,100 |   
|Capital leases and other debt                        |  |                         | 2,394   |    |                 |   | 5,538    |              |  |   | 5,144        |    |  |      | 3,045   |    |  |   | 1,732   |   
|Financing obligations                                |  |                         | 60,887  |    |                 |   | 90,004   |              |  |   | 88,471       |    |  |      | 86,702  |    |  |   | 84,685  |   
|                                                     |  |                         |         |    |                 |   |          |              |  |   |              |    |  |      |         |    |  |   |         |   
|Total debt                                           |  |                         | 314,381 |    |                 |   | 461,142  |              |  |   | 462,115      |    |  |      | 447,047 |    |  |   | 380,517 |   
|Stockholders equity                                 |  |                         | 12,266  |    |                 |   | 14,962   |              |  |   | 8,888        |    |  |      | 18,602  |    |  |   | 20,970  |   
|                                                     |  |                         |         |    |                
|Other Financial Data:                                |  |                         |         |    |                 |   |          |              |  |   |              |    |  |      |         |    |  |   |         |   
|EBITDA (3)                                           |  | $                       | 57,372  |    |                 | $ | 65,824   |              |  | $ | 89,771       |    |  | $    | 94,313  |    |  | $ | 83,751  |   
|Adjusted EBITDA (4)                                  |  |                         | 57,372  |    |                 |   | 65,824   |              |  |   | 91,559       |    |  |      | 94,313  |    |  |   | 83,751  |   
|Adjusted EBITDA margin                               |  |                         | 12.6    | %  |                 |   | 14.1     | %            |  |   | 14.0         | %  |  |      | 14.4    | %  |  |   | 13.0    | % 
|Cash provided from operating activities              |  | $                       | 39,076  |    |                 | $ | 50,862   |              |  | $ | 47,968       |    |  | $    | 55,965  |    |  | $ | 48,239  |   
|Cash used for investing activities                   |  |                         | (48,935 | )  |                 |   | (190,818 | )            |  |   | (49,156      | )  |  |      | (55,071 | )  |  |   | (29,472 | ) 
|Cash provided from (used for) financing activities   |  |                         | 4,983   |    |                 |   | 140,767  |              |  |   | 881          |    |  |      | (761    | )  |  |   | (18,891 | ) 
|Capital expenditures, excluding acquisitions         |  |                         | 45,332  |    |                 |   | 36,157   |              |  |   | 47,575       |    |  |      | 54,155  |    |  |   | 30,244  |   
|                                                     |  |                         |         |    |                
|Operating Statistics:                                |  |                         |         |    |                 |   |          |              |  |   |              |    |  |      |         |    |  |   |         |   
|Total number of restaurants                          |  |                         | 397     |    |                 |   | 521      |              |  |   | 532          |    |  |      | 529     |    |  |   | 532     |   
|                                                     |  |                         |         |    |                
|Burger King:                                         |  |                         |         |    |                 |   |          |              |  |   |              |    |  |      |         |    |  |   |         |   
|Number of restaurants (at end of period)             |  |                         | 352     |    |                 |   | 355      |              |  |   | 359          |    |  |      | 355     |    |  |   | 351     |   
|Average number of restaurants                        |  |                         | 344.3   |    |                 |   | 352.1    |              |  |   | 353.3        |    |  |      | 355.6   |    |  |   | 352.2   |   
|Average annual sales per restaurant                  |  | $                       | 1,082   |    |                 | $ | 1,055    |              |  | $ | 1,078        |    |  | $    | 1,069   |    |  | $ | 1,003   |   
|Percentage change in comparable restaurant sales (5) |  |                         | (2.5    | )% |                 |   | (2.5     | )%           |  |   | 1.3          | %  |  |      | (1.3    | )% |  |   | (7.2    | )%
|                                                     |  |                         |         |    |                
|Pollo Tropical:                                      |  |                         |         |    |                 |   |          |              |  |   |              |    |  |      |         |    |  |   |         |   
|Number of restaurants (at end of period)             |  |                         | 45      |    |                 |   | 49       |              |  |   | 53           |    |  |      | 58      |    |  |   | 60      |   
|Average number of restaurants                        |  |                         | 41.8    |    |                 |   | 45.6     |              |  |   | 50.4         |    |  |      | 55.6    |    |  |   | 59.4    |   
|Average annual sales per restaurant                  |  | $                       | 1,980   |    |                 | $ | 1,951    |              |  | $ | 1,913        |    |  | $    | 1,807   |    |  | $ | 1,838   |   
|Percentage change in comparable restaurant sales (5) |  |                         | 0.7     | %  |                 |   | 1.7      | %            |  |   | (0.3         | )% |  |      | (4.2    | )% |  |   | 2.3     | % 
|                                                     |  |                         |         |    |                
|Taco Cabana (6):                                     |  |                         |         |    |                 |   |          |              |  |   |              |    |  |      |         |    |  |   |         |   
|Number of restaurants (at end of period)             |  |                         | 109     |    |                 |   | 117      |              |  |   | 120          |    |  |      | 116     |    |  |   | 121     |   
|Average number of restaurants                        |  |                         | 106.0   |    |                 |   | 112.8    |              |  |   | 120.3        |    |  |      | 114.6   |    |  |   | 118.9   |   
|Average annual sales per restaurant                  |  | $                       | 1,487   |    |                 | $ | 1,510    |              |  | $ | 1,475        |    |  | $    | 1,527   |    |  | $ | 1,523   |   
|Percentage change in comparable restaurant sales (5) |  |                         | 5.5     | %  |                 |   | 3.4      | %            |  |   | 1.6          | %  |  |      | (0.2    | )% |  |   | (3.0    | )%

---

|(1) | The restatement adjustments affecting fiscal years 1999, 2000 and the balance sheet and other financial data for 2001 are set forth in the following table (in thousands):
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                        |  |                         |         |   |            |   |         |                      |  |   |            |   |  |            |         |   |            |   |         |   |  |   |         |  
|--------------------------------------- |  | ----------------------- | ------- | - | ---------- | - | ------- | -------------------- |  | - | ---------- | - |  | ---------- | ------- | - | ---------- | - | ------- | - |  | - | ------- | -
|                                        |  | Year ended December 31, |        
|                                        |  | 1999                    |         |   | 2000       |   |         | 2001                 | 
|                                        |  | AsPreviouslyReported    |         |   | AsRestated |   |         | AsPreviouslyReported |  |   | AsRestated |   |  | AsReported |         |   | AsRestated |  
|Statement of Operations Data:           |  |                         |         |   |            |   |         |                      |  |   |            |   |  |            |         |   |            |   |         |   |  |   |         |  
|Restaurant rent expense                 |  | $                       | 29,377  |   |            | $ | 24,267  |                      |  | $ | 30,095     |   |  | $          | 24,187  |   |            |   |         |   |  |   |         |  
|Depreciation and amortization           |  |                         | 23,898  |   |            |   | 26,499  |                      |  |   | 28,856     |   |  |            | 31,815  |   |            |   |         |   |  |   |         |  
|Total operating expenses                |  |                         | 428,115 |   |            |   | 425,606 |                      |  |   | 434,476    |   |  |            | 431,527 |   |            |   |         |   |  |   |         |  
|                                        |  |                         |         |   |            |  
|Income from operations                  |  |                         | 28,364  |   |            |   | 30,873  |                      |  |   | 32,425     |   |  |            | 35,374  |   |            |   |         |   |  |   |         |  
|Interest expense                        |  |                         | 22,386  |   |            |   | 26,844  |                      |  |   | 23,666     |   |  |            | 28,696  |   |            |   |         |   |  |   |         |  
|                                        |  |                         |         |   |            |  
|Income before income taxes              |  |                         | 4,153   |   |            |   | 2,204   |                      |  |   | 8,184      |   |  |            | 6,103   |   |            |   |         |   |  |   |         |  
|Provision for income taxes              |  |                         | 3,100   |   |            |   | 2,342   |                      |  |   | 4,216      |   |  |            | 3,407   |   |            |   |         |   |  |   |         |  
|Net income (loss)                       |  |                         | 1,053   |   |            |   | (138    | )                    |  |   | 3,968      |   |  |            | 2,696   |   |            |   |         |   |  |   |         |  
|                                        |  |                         |         |   |            |  
|Balance Sheet Data:                     |  |                         |         |   |            |   |         |                      |  |   |            |   |  |            |         |   |            |   |         |   |  |   |         |  
|Total assets                            |  | $                       | 320,027 |   |            | $ | 373,978 |                      |  | $ | 476,912    |   |  | $          | 558,971 |   |            | $ | 473,434 |   |  | $ | 552,111 |  
|Working capital deficiency              |  |                         | (21,696 | ) |            |   | (22,835 | )                    |  |   | (25,943    | ) |  |            | (24,476 | ) |            |   | (33,198 | ) |  |   | (34,967 | )
|Financing obligations                   |  |                         |        |   |            |   | 60,887  |                      |  |   |           |   |  |            | 90,004  |   |            |   |        |   |  |   | 88,471  |  
|Total debt                              |  |                         | 253,494 |   |            |   | 314,381 |                      |  |   | 371,138    |   |  |            | 461,142 |   |            |   | 373,644 |   |  |   | 462,115 |  
|Stockholder's equity                    |  |                         | 15,051  |   |            |   | 12,266  |                      |  |   | 19,019     |   |  |            | 14,962  |   |            |   | 15,055  |   |  |   | 8,888   |  
|                                        |  |                         |         |   |            |  
|Other Financial Data:                   |  |                         |         |   |            |   |         |                      |  |   |            |   |  |            |         |   |            |   |         |   |  |   |         |  
|EBITDA                                  |  | $                       | 52,262  |   |            | $ | 57,372  |                      |  | $ | 59,916     |   |  | $          | 65,824  |   |            | $ | 80,936  |   |  | $ | 89,771  |  
|Adjusted EBITDA                         |  |                         | 52,262  |   |            |   | 57,372  |                      |  |   | 59,916     |   |  |            | 65,824  |   |            |   | 82,724  |   |  |   | 91,559  |  
|Adjusted EBITDA margin                  |  |                         | 11.4    | % |            |   | 12.6    | %                    |  |   | 12.8       | % |  |            | 14.1    | % |            |   | 12.6    | % |  |   | 14.0    | %
|Cash provided from operating activities |  | $                       | 38,173  |   |            | $ | 39,076  |                      |  | $ | 49,720     |   |  | $          | 50,862  |   |            | $ | 46,435  |   |  | $ | 47,968  |  
|Cash provided from financing activities |  |                         | 5,886   |   |            |   | 4,983   |                      |  |   | 141,919    |   |  |            | 140,767 |   |            |   | 2,414   |   |  |   | 881     |  



The
restatement adjustments affecting fiscal years 1999, 2000 and 2001 are to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions, (including the gains
previously deferred) as a form of debt financing. The restatement also impacted our operating results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments
previously reported as rent expense for these restaurants as principal repayments and interest expense. The cumulative effect of these adjustments affecting periods prior to fiscal 1999 are reflected as an increase of $1,594 to our accumulated
deficit at December 31, 1998.



|(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 8 to the Consolidated
Financial Statements in Item 15.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | EBITDA is defined as income before interest, income taxes, depreciation and amortization, loss on extinguishment of debt 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Adjusted EBITDA is defined as EBITDA plus other expense of $1,788,000 in 2001 related to the closure of seven Taco Cabana restaurants. See Reconciliation of Non-GAAP Financial
Measures on page 32.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | 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.)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



---

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



Restatement



The Company has restated its financial statements including applicable footnotes for periods ended prior to December 31,
2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98 Accounting for Leases rather than as sale/leaseback transactions as previously reported. The impact of
the restatement is to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions, (including the gains previously deferred) as a form of debt financing.
The restatement also impacted our operating results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously reported as rent expense for these restaurants
as principal repayments and interest expense. There was no impact on sale/leaseback transactions that were consummated in 2002 and 2003.



As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under our senior secured
credit facility. We have obtained a waiver from our senior secured lenders of any prior non-compliance and defaults resulting from the restatement. In addition, our senior secured credit facility has been amended to exclude all adjustments resulting
from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization has occurred.



The restatement discussed above was due to lease provisions in certain of our sale/leaseback transactions, which in our
opinion have minimal commercial impact upon the relevant terms of the lease. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, no assurances can
be made as to when or whether any or all of such leases will be amended.



See Note 2 to the Consolidated Financial Statements for a complete discussion of the restatement. All previously reported amounts that appear in our Managements Discussion and Analysis of Financial Condition and
Results of Operation below have also been restated to report the revised amounts.



Overview



We are one of the largest restaurant
companies in the U.S. operating 532 restaurants in 16 states as of December 31, 2003. We operate three restaurant concepts that provide balance in terms of our revenues and diversification with regard to restaurant concept as well as the geographic
location of our restaurants. We are the largest Burger King® franchisee in the world and have operated Burger King restaurants since 1976. We also own and operate two regional Hispanic restaurant companies: Taco Cabana and Pollo Tropical. At December 31, 2003, we operated 351
Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. Our Burger King restaurant sales were $353.3 million in 2003, or 55% of our total revenues. Our Hispanic restaurant brands collectively operate or franchise more
than 200 restaurants and comprised 45% of our 2003 total revenues.



In 1998 we acquired Pollo Tropical Inc., a restaurant chain featuring grilled marinated chicken and authentic made from scratch side dishes, for a cash purchase price of approximately $95 million. Since
the acquisition, we have expanded this concept by over 65% by opening 24 new Pollo Tropical restaurants. At December 31, 2003, we operated 60 company owned Pollo Tropical restaurants in Florida and franchised 24 Pollo Tropical restaurants, 19 of
which are in Puerto Rico. Total Pollo Tropical revenues from company-operated restaurants were $109.2 million in 2003.



In December 2000 we acquired Taco Cabana Inc., a restaurant chain featuring Mexican style food including flame-grilled beef and chicken fajitas,
quesadillas, and fresh flour tortillas, for a total purchase price of approximately $155 million. At December 31, 2003 we operated 121 company owned Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants.
Since the acquisition we have opened 21 new Taco Cabana restaurants and have closed 15 restaurants, including seven restaurants in the Phoenix, Arizona market. Total Taco Cabana revenues from company-operated restaurants were $181.1 million in 2003.



We use a 52-53 week fiscal year ending on the Sunday closest
to December 31. All references herein to the fiscal years ended December 30, 2001, December 29, 2002 and December 28, 2003 will be referred to as the fiscal years ended December 31, 2001, 2002 and 2003, respectively. The fiscal years ended December
31, 2003, 2002 and 2001 each contain 52 weeks.



Significant Accounting
Policies



Financial Reporting Release No. 60 requires all
companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. 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.



25



---

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



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



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



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



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



We must evaluate our recorded intangible assets for impairment under Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, on an ongoing basis. We have elected to conduct
our annual impairment review of goodwill and other intangible assets at December 31. Our review at December 31, 2003 indicated there has been no impairment as of that date. This annual evaluation requires us to make estimates and assumptions
regarding the fair value of our reporting units. These estimates may differ from actual future events.



Recent Accounting Pronouncements



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



26



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In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal
Activities, which nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The
provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002. Previously issued financial statements cannot be restated under SFAS 146.



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



In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin (ARB) No. 51 (FIN 46). FIN 46 is intended to clarify the application of the majority voting interest requirement of
ARB No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties. The controlling financial interest may be achieved through arrangements that do not involve voting interests. A company that holds variable interests in an entity will
need to consolidate the variable interest entity (VIE) if the companys interest in the VIE is such that the company will absorb a majority of the VIEs expected losses and/or receive a majority of the entitys expected
residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. FIN 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it
is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. FIN 46 is effective immediately to a VIE created or obtained after
January 31, 2003. FIN 46, as amended, became effective for variable interests in a VIE created before February 1, 2003 at December 31, 2003.



FIN 46 has been subsequently modified, clarified and replaced by the issuance of FIN 46R on December 23, 2003. Relative to FIN 46, FIN 46R a) essentially
excludes operating businesses from its provisions subject to four conditions, b) states the provisions of FIN 46R are not required to be applied if a company is unable, subject to making an exhaustive effort, to obtain the necessary information, c)
includes new definitions and examples of what variable interests are, d) clarifies and changes the definition of a variable interest entity, and e) clarifies and changes the definition and treatment of de facto agents, as that term is defined in FIN
46 and FIN 46R. FIN 46R was issued December 23, 2003 and, for the Company, is effective no later than the end of the first quarter of 2005. The Company is currently reviewing the new provisions of FIN 46R.



In December 2003, the FASB issued SFAS 132R, a revision of SFAS 132,
Employers Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements 87, 88 and 106. SFAS 132R revises employers disclosures about pension plans and other postretirement benefit plans. It does not change the
measurement or recognition of obligations for those plans. SFAS 132R requires additional separate disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other postretirement benefit
plans. The new disclosures are required for our 2003 fiscal year. The expanded disclosures are required on an interim basis as well and will be first required in our first quarter 2004 interim financial statements.



27



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Results of Operations



The following table sets forth, for fiscal years 2003, 2002 and 2001, selected restated operating results of Carrols as a percentage of total restaurant
sales:



|                                                |  |                         |   |  |               |   |  |               |  
|----------------------------------------------- |  | ----------------------- | - |  | ------------- | - |  | ------------- | -
|                                                |  | Year Ended December 31, |  
|                                                |  | 2003                    |   |  | Restated 2002 |   |  | Restated 2001 |  
|Restaurant sales:                               |  |                         |   |  |               |   |  |               |  
|Burger King                                     |  | 54.9                    | % |  | 58.0          | % |  | 60.5          | %
|Pollo Tropical                                  |  | 17.0                    | % |  | 15.3          | % |  | 13.9          | %
|Taco Cabana                                     |  | 28.1                    | % |  | 26.7          | % |  | 25.6          | %
|                                                |  |                         |   |  |               |   |  |               |  
|Total restaurant sales                          |  | 100.0                   | % |  | 100.0         | % |  | 100.0         | %
|Costs and expenses:                             |  |                         |   |  |               |   |  |               |  
|Cost of sales                                   |  | 28.2                    | % |  | 28.1          | % |  | 29.0          | %
|Restaurant wages and related expenses           |  | 30.2                    | % |  | 29.9          | % |  | 29.5          | %
|Restaurant rent expense                         |  | 4.9                     | % |  | 4.7           | % |  | 4.8           | %
|Other restaurant expenses including advertising |  | 18.2                    | % |  | 17.6          | % |  | 17.6          | %
|General and administrative                      |  | 5.8                     | % |  | 5.6           | % |  | 5.4           | %
|Depreciation and amortization                   |  | 7.3                     | % |  | 6.7           | % |  | 7.3           | %
|Other expense                                   |  |                        |   |  |              |   |  | 1.4           | %
|                                                |  |                         |   |  |               |   |  |               |  
|Income from restaurant operations               |  | 5.5                     | % |  | 7.4           | % |  | 5.1           | %
|                                                |  |                         |   |  |               |   |  |               |  



Fiscal 2003 Compared to Fiscal 2002



In 2003 we opened two new Burger King restaurants, two
new Pollo Tropical restaurants and eight new Taco Cabana restaurants. We also closed six Burger King restaurants, including one location where we sold the restaurant property, and closed three Taco Cabana restaurants, including one restaurant
temporarily closed due to a fire.



Restaurant Sales -
Total restaurant sales for 2003 decreased 1.8% to $643.6 million from $655.6 million in 2002. Burger King restaurant sales decreased 7.1% to $353.3 million in 2003 from $380.1 million in 2002 due to a sales decline at our comparable Burger King
restaurants of 7.2% for 2003. This decline in Burger King restaurant sales was due primarily to competitive conditions within the industry combined with unsuccessful system-wide marketing and new product initiatives in 2003. Pollo Tropical
restaurant sales increased $8.8 million, or 8.7%, to $109.2 million in 2003 due primarily to the opening of seven new restaurants since the beginning of 2002 and a sales increase of 2.3% at our comparable Pollo Tropical restaurants in 2003. Taco
Cabana restaurant sales increased 3.5% to $181.1 million in 2003 from $175.0 million in 2002 due to the opening of fourteen restaurants since the beginning of 2002 partially offset by a sales decrease at our comparable Taco Cabana restaurants of
3.0% in 2003 and the closure of three Taco Cabana restaurants in 2003.



28



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Operating Costs and Expenses - Cost of sales (food and paper costs), as a percentage of total
restaurant sales, increased slightly to 28.2% in 2003 from 28.1% in 2002. Burger King cost of sales, as a percentage of Burger King restaurant sales, decreased slightly to 26.7% in 2003 from 26.8% in 2002 due to higher vendor rebates, improvements
in restaurant food cost controls and the effects of modest menu price increases in the fourth quarter of 2002, partially offset by higher beef commodity prices in the fourth quarter of 2003. Pollo Tropical cost of sales, as a percentage of Pollo
Tropical restaurant sales, decreased to 30.5% in 2003 from 30.7% in 2002 due to lower chicken commodity prices in 2003, higher vendor rebates and improvements in restaurant food cost controls, partially offset by lower gross margins on new menu
items introduced during the last eighteen months. Taco Cabana cost of sales, as a percentage of Taco Cabana restaurant sales, increased to 29.6% in 2003 from 29.3% in 2002 due to higher cheese commodity prices and lower gross margins on 2003
promotional menu items, partially offset by lower beef commodity prices in 2003 contracted in the first quarter of 2003.



Restaurant wages and related expenses, as a percentage of total restaurant sales, increased to 30.2% in 2003 from 29.9% in 2002. Burger King restaurant
wages and related expenses, as a percentage of Burger King restaurant sales, increased to 32.3% in 2003 from 31.2% in 2002 due to the effect of lower restaurant sales volumes on fixed labor costs and higher medical and workers compensation costs
partially offset by restaurant productive labor efficiencies. Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo Tropical restaurant sales, decreased to 25.7% in 2003 from 26.4% in 2002 due to restaurant productive labor
efficiencies in the second half of 2003 and the effect of comparable restaurant sales increases on fixed labor costs, offset in part by higher medical insurance costs. Taco Cabana restaurant wages and related expenses, as a percentage of Taco Cabana
restaurant sales, decreased slightly to 29.0% in 2003 from 29.1% in 2002 due to restaurant labor efficiencies in 2003 and reductions in restaurant productive labor rates substantially offset by the effect of lower comparable restaurant sales volumes
on fixed labor costs.



Other restaurant operating expenses
(which includes advertising), as a percentage of total restaurant sales, increased to 18.2% in 2003 from 17.6% in 2002. Burger King other restaurant operating expenses, as a percentage of Burger King restaurant sales, increased to 19.1% in 2003 from
18.7% in 2002 due to higher utility costs from increases in natural gas prices and the effect of lower comparable restaurant sales volumes on fixed costs. These factors were partially offset by lower discretionary restaurant operating expenditures.
Pollo Tropical other restaurant operating expenses, as a percentage of Pollo Tropical restaurant sales, increased to 15.5% in 2003 from 14.7% in 2002 due primarily to higher utility costs. Taco Cabana other restaurant operating expenses, as a
percentage of Taco Cabana restaurant sales, increased to 18.3% in 2003 from 16.7% in 2002 due primarily to higher utility costs and higher advertising costs.



Restaurant rent expense, as a percentage of total restaurant sales, increased to 4.9% in 2003 from 4.7% in 2002 due to an increase in the number of new
Pollo Tropical and Taco Cabana restaurants opened in 2002 and 2003 utilizing leased properties.



General and administrative expenses increased $0.5 million to $37.1 million in 2003 from $36.6 million in 2002. As a percentage of total restaurant sales,
general and administrative expenses increased to 5.8% in 2003 from 5.6% in 2002.



Adjusted EBITDA - Earnings before interest, income taxes, depreciation and amortization, loss on extinguishment of debt and other income and expense (Adjusted EBITDA) decreased to $83.8 million in
2003 from $94.3 million in 2002. As a percentage of total revenues, Adjusted EBITDA margins decreased to 13.0% in 2003 from 14.4% in 2002 as a result of the factors discussed above. See Reconciliation of Non-GAAP Financial Measures on page 32.



29



---

Depreciation and Amortization - Depreciation and amortization increased $3.2 million in 2003 from
2002 due primarily to impairment charges of $.7 million related to property and equipment for certain of our Burger King restaurants and impairment charges of $3.4 million related to property and equipment for certain of our Taco Cabana restaurants.



Interest Expense - Interest expense decreased $2.6
million to $32.4 million in 2003 from $35.0 million in 2002 due primarily to lower average debt balances in 2003, resulting primarily from the use of the net proceeds from our sale/leaseback transactions in 2003 to reduce debt under our senior
credit facility and, to a much lesser extent, lower effective interest rates on our floating rate debt. The average effective interest rate on all debt was 7.2% for 2003 compared to 7.3% in 2002.



Income Taxes - The provision for income taxes for 2003 was derived
using an estimated effective income tax rate for 2003 of 42.7%. This rate is higher than the Federal statutory tax rate of 34% due primarily to state franchise taxes, foreign taxes and non-deductible amortization of certain franchise rights.



Net Income - As a result of the foregoing, net income
was $2.4 million in 2003 compared to $9.7 million in 2002.



Fiscal 2002 Compared to Fiscal 2001



In 2002
we opened ten new Burger King restaurants, five new Pollo Tropical restaurants and six new Taco Cabana restaurants. We also closed 14 Burger King restaurants, including five restaurants that were relocated to new locations, and ten underperforming
Taco Cabana restaurants, six of which were in the Phoenix, Arizona market.



Restaurant Sales - Total revenues increased to $657.0 million in 2002 from $656.3 million in 2001; total restaurant sales for 2002 were $655.5 million compared to $654.7 million in 2001. Burger King restaurant
sales decreased slightly to $380.1 million in 2002 from $380.9 million in 2001 due to a sales decrease at our comparable Burger King restaurants of 1.3%. Pollo Tropical restaurant sales increased $4.0 million, or 4.2%, to $100.4 million in 2002 due
to the opening of nine additional restaurants in 2002 and 2001. Sales at our comparable Pollo Tropical restaurants in 2002, however, declined 4.2% due primarily to the economic effects of reduced tourism in our Florida markets since the September 11
attacks. Taco Cabana restaurant sales decreased to $175.0 million in 2002 from $177.4 million in 2001 due to the closing of our Phoenix, Arizona restaurants. Sales at our comparable Taco Cabana restaurants decreased 0.2% in 2002.



Operating Costs and Expenses -Cost of sales (food and paper costs),
as a percentage of total restaurant sales, decreased to 28.1% in 2002 from 29.0% in 2001. Burger King cost of sales, as a percentage of Burger King restaurant sales, decreased to 26.8% in 2002 from 28.1% in 2001. This decrease was due to lower
promotional sales discounts in 2002 compared to 2001, lower beef costs, and to a lesser extent, the effects of menu price increases in 2001 and the slight reduction in the size of the Burger King regular hamburger patty in the fourth quarter of
2001. Pollo Tropical cost of sales, as a percentage of Pollo Tropical restaurant sales, decreased to 30.7% in 2002 from 32.2% in 2001 due to lower chicken breast costs in 2002 and the effect of menu price increases at the beginning of 2002. Taco
Cabana cost of sales, as a percentage of Taco Cabana restaurant sales, increased slightly to 29.3% in 2002 from 29.2% in 2001 due to higher contracted beef costs which were not offset by menu price increases in 2002.



30



---

Restaurant wages and related expenses, as a percentage of total restaurant sales, increased to 29.9% in
2002 from 29.5% in 2001. Burger King restaurant wages and related expenses, as a percentage of Burger King restaurant sales, increased to 31.2% in 2002 from 30.7% in 2001 due to the effect of lower sales volumes on fixed labor costs and higher state
unemployment tax rates offset, in part, by menu price increases in 2001. Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo Tropical restaurant sales, increased to 26.4% in 2002 from 24.8% in 2001 due to the effect of
lower sales volumes on fixed labor costs and higher workers compensation and medical insurance costs. Taco Cabana restaurant wages and related expenses, as a percentage of Taco Cabana restaurant sales, were 29.2% in 2002 and 2001.



Other restaurant operating expenses (which includes advertising) as a
percentage of total restaurant sales, was 17.6% in both 2002 and 2001. Burger King other restaurant operating expenses, as a percentage of Burger King restaurant sales, increased slightly to 18.7% in 2002 from 18.6% in 2001 due to an increase in
local advertising expenditures. Pollo Tropical other restaurant operating expenses, as a percentage of Pollo Tropical restaurant sales, increased to 14.7% in 2002 from 13.7% in 2001. This increase was due to the effect of lower comparable restaurant
sales volumes in 2002 on fixed costs, higher maintenance expenses to enhance our restaurants in 2002 and an insurance gain of $0.4 million in 2001, partially offset by lower utility costs in 2002. Taco Cabana other restaurant operating expenses, as
a percentage of Taco Cabana restaurant sales, decreased to 16.7% in 2002 from 17.7% in 2001 due primarily to lower utility and advertising costs, offset in part by higher maintenance expenses in 2002 to enhance our restaurants.



Restaurant rent expense, as a percentage of total restaurant sales, decreased
slightly to 4.7% in 2002 from 4.8% in 2001.



General and
administrative expenses increased $1.2 million in 2002 compared to 2001 due primarily to higher administrative bonus levels in 2002. As a percentage of total restaurant sales, general and administrative expenses increased to 5.6% in 2002 from 5.4%
in 2001.



Adjusted EBITDA - Earnings before interest,
income taxes, depreciation and amortization, loss on extinguishment of debt and other income and expense (Adjusted EBITDA) increased 3.0% to $94.3 million in 2002 from $91.6 million in 2001. As a percentage of total revenues, Adjusted
EBITDA margins increased to 14.4% in 2002 compared to 14.0% in 2001 as a result of the factors discussed above. See Reconciliation of Non-GAAP Financial Measures on page 32.



Depreciation and Amortization - Depreciation and amortization in 2002 was $44.1 million, a decrease of $3.9 million
compared to 2001 due to the elimination of goodwill amortization under SFAS 142 beginning January 1, 2002. Goodwill amortization was $5.0 million in 2001. This decrease was partially offset by additional depreciation resulting from our capital
expenditures, including restaurant acquisitions, of $103.3 million since the beginning of 2001.



Interest Expense- Interest expense decreased $5.6 million to $35.0 million in 2002 from $40.6 million in 2001 due primarily to lower interest
rates on our floating rate debt, and to a lesser extent, lower average debt balances in 2002. The average effective interest rate on all debt was 7.3% for 2002 compared to 8.5% for 2001.



Income Taxes - The provision for income taxes for 2002 was derived using an effective income tax rate of 36.5%. This
rate is higher than the Federal statutory tax rate of 34% due to state and foreign taxes and the non-deductible amortization of certain franchise rights.



31



---

Net Income - As a result of the foregoing, net income was $9.7 million in 2002 compared to a net
loss of $6.1 million in 2001. Net income in 2001 included a non-recurring pre-tax charge of $8.8 million related to the closing of seven Taco Cabana restaurants in the Phoenix, Arizona market.



Reconciliation of Non-GAAP Financial Measures (as
restated)



Restaurant level EBITDA and Adjusted EBITDA are
presented because we believe they are useful financial indicators for measuring the ability to service and/or incur indebtedness. However, they should not be considered as an alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted accounting principles. A reconciliation of Restaurant level EBITDA and Adjusted EBITDA for each of our concepts to net income (loss) for each of the last five years is presented
below:



|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|----------------------------------------------------- |  | ----------- | ------ | -------------- | - | ------ | -------------- |  | - | ------------ | - |  | - | ------- | ----
|Year Ended December 31, 1999 (as restated):           |  |             |        | Burger King    |   |        | Pollo Tropical |  |   | Consolidated |  
|Restaurant level EBITDA                               |  |             |        |                | $ | 57,145 |                |  | $ | 22,290       |   |  | $ | 79,435  |     
|Less (Add): Franchise royalty revenues and fees       |  |             |        |                |   |       |                |  |   | (1,039       | ) |  |   | (1,039  | )   
|General and administrative expense                    |  |             |        |                |   | 18,286 |                |  |   | 4,816        |   |  |   | 23,102  |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Adjusted EBITDA                                       |  |             |        |                | $ | 38,859 |                |  | $ | 18,513       |   |  |   | 57,372  |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Less:           Depreciation and amortization expense |  |             |        |                |   |        |                |  |   |              |   |  |   | 26,499  |     
|Interest expense                                      |  |             |        |                |   |        |                |  |   |              |   |  |   | 26,844  |     
|Provision for income taxes                            |  |             |        |                |   |        |                |  |   |              |   |  |   | 2,342   |     
|Loss on extinguishment of debt                        |  |             |        |                |   |        |                |  |   |              |   |  |   | 1,825   |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Net loss                                              |  |             |        |                |   |        |                |  |   |              |   |  | $ | (138    | )   
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Year Ended December 31, 2000 (as restated):           |  | Burger King |        | Pollo Tropical |   |        | Taco Cabana(1) |  |   | Consolidated |  
|Restaurant level EBITDA                               |  | $           | 64,750 |                | $ | 25,197 |                |  | $ | 1,241        |   |  | $ | 91,188  |     
|Less (Add): Franchise royalty revenues and fees       |  |             |       |                |   | (1,028 | )              |  |   | (11          | ) |  |   | (1,039  | )   
|General and administrative expense                    |  |             | 20,764 |                |   | 5,262  |                |  |   | 377          |   |  |   | 26,403  |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Adjusted EBITDA                                       |  | $           | 43,986 |                | $ | 20,963 |                |  | $ | 875          |   |  |   | 65,824  |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Less (Add): Other income                              |  |             |        |                |   |        |                |  |   |              |   |  |   | (1,365  | )(2)
|Depreciation and amortization expense                 |  |             |        |                |   |        |                |  |   |              |   |  |   | 31,815  |     
|Interest expense                                      |  |             |        |                |   |        |                |  |   |              |   |  |   | 28,696  |     
|Provision for income taxes                            |  |             |        |                |   |        |                |  |   |              |   |  |   | 3,407   |     
|Loss on extinguishment of debt                        |  |             |        |                |   |        |                |  |   |              |   |  |   | 575     |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Net income                                            |  |             |        |                |   |        |                |  |   |              |   |  | $ | 2,696   |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Year Ended December 31, 2001 (as restated):           |  | Burger King |        | Pollo Tropical |   |        | Taco Cabana    |  |   | Consolidated |  
|Restaurant level EBITDA                               |  | $           | 63,801 |                | $ | 26,026 |                |  | $ | 35,546       |   |  | $ | 125,373 |     
|Less (Add): Franchise royalty revenues and fees       |  |             |       |                |   | (1,174 | )              |  |   | (405         | ) |  |   | (1,579  | )   
|General and administrative expense                    |  |             | 20,582 |                |   | 5,115  |                |  |   | 9,696        |   |  |   | 35,393  |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Adjusted EBITDA                                       |  | $           | 43,219 |                | $ | 22,085 |                |  | $ | 26,255       |   |  |   | 91,559  |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Less:           Other expense                         |  |             |        |                |   |        |                |  |   |              |   |  |   | 8,841   | (3) 
|Depreciation and amortization expense                 |  |             |        |                |   |        |                |  |   |              |   |  |   | 47,966  |     
|Interest expense                                      |  |             |        |                |   |        |                |  |   |              |   |  |   | 40,552  |     
|Provision for income taxes                            |  |             |        |                |   |        |                |  |   |              |   |  |   | 274     |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Net loss                                              |  |             |        |                |   |        |                |  |   |              |   |  | $ | (6,074  | )   
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|                                                      |  |             |        |               
|Year Ended December 31, 2002 (as restated):           |  | Burger King |        | Pollo Tropical |   |        | Taco Cabana    |  |   | Consolidated |  
|Restaurant level EBITDA                               |  | $           | 65,980 |                | $ | 26,375 |                |  | $ | 37,086       |   |  | $ | 129,441 |     
|Less (Add): Franchise royalty revenues and fees       |  |             |       |                |   | (1,053 | )              |  |   | (429         | ) |  |   | (1,482  | )   
|General and administrative expense                    |  |             | 22,329 |                |   | 5,044  |                |  |   | 9,237        |   |  |   | 36,610  |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Adjusted EBITDA                                       |  | $           | 43,651 |                | $ | 22,384 |                |  | $ | 28,278       |   |  |   | 94,313  |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Less:     Depreciation and amortization expense       |  |             |        |                |   |        |                |  |   |              |   |  |   | 44,051  |     
|Interest expense                                      |  |             |        |                |   |        |                |  |   |              |   |  |   | 34,955  |     
|Provision for income taxes                            |  |             |        |                |   |        |                |  |   |              |   |  |   | 5,593   |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Net income                                            |  |             |        |                |   |        |                |  |   |              |   |  | $ | 9,714   |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Year Ended December 31, 2003:                         |  | Burger King |        | Pollo Tropical |   |        | Taco Cabana    |  |   | Consolidated |  
|Restaurant level EBITDA                               |  | $           | 56,813 |                | $ | 27,575 |                |  | $ | 35,080       |   |  | $ | 119,468 |     
|Less (Add): Franchise royalty revenues and fees       |  |             |       |                |   | (993   | )              |  |   | (413         | ) |  |   | (1,406  | )   
|General and administrative expense                    |  |             | 20,026 |                |   | 6,015  |                |  |   | 11,082       |   |  |   | 37,123  |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Adjusted EBITDA                                       |  | $           | 36,787 |                | $ | 22,553 |                |  | $ | 24,411       |   |  |   | 83,751  |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Less:           Depreciation and amortization expense |  |             |        |                |   |        |                |  |   |              |   |  |   | 47,253  |     
|Interest expense                                      |  |             |        |                |   |        |                |  |   |              |   |  |   | 32,363  |     
|Provision for income taxes                            |  |             |        |                |   |        |                |  |   |              |   |  |   | 1,767   |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     
|Net income                                            |  |             |        |                |   |        |                |  |   |              |   |  | $ | 2,368   |     
|                                                      |  |             |        |                |   |        |                |  |   |              |   |  |   |         |     



---

|(1) | Taco Cabana was acquired in December 2000.
|--- | ------------------------------------------

|(2) | Related to income recognized from deferred contractual payments received upon termination of a supply agreement.
|--- | ----------------------------------------------------------------------------------------------------------------

|(3) | Related to the closure of seven Taco Cabana restaurants in 2001.
|--- | ----------------------------------------------------------------



Off-Balance Sheet Arrangements



The Company has no off-balance sheet arrangements.



Liquidity and Capital Resources



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



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



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



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



Our cash requirements arise primarily from:



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



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



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



Our 2003 operations generated approximately $48.2 million in cash, compared with $56.0 million in 2002 and $48.0 million in 2001.



32



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In 2003, we sold 34 restaurant properties in sale/leaseback transactions for net proceeds of $47.6
million. In 2003, we also sold four non-operating properties for net proceeds of $2.7 million and a Burger King operating property for net proceeds of $1.2 million. The net proceeds from these sales were used to reduce outstanding debt. In 2002, we
sold 12 restaurant properties for $13.7 million in sale/leaseback transactions and used the net proceeds from these sales to reduce outstanding debt.



In 2004 we anticipate that our level of sale/leaseback transactions to be significantly reduced from 2003 levels, and that the net proceeds of these
transactions will range from $10 million to $15 million.



Capital expenditures represent a major investment of cash for us and were, excluding acquisitions, $30.2 million, $54.2 million and $47.6 million in 2003, 2002 and 2001, respectively. Expenditures for new restaurant development were $18.6
million in 2003, $27.5 million in 2002 and $14.5 million in 2001 in connection with the opening of fourteen Burger King restaurants, eleven Pollo Tropical restaurants, and nineteen Taco Cabana restaurants over the past three years. Our capital
expenditures also include remodeling costs and capital maintenance projects for the ongoing reinvestment and enhancement of our restaurants that totaled $10.2 million in 2003, $25.3 million in 2002 and $31.6 million in 2001.



In 2004 we anticipate total capital expenditures of approximately $20 million
to $25 million. These amounts include approximately $9 million to $13 million for the construction of new restaurants and related real estate applicable to our three restaurant concepts. Capital expenditures for 2004 also include expenditures for
ongoing reinvestment in our three restaurant concepts for remodeling costs and capital maintenance expenditures ranging from $8 million to $10 million.



At December 31, 2003, we had total long-term debt of $295.8 million comprised of $170.0 million of unsecured 9.5% Senior Subordinated Notes due 2008,
total borrowings under our senior credit facility of $124.1 million and other debt, primarily capital leases, of $1.7 million. Our senior credit facility provides for a $70 million term loan A facility, an $80 million term loan B facility and a $50
million revolving credit facility. At December 31, 2003, $123.5 million was outstanding under the term loan A and B facilities and $39.2 million was available for borrowing under our revolving credit facility, after reserving $10.2 million for
letters of credit guaranteed by the facility, subject to meeting certain financial ratio tests required by the senior credit facility.



As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under our senior secured
credit facility. We have obtained a waiver from our senior secured lenders of any prior non-compliance and defaults resulting from the restatement. In addition, our senior secured credit facility has been amended to exclude all adjustments resulting
from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement of recharacterization has occurred.



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 of December 31, 2003 and 2002 was 4.5% and 5.1%, respectively.



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% 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% for the
term loan B facility.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



33



---

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 $12.5 million payable in four quarterly installments in 2004;
| | -- | -----------------------------------------------------------------------------



| | 2) | an aggregate of $9.4 million payable in three quarterly installments in 2005; and
| | -- | ---------------------------------------------------------------------------------



| | 3) | 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 of the years 2004 and 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.
| | -- | -------------------------------------------------------------------------------------------------------



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



The following table summarizes our contractual obligations and commitments at December 31, 2003 (in thousands):



|                                                  |  |                        |         |                  |   |             |  |             |         |                   |   |         |  |   |        
|------------------------------------------------- |  | ---------------------- | ------- | ---------------- | - | ----------- |  | ----------- | ------- | ----------------- | - | ------- |  | - | -------
|                                                  |  | Payments due by period
|Contractual Obligations                           |  | Total                  |         | Less than 1 Year |   | 1  3 Years |  | 3  5 Years |         | More than 5 Years
|Long-term debt obligations                        |  | $                      | 294,217 |                  | $ | 13,617      |  | $           | 70,600  |                   | $ | 210,000 |  | $ |       
|Capital lease obligations, including interest (1) |  |                        | 2,059   |                  |   | 554         |  |             | 972     |                   |   | 403     |  |   | 130    
|Operating lease obligations                       |  |                        | 309,814 |                  |   | 32,673      |  |             | 60,294  |                   |   | 48,759  |  |   | 168,088
|Financing obligations                             |  |                        | 153,678 |                  |   | 9,365       |  |             | 19,019  |                   |   | 19,733  |  |   | 105,561
|                                                  |  |                        |         |                  |   |             |  |             |         |                   |   |         |  |   |        
|Total contractual obligations                     |  | $                      | 759,768 |                  | $ | 56,209      |  | $           | 150,885 |                   | $ | 278,895 |  | $ | 273,779
|                                                  |  |                        |         |                  |   |             |  |             |         |                   |   |         |  |   |        

---

|(1) | Includes interest of $444 at December 31, 2003.
|--- | -----------------------------------------------



Long-term debt obligations:Refer to Note 6 of the Consolidated Financial Statements for details of our long-term debt.



Capital lease and operating lease obligations:Refer to Note 5 of the
Consolidated Financial Statements for details of our capital lease and operating lease obligations.



Financing obligations: Refer to Note 7 of the Consolidated Financial Statements for details of our financing obligations.



34



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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 and state hourly minimum wage rates. Accordingly, changes in the Federal and state hourly minimum wage rates directly affect our labor cost. The restaurant industry and
we typically attempt to offset the effect of inflation, at least in part, through periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will be able to offset such inflationary cost increases
in the future.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS



Interest Rate Risk



We are exposed to market risk associated with fluctuations in interest
rates, primarily limited to our senior credit facility which had outstanding borrowings of $124.1 million at December 31, 2003. Borrowings under our senior credit facility bear interest at a per annum rate, 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 at a fixed margin of 2.5% for the term loan B facility; or
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | LIBOR plus a margin ranging from 2% 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% for the
term loan B facility.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A 1% change in interest
rates would have resulted in an increase or decrease in interest expense of approximately $1.6 million for the year ended December 31, 2003.



Commodity Price Risk



We purchase certain products which are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions
and other factors which are not considered predictable or within our control. Although many of the products purchased are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements have been negotiated in advance to
minimize price volatility. Where possible, we use these types of purchasing techniques to control costs as an alternative to directly managing financial instruments to hedge commodity prices. In many cases, we believe we will be able to address
commodity cost increases, which are significant and appear to be long-term in nature by adjusting our menu pricing. However, long-term increases in commodity prices may result in lower restaurant-level operating margins.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The Index to Financial Statements attached hereto is set forth in Item 15.



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



There have been no changes in or
disagreements with our independent accountants on accounting or financial disclosures.



ITEM 9A. CONTROLS AND PROCEDURES



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



In accordance with Exchange Act Rules 13a-15 and
15d-15, we carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, as well as other key members of our management, of the effectiveness of our disclosure controls and procedures as of the end of
the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, to provide
reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms.



No change occurred in our
internal controls concerning financial reporting during our fourth quarter that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



As discussed elsewhere in this Annual Report on Form 10-K, we have restated
our financial statements including applicable footnotes for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98 Accounting
for Leases rather than as sale/leaseback transactions as previously reported. In order to provide reasonable assurance that any future sale/leaseback transactions that may be entered into by us will be properly accounted for in accordance with
generally accepted accounting principles, we have enhanced our internal controls to require an evaluation of applicable lease provisions that could affect, in the context of current interpretive guidance pertaining to the application of generally
accepted accounting principles for sale/leaseback transactions, the classification of such transactions.



35



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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:



|                       |  |     |  |                                                  
|---------------------- |  | --- |  | -------------------------------------------------
|Name                   |  | Age |  | Position with the Company                        
|Alan Vituli            |  | 62  |  | Chairman of the Board and Chief Executive Officer
|Daniel T. Accordino    |  | 53  |  | President, Chief Operating Officer and Director  
|Paul R. Flanders       |  | 47  |  | Vice President, Chief Financial Officer          
|Joseph A. Zirkman      |  | 43  |  | Vice President, General Counsel and Secretary    
|Timothy J. LaLonde     |  | 47  |  | Vice President, Controller                       
|Michael A. Biviano     |  | 46  |  | Executive Vice President - Taco Cabana           
|John W. Haywood        |  | 40  |  | Chief Concept Officer - Hispanic Brands          
|James E. Tunnessen     |  | 48  |  | Executive Vice President - Pollo Tropical        
|Benjamin D. Chereskin  |  | 45  |  | Director                                         
|Brian F. Gleason       |  | 37  |  | Director                                         
|Robin P. Selati        |  | 37  |  | Director                                         
|Olaseni Adeyemi Sonuga |  | 49  |  | Director                                         
|Clayton E. Wilhite     |  | 58  |  | Director                                         



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 Carrols 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 in 1998, Mr. Vituli served on the Board of Directors of Pollo Tropical. Mr. Vituli also serves on the Board of
Ruths Chris Steak House, Inc.



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 and Chief Financial Officer
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.



36



---

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. Prior to that he was a Senior Audit Manager with the accounting firm of Deloitte & Touche LLP, where he was employed since 1978.



Michael A. Biviano has been Executive Vice President of the Taco
Cabana Division since January 2002. Prior to that he was Vice President  Regional Director of Operations for our Burger King restaurants since 1989, having served as a district supervisor since 1983. Mr. Biviano has been an employee of the
Company since 1973.



John W. Haywood joined the Company
in January 2003 as Chief Concept Officer  Hispanic Brands. Prior to joining us, he was an independent consultant at HHC, Inc., a firm he founded in 1999 that provided strategic and senior management support for hospitality companies. During
this time, Mr. Haywood served as contract Chief Executive Officer of Don Shulas Steak Houses L.P. and contract Vice President of Operations for Cookexpress, a joint venture with Omaha Steaks, Inc. Mr. Haywood has seventeen years experience in
the restaurant industry including employment with Jerrico, Inc. from 1986 to 1990 where he managed the development of Fazolis, a quick-casual Italian concept.



James Tunnessen has been Executive Vice President of the Pollo Tropical Division since August 2003. Prior to that he was Vice President 
Regional Director of Operations for our Burger King restaurants since 1988, having served as a district supervisor from 1979. Mr. Tunnessen has been an employee of the Company since 1972.



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.; and Family Christian Stores, Inc.



Brian F. Gleason has served as a Director since October 2003. Mr. Gleason is Managing Director and Executive Vice President of Phoenix Management Services, Inc., a national corporate revitalization advisory
firm. Mr. Gleason has been affiliated with Phoenix Management Services since 1996 and serves on its Board of Directors. Prior to that, Mr. Gleason worked in Corporate Finance for Reliance Insurance Company since 1991. Mr. Gleason also serves on the
Board of Directors of Thompson Products, Inc; International Intimates, Inc.; and Springfield Service Corp.



Olaseni Adeyemi Sonugahas served as a Director since March 2004. Mr. Sonuga is the Interim Group General Manager of Bahrain International Bank
E.C., a Bahraini publicly quoted international investment bank that he became associated with in 2002. Between 1999 and 2002 Mr. Sonuga served as Advisor to the Chairman of Oman Aviation Services Company SAOG, an Omani listed company that owns Oman
Air and also provides airport services at all Omani airports. Prior to this he was a Vice President at Taib Bank, a Bahraini listed company since 1997. In the period 1992 to 1997 he was employed as the Business Services Manager of the National
Drilling Company of Abu Dhabi, UAE. He began his career as a Chartered Accountant in the UK in 1979 when he joined Touche Rosss London Office.



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.



37



---

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 management consulting firm specializing in measuring customer satisfaction.
Between 1996 and 1998, he was the Chairman of Thurloe Holdings, L.L.C. From August 1996 through our acquisition of Pollo Tropical, Mr. Wilhite served on the Board of Directors of Pollo Tropical, Inc. 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.



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 Carrols Holdings.



Audit Committee Financial Expert



The Companys audit committee is comprised of Robin P. Selati and
Clayton E. Wilhite. The Board of Directors has determined that the Company has at least one audit committee financial expert, Robin P. Selati, serving on its audit committee. Mr. Selati is serving on the Board of Directors as a designee of Madison
Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., principal stockholders of Carrols Holdings, in accordance with the Companys stockholders agreement. See Item 13. Certain Relationships and Related
Transactions for a description of the Companys stockholders agreement. Consequently Mr. Selati is not deemed to be an independent director as such term is used in the Federal securities laws. Because the Companys
securities are not listed on any national securities exchange or Nasdaq, the Company is not required to have independent members of its Board of Directors or any committee thereof, including its audit committee.



Code of Ethics



The Company has adopted a Code of Ethics that applies to its chief executive officer, chief operating officer, chief
financial officer, general counsel, controller and other principal financial accounting and executive employees. The Companys Code of Ethics is posted on its website at http://www.carrols.com. All amendments and waivers to the Code of
Ethics will be disclosed through the website.



38



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ITEM 11. EXECUTIVE COMPENSATION



The following tables set forth certain information for the fiscal years ended December 31, 2003, 2002 and 2001 for our Chief
Executive Officer and our next four most highly compensated executive officers who served as executive officers of the Company during the year ended December 31, 2003 and whose annual compensation exceeded $100,000. Stock option data refers to the
stock options of Carrols Holdings.



SUMMARY COMPENSATION
TABLE



|                                                                                  |      |                     |        |                                                            |                       |                   |   |               |  |                 |  |   |                    |          
|--------------------------------------------------------------------------------- | ---- | ------------------- | ------ | ---------------------------------------------------------- | --------------------- | ----------------- | - | ------------- |  | --------------- |  | - | ------------------ | ---------
|Name and Principal Position                                                       |      | Annual Compensation |        | Long-Term Compensation Securities Underlying Options(#)(b) |                       | OtherCompensation |  
|                                                                                  |      |                    
|                                                                                  |      |                    
|                                                                                  | Year |                     | Salary |                                                            | Bonus(a)              |                   |  
|Alan VituliChairman of the Board and Chief Executive Officer                      |      | 200320022001        |        | $                                                          | 550,008525,000500,004 |                   | $ | 551,250     |  | 39,045        |  | $ | 17,00017,00017,000 | (c)(c)(c)
|                                                                                  |      |                     |        |                                                            |                      
|Daniel T. AccordinoPresident, Chief Operating Officer and Director                |      | 200320022001        |        | $                                                          | 420,000400,008380,004 |                   | $ | 360,007     |  | 26,030        |  | $ | 7,1257,1257,125    | (c)(c)(c)
|                                                                                  |      |                     |        |                                                            |                      
|Nicholas A. CastaldoPresident and Chief Operating Officer,Pollo Tropical Division |      | 200320022001        |        | $                                                          | 284,250347,288330,000 |                   | $ |            |  |              |  | $ | 364,652          | (d)      
|                                                                                  |      |                     |        |                                                            |                      
|Michael A. BivianoExecutive Vice President  Taco Cabana Division                 |      | 200320022001        |        | $                                                          | 234,231215,000115,008 |                   | $ | 92,02031,282 |  | 20,00050,000200 |  |   |                 |          
|                                                                                  |      |                     |        |                                                            |                      
|Paul R. FlandersVice President, Chief Financial Officer andTreasurer              |      | 200320022001        |        | $                                                          | 210,000200,004181,500 |                   | $ | 180,004     |  | 5001,9001,000   |  |   |                 |          
|                                                                                  |      |                     |        |                                                            |                      
|Joseph A. ZirkmanVice President, General Counsel and Secretary                    |      | 200320022001        |        | $                                                          | 210,000200,004148,632 |                   | $ | 180,004     |  | 5001,9001,000   |  |   |                 |          

---

|(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. Of the bonuses 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, one-third to be paid in each of the three succeeding years
provided that stockholder value is at least equal to what it was in the year that the bonus was earned. At March 15, 2004, two-thirds of the aforementioned amounts had been paid and the final one-third was forfeited in 2003.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Stock options for Mr. Vituli, Mr. Accordino, Mr. Flanders and Mr. Zirkman are for shares of Carrols Holdings Carrols class of common stock. Stock options in 2002 and 2003 for
Mr. Biviano are for shares of Carrols Holdings Taco Cabana common stock and in 2001, for shares of Carrols Holdings Carrols class of common stock.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Represents the premiums paid by us prior to July 2003 for split-dollar life insurance policies whereby Mr. Vituli and Mr. Accordino have designated beneficiaries.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Represents payments to Mr. Castaldo in connection with the termination of his employment agreement in the third quarter of 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------



39



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|                      |  |                                                     |  |                                                                                              |   |    |                                  |        |                |            |  |   |         |  |   |        
|--------------------- |  | --------------------------------------------------- |  | -------------------------------------------------------------------------------------------- | - | -- | -------------------------------- | ------ | -------------- | ---------- |  | - | ------- |  | - | -------
|                      |  | Option Grants in Last Fiscal Year Individual Grants |  | Potential Realizable Value at Assumed Annual Rates of Stock Appreciation
for Option Term (c)
|                      |  |                                                    
|                      |  |                                                    
|                      |  |                                                    
|                      |  | Number of Securities Underlying Options Granted(a)  |  | % of Total Options Granted to Employees in 2003                                              |   |    | Exercise Price (Price per Share) |        | ExpirationDate |           
|                      |  |                                                     |  |                                                                                              |  
|Name                  |  |                                                     |  |                                                                                              |   | 5% |                                  | 10%   
|Michael A. Biviano(a) |  | 20,000                                              |  | 8.9                                                                                          | % |    | $                                | 14.25  |                | 12/31/2013 |  | $ | 179,235 |  | $ | 454,217
|Paul R. Flanders(b)   |  | 500                                                 |  | 1.9                                                                                          | % |    | $                                | 124.00 |                | 12/31/2013 |  | $ | 38,991  |  | $ | 98,812 
|Joseph A. Zirkman(b)  |  | 500                                                 |  | 1.9                                                                                          | % |    | $                                | 124.00 |                | 12/31/2013 |  | $ | 38,991  |  | $ | 98,812 

---

|(a) | Stock option grants for Mr. Biviano were granted under the 2001 Taco Cabana Long-Term Incentive Plan. These options which are for Carrols Holdings Taco Cabana class of common
stock, become exercisable at the rate of 20% per year beginning on December 31, 2003.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Stock option grants for Mr. Flanders and Mr. Zirkman were granted under the 1996 Long-Term Incentive Plan. These options which are for Carrols Holdings Carrols class of common
stock, become exercisable at the rate of 25% per year beginning on December 31, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Potential realizable value is based on an assumption that the price of 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 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 our stockholders or us. 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.



40



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Description of Plans



Employee Retirement Plan. We offer salaried employees the option to participate in the Carrols Corporation Retirement Savings Plan. Under the plan,
our contributions begin to vest after one year and fully vest after five years of service. A year of service is defined as a plan year during which an employee completes at least 1,000 hours of service. Our contributions are equal to 50% of the
employees contribution to a maximum contribution of $520 annually. The plan includes a pre-tax savings option pursuant to section 401(k) of the Internal Revenue Code in addition to a post-tax savings option. Participating employees may
contribute up to 18% of their salary annually to either of the savings options, subject to other limitations. The employees have various investment options available under a trust established by the plan. The employees contributions may be
withdrawn at any time, subject to restrictions on future contributions. Our matching contributions may be withdrawn by the employee under certain conditions of financial necessity or hardship as defined in the plan. Our contributions to the Carrols
Corporation Retirement Savings Plan totaled $471,000, $468,000 and $327,000 for the years ended December 31, 2003, 2002 and 2001, respectively.



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 maintains several
long-term incentive plans. These plans and the number of options authorized as of February 15, 2004 were as follows:



|                                                                          |  |        
|------------------------------------------------------------------------- |  | -------
|Carrols Holdings Corporation 1996 Long-Term Incentive Plan                |  | 189,325
|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



These plans are
designed to advance our interests and the interests of Carrols 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
Carrols 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 Stock Option Plan is
limited to non-employee Directors of our Board. Directors that are our employees or employees of Carrols 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
Option Plan permit the Compensation Committee of the Board of Directors of Carrols Holdings to grant, from time to time, options to purchase shares of Carrols Holdings Company class of common stock. The 1998 Pollo Tropical Long-Term Incentive
Plan provides for the granting of options to purchase shares of Carrols Holdings Pollo Tropical class of common stock and the 2001 Taco Cabana Long-Term Incentive Plan provides for the granting of options to purchase shares of Carrols
Holdings Taco Cabana class of common stock.



41



---

The vesting periods for options and the expiration dates for exercisability of options granted under
these plans are determined by Carrols Holdings Compensation Committee; however, the exercise period for an option granted may not exceed ten years from the date of the grant. On February 26, 2003 the Carrols Holdings Compensation
Committee extended the expiration date to February 29, 2012 for all options granted prior to March 1, 2002 under the 1996 Long-Term Incentive Plan for all Named Executive Officers and certain other officers of the Company. The Carrols 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 qualify as an Incentive Stock Option shall not be less than the fair market value of the
applicable class of Carrols 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 Carrols Holdings common stock already owned by the holder of such options and held for a period of at least six months;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | by delivering a promissory note (except in the case of executive officers and directors);
| | --- | -----------------------------------------------------------------------------------------



| | (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 Carrols
Holdings Compensation Committee in effect at the time; or
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | by any other means approved by Carrols Holdings Compensation Committee.
| | --- | ------------------------------------------------------------------------



If the holder of an option issued pursuant to these plans (other than executive officers or directors) 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 Carrols 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 Long-Term Incentive Plan, a change of control includes both a change of control of Carrols Holdings or a sale of the Pollo Tropical Group.
Under the terms of the 2001 Taco Cabana Long-Term Incentive Plan, a change of control includes both a change of control of Carrols Holdings or a sale of the Taco Cabana Group.



As soon as practicable but no later than thirty days before such Change of Control, Carrols 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 Carrols
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),



42



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| | (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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------



Description of Employment Agreements



Vituli Employment Agreement. Effective March 27, 2002, we entered
into an Extension of Employment Agreement with Alan Vituli which extended the term of an Employment Agreement dated March 27, 1997 between us and Mr. Vituli upon the same terms and conditions as previously set forth in the employment agreement.
Pursuant to the employment agreement, which now expires September 30, 2004, Mr. Vituli will continue to serve as our Chairman of the Board and Chief Executive Officer. The employment agreement is subject to automatic renewals for successive one-year
terms unless either Mr. Vituli or we elect not to renew by giving written notice to the other at least 90 days before a scheduled expiration date. The employment agreement provides that Mr. Vituli receive a base salary, which was $550,000 when the
agreement was extended, and provides that such amount be increased annually by at least $25,000 on each January 1. Pursuant to the employment agreement, Mr. Vituli participates in our Executive Bonus Plan and any of our stock option plans applicable
to executive employees. The employment agreement also requires us to maintain 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. Beginning in 2004 premium payments of this policy will be funded by the cash surrender value of policy. The employment agreement also provides that if Mr. Vitulis employment is terminated without Cause (as defined in the
employment agreement) following a Change of Control (as defined in the employment agreement), Mr. Vituli will receive a cash lump sum equal to his salary during the previous twelve months. The employment agreement includes non-competition and
non-solicitation provisions effective during the term of the employment agreement and for two years following its termination.



43



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Accordino Employment Agreement. Effective March 27, 2002, we entered into an Extension of
Employment Agreement with Daniel T. Accordino which extended the term of an Employment Agreement dated March 27, 1997 between us and Mr. Accordino upon the same terms and conditions as previously set forth in the employment agreement. Pursuant to
the employment agreement, which now expires September 30, 2004, Mr. Accordino will continue to serve as our President and Chief Operating Officer. The employment agreement is subject to automatic renewals for successive one-year terms unless either
Mr. Accordino or we elect not to renew by giving written notice to the other at least 90 days before a scheduled expiration date. The employment agreement provides that Mr. Accordino receive a base salary, which was $420,000 when the agreement was
extended, and provides that such amount be increased annually by at least $20,000 on each January 1. Pursuant to the employment agreement, Mr. Accordino participates in our Executive Bonus Plan and any of our stock option plans applicable to
executive employees. The employment agreement also requires us to maintain 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. Beginning in 2004 premium payments of this policy will be funded by the cash surrender value of policy. The employment agreement also provides that if Mr. Accordinos employment is terminated without Cause (as defined in the
employment agreement) following a Change of Control (as defined in the employment agreement), Mr. Accordino will receive a cash lump sum equal to his salary during the previous twelve months. The employment agreement includes non-competition and
non-solicitation provisions effective during the term of the employment agreement and for two years following its termination.



Option Agreements



Vituli and Accordino Option Agreements Pursuant to the 1996 Long-Term Incentive Plan. In March 1997, Holdings granted options to purchase 43,350
and 28,900 shares of Holdings Carrols class of common stock under the 1996 Long-Term Incentive Plan at an exercise price of $101.7646 per share in exchange for options then held by the Vituli Family Trust and by Mr. Accordino, respectively.
These options had 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. On March 1, 2002, the expiration date for these options was extended to February
29, 2012.



On March 1, 2002, Holdings granted to Mr. Vituli and
Mr. Accordino, under the 1996 Long-Term Incentive Plan, options to purchase 39,045 and 26,030 shares of Carrols Holdings Carrols class of common stock, respectively. These options have a term of ten years from the date of grant, an exercise
price of $113.00 per share and were immediately exercisable when issued.



Non-Plan Option Agreements. In March 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 Carrols
Holdings Carrols common stock at an exercise price of $101.7646 per share. The options had a term of ten years from the date of grant and became exercisable on the five consecutive anniversaries of the date of grant. On March 1, 2002, the
expiration date for these options was extended to February 29, 2012. 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).



44



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Other Agreements



Change of Control Agreement.On December 27, 2002, we entered into a Change of Control Agreement with two of our Named Executive
Officers, Paul R. Flanders and Joseph A. Zirkman, and four other officers of the Company (the Employees). The Change of Control Agreement provides that if within one year of a Change of Control (as defined in the Change of Control
Agreement) of either Carrols Holdings or the Company, or an Employees employment is terminated by us without Cause (as defined in the Change of Control Agreement) or by the Employee for Good Reason (as defined in the Change of Control
Agreement), then such Employee shall be entitled to receive (a) a lump sum payment in the amount of one years salary at the then current rate, (b) a prorated bonus payment through the date of termination and in accordance with the Executive
Bonus Plan then in effect and (c) continued coverage under our welfare and benefits plans for such Employee and his dependents for a period of up to one year or sooner if such benefits are provided to the Employee by a new employer. The payments and
benefits due under the Change of Control Agreement cannot be reduced by any compensation earned by Employee or any benefits provided to the Employee as a result of employment by another employer or otherwise. The payments are also not subject to any
set-off, counterclaim, recoupment, defense or other right that we may have against the Employee.



45



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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 Carrols Holdings voting common stock (Carrols class of common stock) and nonvoting classes of common stock (Pollo Tropical and Taco Cabana classes of common stock) beneficially owned, as of February 15, 2004, 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.
| | --- | -------------------------------------------------------



|                                                                       |  |                          |  |            |  
|---------------------------------------------------------------------- |  | ------------------------ |  | ---------- | -
|                                                                       |  | Shares BeneficiallyOwned | 
|                                                                       |  | Number                   |  | Percentage |  
|Stockholders of Carrols Corporation:                                   |  |                          |  |            |  
|Carrols Holdings Corporation 968 James Street Syracuse, New York 13203 |  | 10                       |  | 100        | %



|                                                                                                     |  |               |  |            |                      |  |                   |  |            |  |        |  |            |  
|---------------------------------------------------------------------------------------------------- |  | ------------- |  | ---------- | -------------------- |  | ----------------- |  | ---------- |  | ------ |  | ---------- | -
|                                                                                                     |  | Carrols Class |  |            | Pollo Tropical Class |  | Taco Cabana Class | 
|                                                                                                     |  | Number        |  | Percentage |                      |  | Number            |  | Percentage |  | Number |  | Percentage |  
|Stockholders of Carrols Holdings Corporation(a):                                                     |  |               |  |            |                      |  |                   |  |            |  |        |  |            |  
|BIB Holdings (Bermuda) Ltd.(b) c/o Dilmun Investments, Inc. 84 West Park Place Stamford, CT 06901    |  | 566,667       |  | 41.8       | %                    |  |                   |  |            |  |        |  |            |  
|                                                                                                     |  |               |  |            |                      | 
|Madison Dearborn Capital Partners, L.P. Three First National Plaza Suite 3800 Chicago, IL 60602      |  | 283,333       |  | 20.9       | %                    |  |                   |  |            |  |        |  |            |  
|                                                                                                     |  |               |  |            |                      | 
|Madison Dearborn Capital Partners II, L.P. (Same address as Madison Dearborn Capital Partners, L.P.) |  | 283,334       |  | 20.9       | %                    |  |                   |  |            |  |        |  |            |  
|                                                                                                     |  |               |  |            |                      | 
|Executive Officers and Directors:                                                                    |  |               |  |            |                      |  |                   |  |            |  |        |  |            |  
|Alan Vituli(c)                                                                                       |  | 121,702       |  | 9.0        | %                    |  |                   |  |            |  |        |  |            |  
|Daniel T. Accordino                                                                                  |  | 58,369        |  | 4.3        | %                    |  |                   |  |            |  |        |  |            |  
|Paul R. Flanders                                                                                     |  | 4,450         |  | .3         | %                    |  |                   |  |            |  |        |  |            |  
|Joseph A. Zirkman                                                                                    |  | 4,038         |  | .3         | %                    |  |                   |  |            |  |        |  |            |  
|Michael A. Biviano                                                                                   |  | 1,872         |  | .1         | %                    |  |                   |  |            |  | 24,000 |  | 0.3        | %
|James E. Tunnessen                                                                                   |  | 2,085         |  | .1         | %                    |  |                   |  |            |  |        |  |            |  
|Clayton E. Wilhite                                                                                   |  | 2,750         |  | .2         | %                    |  |                   |  |            |  |        |  |            |  
|Directors and executive officers of Carrols as a group (12 persons)                                  |  | 196,751       |  | 14.5       | %                    |  |                  |  |           |  | 24,000 |  | 0.3        | %

---

|(a) | The number of Carrols class shares shown in the table includes stock options which are currently exercisable or exercisable within 60 days to purchase: 111,875 shares held by Mr.
Vituli; 57,509 shares held by Mr. Accordino; 4,450 shares held by Mr. Flanders; 3,915 shares held by Mr. Zirkman; 1,872 shares held by Mr. Biviano; and 2,750 shares held by Mr. Wilhite. The number of Taco Cabana class shares for Mr. Biviano includes
24,000 stock options which are currently exercisable or exercisable within 60 days.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | These 566,667 shares of Carrols 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 an wholly-owned subsidiary of BIB Holdings, was merged into BIB Holdings on February 10, 1999. BIB Holdings is an wholly-owned subsidiary of Buhrain International Bank, an international financial institution.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Includes 111,875 vested stock options contributed to and held by the Vituli Family Trust.
|--- | -----------------------------------------------------------------------------------------



46



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Equity Compensation Plan Information



The following table provides information, as of December 31, 2003, with respect to all of Carrols Holdings
compensation plans under which equity securities of Carrols Holdings are authorized for issuance:



|                                                           |  |                                                                                             |  |                                                                             |        |                                                              |        
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ------ | ------------------------------------------------------------ | -------
|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | Weighted average exercise price of outstanding options, warrants and rights |        | Number of securities remaining available for future issuance
|Equity compensation plans approved by security holders:    |  |                                                                                             |  |                                                                             |        |                                                              |        
|1996 Long-Term Incentive Plan                              |  | 183,648                                                                                     |  | $                                                                           | 110.00 |                                                              | 5,677  
|1998 Directors Stock Option Plan                          |  | 3,500                                                                                       |  | $                                                                           | 117.14 |                                                              | 6,500  
|1998 Pollo Tropical Long-Term Incentive Plan               |  | 90,775                                                                                      |  | $                                                                           | 106.29 |                                                              | 9,225  
|2001 Taco Cabana Long-Term Incentive Plan                  |  | 334,000                                                                                     |  | $                                                                           | 12.59  |                                                              | 166,000
|Non-Plan Options                                           |  | 32,427                                                                                      |  | $                                                                           | 101.76 |                                                              |       
|                                                           |  |                                                                                             |  |                                                                             |        |                                                              |        
|Subtotal                                                   |  | 644,350                                                                                     |  | $                                                                           | 58.61  |                                                              | 187,402
|                                                           |  |                                                                                             | 
|Equity compensation plans not approved by security holders |  |                                                                                            |  |                                                                             |       |                                                              |       
|                                                           |  |                                                                                             |  |                                                                             |        |                                                              |        
|Total                                                      |  | 644,350                                                                                     |  | $                                                                           | 58.61  |                                                              | 187,402
|                                                           |  |                                                                                             |  |                                                                             |        |                                                              |        



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 Carrols Holdings voting common stock entered into a Stockholders Agreement. In general,
the agreement (as amended in October 2003) provides that all holders of Carrols 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 Carrols Holdings
and each of its subsidiaries (including us):



| | (a) | three representatives designated collectively by Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., provided that the third designee shall not
be entitled to remain on the Board of Directors unless BIB Holdings has three designees serving on the Board of Directors at such time so long as BIB Holdings is entitled to three Board designees at such time subject to adjustment if the percentage
holdings of Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P. collectively, decreases below a certain threshold;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | three representatives designated by BIB Holdings, provided that the third designee shall not be entitled to remain on the Board of Directors unless Madison Dearborn has three
designees serving on the Board of Directors at such time so long as Madison Dearborn is entitled to three Board designees at such time subject to adjustment if the percentage holdings of BIB Holdings decreases below a certain threshold; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | two representatives designated by Mr. Vituli as long as Mr. Vituli is our Chief Executive Officer
| | --- | -------------------------------------------------------------------------------------------------



Currently, Messrs. Chereskin and Selati are serving on the Board of Directors as designees of Madison Dearborn, Messrs.
Gleason, Sonuga and Wilhite are serving on the Board of Directors as designees of BIB Holdings and Messrs. Vituli and Accordino are serving on the Board of Directors as designees of Mr. Vituli. Pursuant to the stockholders agreement as currently in
effect, Madison Dearborn has the right, at any time, to either cause a third designee to be elected to the Board of Directors or cause the removal of a third BIB Holdings designee from the Board of Directors.



In addition, the agreement provides for certain limitations on the ability of
holders of Carrols 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 Carrols Holdings capital stock, changing the capital budget approved by Carrols
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.



47



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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 Carrols Holdings. The registration
agreement provides for demand and piggyback rights with respect to Carrols 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 Carrols Holdings common stock or options for shares of Carrols 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 Carrols Holdings has completed a registered public offering of the Carrols 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 Carrols 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 Carrols 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 Carrols 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, Carrols 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 Carrols Holdings has received written requests for inclusion in such registration within 20 days after receipt of Carrols Holdings notice. Carrols 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.



48



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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES



The following table summarizes the aggregate fees billed to us by our independent auditor PricewaterhouseCoopers LLP
(PWC):



|                                   |  |                         |     |      |   |    
|---------------------------------- |  | ----------------------- | --- | ---- | - | ---
|                                   |  | Year Ended December 31,
|                                   |  | 2003                    |     | 2002
|                                   |  | (In thousands)         
|Audit Fees (a)                     |  | $                       | 180 |      | $ | 157
|Audit-Related Fees (b)             |  |                         | 4   |      |   | 6  
|                                   |  |                         |     |      |   |    
|Total Audit and Audit Related Fees |  |                         | 184 |      |   | 163
|Tax Fees(c)                        |  |                         | 48  |      |   | 40 
|All Other Fees (d)                 |  |                         | 7   |      |   | 23 
|                                   |  |                         |     |      |   |    
|Total                              |  | $                       | 239 |      | $ | 226
|                                   |  |                         |     |      |   |    

---

|(a) | Audit fees include services related to the audit of the Companys annual consolidated financial statements and review of the interim quarterly consolidated financial statements
for 2003 and 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Audit-related fees for 2003 and 2002 were for annual employee benefit plan audits.
|--- | ----------------------------------------------------------------------------------

|(c) | Fees for tax services billed in 2003 and 2002 consisted of $10,000 and $12,000 respectively, for tax compliance and $39,000 and $28,000 respectively, for tax planning and advice.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Other fees for 2003 and 2002 consisted of billings for actuarial services. PWC no longer provides actuarial services to the Company, effective in the third quarter of 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                        |  |                        |   |  |      |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | - |  | ---- | -
|                                                                                                                        |  | Year Ended December 31 |  
|                                                                                                                        |  | 2003                   |   |  | 2002 |  
|Percentage of Tax Planning and Advice Fees and All Other Fees to Audit Fees, Audit-Related Fees and Tax Compliance Fees |  | 24.1                   | % |  | 29.6 | %



In considering the
nature of the services provided by the independent auditor, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with the independent auditor
and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the Securities and Exchange Commission in connection with the Sarbanes-Oxley Act of 2002.



Pre-Approval Policy



The services performed by the independent auditor in 2003 were pre-approved in accordance with the pre-approval procedures
adopted by the Audit Committee at its May 21, 2003 meeting. All requests for audit, audit-related, tax, and other services must be submitted to the Audit Committee for specific pre-approval and cannot commence until such pre-approval has been
granted.



49



---

PART IV



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



(a) (1) Financial Statements



|                                                |  |            
|----------------------------------------------- |  | -----------
|                                                |  | Page       
|CARROLS CORPORATION AND SUBSIDIARIES            |  |            
|Report of Independent Auditors                  |  | 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 to F-6 
|Notes to Consolidated Financial Statements      |  | F-7 to F-36



(a) (2) Financial Statement
Schedules



|         |  |                                   |  |  |  |      |  | 
|-------- |  | --------------------------------- |  |  |  | ---- |  | 
|Schedule |  | Description                       |  |  |  | Page |  | 
|II       |  | Valuation and Qualifying Accounts |  |  |  | F-37 |  | 



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.



50



---

(a) (3) Exhibits



EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                                                                                                                        
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                            
|               | 
|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)                                                                                                                                                                                                                              
|               | 
|3.2            |  | 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)                                                                                              
|               | 
|4.2            |  | Form of 91/2% Senior Subordinated Note due 2008
(incorporated by reference to Exhibit 4.3 to Carrols Corporations Form S-4 filed February 2, 1999)                                                                                                                                                                                                    
|               | 
|4.3            |  | 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)                                                                                                                                                                           
|               | 
|4.4            |  | 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)
|               | 
|4.5            |  | 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)
|               | 
|(2) 4.6        |  | First Amendment, dated as of October 14, 2003, to Carrols Holdings Corporation Stockholders Agreement                                                                                                                                                                                                                                                  
|               | 
|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)                             



51



---

|               |  |                                                                                                                                                                                                                                                                                                                                                         
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                             
|               | 
|(1) 10.2       |  | 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) 10.3       |  | 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) 10.4       |  | 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) 10.5       |  | 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) 10.6       |  | 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)                                                                                                          
|               | 
|(1) 10.7       |  | 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) 10.8       |  | 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) 10.9       |  | 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)                                                                                                                                                
|               | 
|(1) 10.10      |  | 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) 10.11      |  | 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) 10.12      |  | 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)                                                                                                                                         
|               | 
|10.13          |  | 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)



52



---

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|               | 
|10.14          |  | 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)                                                                                                                                                                       
|               | 
|10.15          |  | 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)                                                                                                                                                                       
|               | 
|10.16          |  | 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) 10.17      |  | Carrols Holdings Corporation 1998 Directors Stock Option Plan (incorporated by reference to Exhibit 10.29 to Carrols Corporation Form S-4 filed February 2, 1999)                                                                                                                                                                                                                                                                                                               
|               | 
|(1) 10.18      |  | 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) 10.19      |  | 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)                                                                                                                                                                                                                                                                                                            
|               | 
|10.20          |  | 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)                                                                                                                             
|               | 
|(1) 10.21      |  | Carrols Holdings Corporation 2001 Taco Cabana Long-Term Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                           
|               | 
|(1) 10.22      |  | Carrols Corporation and Subsidiaries Deferred Compensation Plan dated January 1, 2002 (incorporated by reference to Exhibit 10.26 to Carrols Corporations March 31, 2002 Quarterly Report
on Form 10-Q)                                                                                                                                                                                                                                                                         
|               | 
|(1) 10.23      |  | Extension of Employment Agreement dated March 27, 2002 by and between Carrols Corporation and Alan Vituli (incorporated by reference to Exhibit 10.27 to Carrols Corporations June 30,
2002 Quarterly Report on Form 10-Q)                                                                                                                                                                                                                                                      
|               | 
|(1) 10.24      |  | Extension of Employment Agreement dated March 27, 2002 by and between Carrols Corporation and Daniel T. Accordino (incorporated by reference to Exhibit 10.28 to Carrols Corporations
June 30, 2002 Quarterly Report on Form 10-Q)                                                                                                                                                                                                                                              



53



---

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                
|               | 
|(1) 10.25      |  | Carrols Corporation Retirement Savings plan July 1, 2002 Restatement (incorporated by reference to Exhibit 10.29 to Carrols Corporations September 29, 2002 Quarterly Report on Form
10-Q)                                                                                                                                                                                                                                
|               | 
|(1) 10.26      |  | Addendum incorporating EGTRRA Compliance Amendment to Carrols Corporation Retirement Savings Plan dated September 12, 2002 (incorporated by reference to Exhibit 10.30 to Carrols
Corporations September 29, 2002 Quarterly Report on Form 10-Q)                                                                                                                                                                          
|               | 
|(1) 10.27      |  | Carrols Corporation Change of Control Agreement dated December 27, 2002                                                                                                                                                                                                                                                                                                                                                    
|               | 
|(1) 10.28      |  | Extension of Stock Option Awards dated March 1, 2002 by and between Carrols Holdings Corporation and Alan Vituli                                                                                                                                                                                                                                                                                                           
|               | 
|(1) 10.29      |  | Extension of Stock Option Awards dated March 1, 2002 by and between Carrols Holdings Corporation and Daniel T. Accordino                                                                                                                                                                                                                                                                                                   
|               | 
|(1) 10.30      |  | Extension of Stock Option Awards dated March 1, 2002 by and between Carrols Holdings Corporation and Paul Flanders                                                                                                                                                                                                                                                                                                         
|               | 
|(1) 10.31      |  | Extension of Stock Option Awards dated March 1, 2002 by and between Carrols Holdings Corporation and Joseph Zirkman                                                                                                                                                                                                                                                                                                        
|               | 
|(1) 10.32      |  | Extension of Stock Option Awards dated March 1, 2002 by and between Carrols Holdings Corporation and Timothy LaLonde                                                                                                                                                                                                                                                                                                       
|               | 
|(1) 10.33      |  | Extension of Stock Option Awards dated March 1, 2002 by and between Carrols Holdings Corporation and Michael Biviano                                                                                                                                                                                                                                                                                                       
|               | 
|10.34          |  | First Amendment to Loan Agreement dated as of March 31, 2003, by and among Carrols Corporation, JP Morgan Chase Bank, Bank of America N.A., SunTrust Bank, Manufacturers and Traders Trust, The
Northern Trust Company, BSB Bank & Trust Company, and the other lenders now or hereafter parties hereto. (incorporated by reference to Exhibit 10.38 to Carrols Corporations March 31, 2003 Quarterly Report on Form 10-Q)
|               | 
|(2) 10.35      |  | First Amendment, dated as of January 1, 2004, to Carrols Corporation Retirement Savings Plan                                                                                                                                                                                                                                                                                                                               
|               | 
|(2) 10.36      |  | Second Amendment to Loan Agreement dated as of December 31, 2003, by and among Carrols Corporation, JP Morgan Chase Bank, Bank of America N.A., SunTrust Bank, Manufacturers and Traders Trust
and the other lenders now or hereafter parties hereto.                                                                                                                                                                      
|               | 
|(2) 10.37      |  | Carrols Holdings Corporation First Amended and Restated 1998 Pollo Tropical Long-Term Incentive Plan.                                                                                                                                                                                                                                                                                                                      
|               | 
|(2) 21.1       |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                       
|               | 
|(2) 31.1       |  | Chief Executive Officers Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                           
|               | 
|(2) 31.2       |  | Chief Financial Officers Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                           



54



---

|              |  |                                                                                                                                                
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                    
|              | 
|(2) 32.1      |  | Chief Executive Officers Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              | 
|(2) 32.2      |  | Chief Financial Officers Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

|(1) | Management contract or compensatory plan or arrangement identified pursuant to this report.
|--- | -------------------------------------------------------------------------------------------

|(2) | Filed herewith.
|--- | ---------------



(b) Reports on Form 8-K



|                        |  |             |  |                                                                                
|----------------------- |  | ----------- |  | -------------------------------------------------------------------------------
|Date Filed or Furnished |  | Item Number |  | Description                                                                    
|                        |  |            
|November 18, 2003       |  | 7 and 12    |  | Announced results of operations for the Companys third fiscal quarter of 2003.



55



---

Report of Independent Auditors



To the Board of Directors and Shareholder

of Carrols Corporation:



In our opinion, the consolidated financial statements listed in the index appearing under
Item 15(a)(1), page 50, present fairly, in all material respects, the financial position of Carrols Corporation and its subsidiaries at December 28, 2003 and December 29, 2002 and the results of their operations and their cash flows for each of the
three years in the period ended December 28, 2003 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
15(a)(2), page 50, presents 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 schedule 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.



As discussed in
Note 2 to the financial statements, the Company restated previously issued financial statements to account for the sale of certain real estate as financing transactions rather than as sale/leaseback transactions.



/s/ PricewaterhouseCoopers LLP

Syracuse, New York

February 6, 2004 (except for Notes 2 and 7 for which the date is April 30, 2004

and for Note 12 for which the
date is March 12, 2004)



F - 1



---

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002

(in
thousands of dollars)



|                                                                                                                               |  |      |         |   |                     |   |         |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ------------------- | - | ------- | -
|                                                                                                                               |  | 2003 |         |   | RestatedNote 2 2002 |  
|ASSETS                                                                                                                         |  |      |         |   |                     |   |         |  
|Current assets:                                                                                                                |  |      |         |   |                     |   |         |  
|Cash and cash equivalents                                                                                                      |  | $    | 2,414   |   |                     | $ | 2,538   |  
|Trade and other receivables, net of reserves of $94 and $128, respectively                                                     |  |      | 1,280   |   |                     |   | 1,306   |  
|Inventories                                                                                                                    |  |      | 4,936   |   |                     |   | 5,240   |  
|Prepaid rent                                                                                                                   |  |      | 2,534   |   |                     |   | 2,227   |  
|Prepaid expenses and other current assets                                                                                      |  |      | 4,043   |   |                     |   | 4,382   |  
|Refundable income taxes                                                                                                        |  |      |        |   |                     |   | 1,253   |  
|Deferred income taxes (Note 9)                                                                                                 |  |      | 6,286   |   |                     |   | 9,454   |  
|                                                                                                                               |  |      |         |   |                     |   |         |  
|Total current assets                                                                                                           |  |      | 21,493  |   |                     |   | 26,400  |  
|Property and equipment, at cost less accumulated depreciation and amortization of $194,652 and $168,523, respectively (Note 3) |  |      | 236,353 |   |                     |   | 288,288 |  
|Franchise rights, at cost less accumulated amortization of $50,732 and $47,109, respectively                                   |  |      | 86,148  |   |                     |   | 90,620  |  
|Intangible assets, at cost less accumulated amortization of $10,258 and $10,061, respectively (Note 3)                         |  |      | 124,844 |   |                     |   | 125,046 |  
|Deferred income taxes (Note 9)                                                                                                 |  |      | 8,619   |   |                     |   | 5,321   |  
|Other assets                                                                                                                   |  |      | 9,417   |   |                     |   | 11,713  |  
|                                                                                                                               |  |      |         |   |                     |   |         |  
|Total assets                                                                                                                   |  | $    | 486,874 |   |                     | $ | 547,388 |  
|                                                                                                                               |  |      |         |   |                     |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                           |  |      |         |   |                     |   |         |  
|Current liabilities:                                                                                                           |  |      |         |   |                     |   |         |  
|Accounts payable                                                                                                               |  | $    | 17,230  |   |                     | $ | 16,099  |  
|Accrued interest                                                                                                               |  |      | 1,549   |   |                     |   | 1,415   |  
|Accrued payroll, related taxes and benefits                                                                                    |  |      | 11,545  |   |                     |   | 15,130  |  
|Accrued income taxes payable                                                                                                   |  |      | 836     |   |                     |   |        |  
|Other liabilities                                                                                                              |  |      | 14,897  |   |                     |   | 14,415  |  
|Current portion of long-term debt (Notes 5 and 6)                                                                              |  |      | 14,005  |   |                     |   | 12,299  |  
|Current portion of financing obligations (Note 7)                                                                              |  |      | 2,288   |   |                     |   | 2,017   |  
|                                                                                                                               |  |      |         |   |                     |   |         |  
|Total current liabilities                                                                                                      |  |      | 62,350  |   |                     |   | 61,375  |  
|                                                                                                                               |  |     
|Long-term debt, net of current portion (Notes 5 and 6)                                                                         |  |      | 281,827 |   |                     |   | 348,046 |  
|Financing obligations, net of current portion (Note 7)                                                                         |  |      | 82,397  |   |                     |   | 84,685  |  
|Deferred incomesale/leaseback of real estate (Note 5)                                                                         |  |      | 8,841   |   |                     |   | 2,523   |  
|Accrued postretirement benefits (Note 14)                                                                                      |  |      | 2,962   |   |                     |   | 2,585   |  
|Other liabilities (Note 4)                                                                                                     |  |      | 27,527  |   |                     |   | 29,572  |  
|                                                                                                                               |  |      |         |   |                     |   |         |  
|Total liabilities                                                                                                              |  |      | 465,904 |   |                     |   | 528,786 |  
|                                                                                                                               |  |     
|Commitments and contingencies (Notes 5 and 12)                                                                                 |  |      |         |   |                     |   |         |  
|                                                                                                                               |  |     
|Stockholders equity (Note 10):                                                                                                |  |      |         |   |                     |   |         |  
|Common stock, par value $1; authorized 1,000 shares, issued and outstanding  10 shares                                        |  |      |        |   |                     |   |        |  
|Additional paid-in capital                                                                                                     |  |      | 24,485  |   |                     |   | 24,485  |  
|Accumulated deficit                                                                                                            |  |      | (3,515  | ) |                     |   | (5,883  | )
|                                                                                                                               |  |      |         |   |                     |   |         |  
|Total stockholders equity                                                                                                     |  |      | 20,970  |   |                     |   | 18,602  |  
|                                                                                                                               |  |      |         |   |                     |   |         |  
|Total liabilities and stockholders equity                                                                                     |  | $    | 486,874 |   |                     | $ | 547,388 |  
|                                                                                                                               |  |      |         |   |                     |   |         |  



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



F - 2



---

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2003, 2002 and 2001

(in thousands of dollars)



|                                      |  |      |         |                      |   |                      |  |   |         |  
|------------------------------------- |  | ---- | ------- | -------------------- | - | -------------------- |  | - | ------- | -
|                                      |  | 2003 |         | Restated Note 2 2002 |   | Restated Note 2 2001 | 
|Revenues:                             |  |      |         |                      |   |                      |  |   |         |  
|Restaurant sales                      |  | $    | 643,579 |                      | $ | 655,545              |  | $ | 654,710 |  
|Franchise royalty revenues and fees   |  |      | 1,406   |                      |   | 1,482                |  |   | 1,579   |  
|                                      |  |      |         |                      |   |                      |  |   |         |  
|Total revenues                        |  |      | 644,985 |                      |   | 657,027              |  |   | 656,289 |  
|                                      |  |      |         |                      |   |                      |  |   |         |  
|Costs and expenses:                   |  |      |         |                      |   |                      |  |   |         |  
|Cost of sales                         |  |      | 181,182 |                      |   | 183,976              |  |   | 189,947 |  
|Restaurant wages and related expenses |  |      | 194,315 |                      |   | 196,258              |  |   | 192,918 |  
|Restaurant rent expense               |  |      | 31,383  |                      |   | 30,494               |  |   | 31,207  |  
|Other restaurant operating expenses   |  |      | 89,880  |                      |   | 87,335               |  |   | 86,435  |  
|Advertising expense                   |  |      | 27,351  |                      |   | 28,041               |  |   | 28,830  |  
|General and administrative            |  |      | 37,123  |                      |   | 36,610               |  |   | 35,393  |  
|Depreciation and amortization         |  |      | 47,253  |                      |   | 44,051               |  |   | 47,966  |  
|Other expense (Note 8)                |  |      |        |                      |   |                     |  |   | 8,841   |  
|                                      |  |      |         |                      |   |                      |  |   |         |  
|Total operating expenses              |  |      | 608,487 |                      |   | 606,765              |  |   | 621,537 |  
|                                      |  |      |         |                      |   |                      |  |   |         |  
|Income from operations                |  |      | 36,498  |                      |   | 50,262               |  |   | 34,752  |  
|                                      |  |      |        
|Interest expense                      |  |      | 32,363  |                      |   | 34,955               |  |   | 40,552  |  
|                                      |  |      |         |                      |   |                      |  |   |         |  
|Income (loss) before income taxes     |  |      | 4,135   |                      |   | 15,307               |  |   | (5,800  | )
|Provision for income taxes (Note 9)   |  |      | 1,767   |                      |   | 5,593                |  |   | 274     |  
|                                      |  |      |         |                      |   |                      |  |   |         |  
|Net income (loss)                     |  | $    | 2,368   |                      | $ | 9,714                |  | $ | (6,074  | )
|                                      |  |      |         |                      |   |                      |  |   |         |  



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



F - 3



---

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years Ended December 31, 2003, 2002 and 2001

(in thousands of dollars)



|                                                |  |              |   |                             |   |                     |  |   |                            |   |  |   |        |  
|----------------------------------------------- |  | ------------ | - | --------------------------- | - | ------------------- |  | - | -------------------------- | - |  | - | ------ | -
|                                                |  | Common Stock |   | Additional Paid-In- Capital |   | Accumulated Deficit |  |   | Total Stockholders Equity |  
|Balance at December 31, 2000, restated (Note 2) |  | $            |  |                             | $ | 24,485              |  | $ | (9,523                     | ) |  | $ | 14,962 |  
|Net loss (restated)                             |  |              |  |                             |   |                    |  |   | (6,074                     | ) |  |   | (6,074 | )
|                                                |  |              |   |                             |   |                     |  |   |                            |   |  |   |        |  
|Balance at December 31, 2001, restated (Note 2) |  |              |  |                             |   | 24,485              |  |   | (15,597                    | ) |  |   | 8,888  |  
|Net income (restated)                           |  |              |  |                             |   |                    |  |   | 9,714                      |   |  |   | 9,714  |  
|                                                |  |              |   |                             |   |                     |  |   |                            |   |  |   |        |  
|Balance at December 31, 2002, restated (Note 2) |  |              |  |                             |   | 24,485              |  |   | (5,883                     | ) |  |   | 18,602 |  
|Net income                                      |  |              |  |                             |   |                    |  |   | 2,368                      |   |  |   | 2,368  |  
|                                                |  |              |   |                             |   |                     |  |   |                            |   |  |   |        |  
|Balance at December 31, 2003                    |  | $            |  |                             | $ | 24,485              |  | $ | (3,515                     | ) |  | $ | 20,970 |  
|                                                |  |              |   |                             |   |                     |  |   |                            |   |  |   |        |  



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



F - 4



---

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2003, 2002 and 2001

(in thousands of dollars)



|                                                                                           |  |      |         |   |                      |   |         |                      |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ---- | ------- | - | -------------------- | - | ------- | -------------------- |  | - | ------- | -
|                                                                                           |  | 2003 |         |   | Restated Note 2 2002 |   |         | Restated Note 2 2001 | 
|Cash flows provided from operating activities:                                             |  |      |         |   |                      |   |         |                      |  |   |         |  
|Net income (loss)                                                                          |  | $    | 2,368   |   |                      | $ | 9,714   |                      |  | $ | (6,074  | )
|Adjustments to reconcile net income (loss) to net cash provided from operating activities: |  |      |         |   |                      |   |         |                      |  |   |         |  
|(Gain)/loss on disposal of property and equipment                                          |  |      | (386    | ) |                      |   | 24      |                      |  |   | 390     |  
|Depreciation and amortization                                                              |  |      | 47,253  |   |                      |   | 44,051  |                      |  |   | 47,966  |  
|Other expense (Note 8)                                                                     |  |      |        |   |                      |   |        |                      |  |   | 7,053   |  
|Deferred income taxes                                                                      |  |      | (130    | ) |                      |   | 5,553   |                      |  |   | (1,688  | )
|Changes in operating assets and liabilities:                                               |  |      |         |   |                      |   |         |                      |  |   |         |  
|Refundable income taxes                                                                    |  |      | 2,089   |   |                      |   | 153     |                      |  |   | 1,522   |  
|Accounts payable                                                                           |  |      | 1,131   |   |                      |   | (521    | )                    |  |   | 3,251   |  
|Accrued payroll, related taxes and benefits                                                |  |      | (3,585  | ) |                      |   | 2,143   |                      |  |   | 214     |  
|Accrued acquisition costs                                                                  |  |      |        |   |                      |   | (78     | )                    |  |   | (5,534  | )
|Other liabilities  current                                                                |  |      | 381     |   |                      |   | (450    | )                    |  |   | 2,194   |  
|Accrued interest                                                                           |  |      | 134     |   |                      |   | (103    | )                    |  |   | (729    | )
|Other liabilitieslong-term                                                                |  |      | (2,259  | ) |                      |   | (4,379  | )                    |  |   | (1,549  | )
|Other                                                                                      |  |      | 1,243   |   |                      |   | (143    | )                    |  |   | 952     |  
|                                                                                           |  |      |         |   |                      |   |         |                      |  |   |         |  
|Net cash provided from operating activities                                                |  |      | 48,239  |   |                      |   | 55,964  |                      |  |   | 47,968  |  
|                                                                                           |  |      |         |   |                      |   |         |                      |  |   |         |  
|Cash flow used for investing activities:                                                   |  |      |         |   |                      |   |         |                      |  |   |         |  
|Capital expenditures:                                                                      |  |      |         |   |                      |   |         |                      |  |   |         |  
|New restaurant development                                                                 |  |      | (18,598 | ) |                      |   | (27,465 | )                    |  |   | (14,525 | )
|Restaurant remodeling                                                                      |  |      | (3,317  | ) |                      |   | (16,254 | )                    |  |   | (21,895 | )
|Other restaurant expenditures                                                              |  |      | (6,925  | ) |                      |   | (9,018  | )                    |  |   | (9,703  | )
|Corporate and restaurant information systems                                               |  |      | (1,404  | ) |                      |   | (1,418  | )                    |  |   | (1,452  | )
|Acquisition of Burger King restaurants                                                     |  |      |        |   |                      |   |        |                      |  |   | (1,612  | )
|                                                                                           |  |      |         |   |                      |   |         |                      |  |   |         |  
|Total capital expenditures                                                                 |  |      | (30,244 | ) |                      |   | (54,155 | )                    |  |   | (49,187 | )
|Properties purchased for sale-leaseback                                                    |  |      | (3,149  | ) |                      |   | (925    | )                    |  |   |        |  
|Proceeds from dispositions of property and equipment                                       |  |      | 3,921   |   |                      |   | 9       |                      |  |   | 31      |  
|                                                                                           |  |      |         |   |                      |   |         |                      |  |   |         |  
|Net cash used for investing activities                                                     |  | $    | (29,472 | ) |                      | $ | (55,071 | )                    |  | $ | (49,156 | )
|                                                                                           |  |      |         |   |                      |   |         |                      |  |   |         |  



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



F - 5



---

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)

Years Ended December
31, 2003, 2002 and 2001

(in thousands of dollars)



|                                                          |  |      |         |   |                      |   |        |                      |  |   |        |  
|--------------------------------------------------------- |  | ---- | ------- | - | -------------------- | - | ------ | -------------------- |  | - | ------ | -
|                                                          |  | 2003 |         |   | Restated Note 2 2002 |   |        | Restated Note 2 2001 | 
|Cash flows provided from (used for) financing activities: |  |      |         |   |                      |   |        |                      |  |   |        |  
|Proceeds (payments) on revolving credit facility, net     |  | $    | (52,200 | ) |                      | $ | (2,700 | )                    |  | $ | 9,900  |  
|Principal payments on term loans                          |  |      | (11,000 | ) |                      |   | (8,500 | )                    |  |   | (7,000 | )
|Principal payments on financing obligations               |  |      | (2,017  | ) |                      |   | (1,769 | )                    |  |   | (1,533 | )
|Proceeds (payments) from other notes payable, net         |  |      | (847    | ) |                      |   | (978   | )                    |  |   | 127    |  
|Principal payments on capital leases                      |  |      | (446    | ) |                      |   | (551   | )                    |  |   | (524   | )
|Proceeds from sale-leaseback transactions                 |  |      | 47,619  |   |                      |   | 13,738 |                      |  |   |       |  
|Financing costs associated with issuance of debt          |  |      |        |   |                      |   |       |                      |  |   | (89    | )
|                                                          |  |      |         |   |                      |   |        |                      |  |   |        |  
|Net cash provided from (used for) financing activities    |  |      | (18,891 | ) |                      |   | (760   | )                    |  |   | 881    |  
|                                                          |  |      |         |   |                      |   |        |                      |  |   |        |  
|Net increase (decrease) in cash and cash equivalents      |  |      | (124    | ) |                      |   | 133    |                      |  |   | (307   | )
|Cash and cash equivalents, beginning of year              |  |      | 2,538   |   |                      |   | 2,405  |                      |  |   | 2,712  |  
|                                                          |  |      |         |   |                      |   |        |                      |  |   |        |  
|Cash and cash equivalents, end of year                    |  | $    | 2,414   |   |                      | $ | 2,538  |                      |  | $ | 2,405  |  
|                                                          |  |      |         |   |                      |   |        |                      |  |   |        |  
|Supplemental disclosures:                                 |  |      |         |   |                      |   |        |                      |  |   |        |  
|Interest paid on long-term debt and financing obligations |  | $    | 32,229  |   |                      | $ | 35,058 |                      |  | $ | 41,281 |  
|Income taxes paid (refunded), net                         |  | $    | (195    | ) |                      | $ | 1,494  |                      |  | $ | 1,230  |  



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



F - 6



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2003, 2002 and 2001

(in thousands of dollars)



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, 2003, the Company operated, as franchisee, 351 quick-service restaurants under the trade name Burger King in thirteen Northeastern, Midwestern and Southeastern states. At December 31, 2003, the Company also owned and
operated 60 Pollo Tropical restaurants located in Florida and franchised 24 Pollo Tropical restaurants in Puerto Rico, Ecuador and Florida. At December 31, 2003, the Company owned and operated 121 Taco Cabana restaurants located primarily in Texas
and franchised nine 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. The Company capitalizes all direct costs incurred to construct and substantially improve its restaurants. These costs are depreciated and charged to expense based upon their property
classification when placed in service. Property and equipment are recorded at cost. Repair and maintenance activities are expensed as incurred. Depreciation and amortization is provided using the straight-line method over the following estimated
useful lives:



|                               |  |                                                                                        
|------------------------------ |  | ---------------------------------------------------------------------------------------
|Buildings 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                                                                



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.



Annual amortization expense for all franchise rights is estimated to be $4.6 million in 2004, $4.5 million in 2005, $4.4 million in 2006, $4.3 million in
2007 and $4.1 million in 2008.



F - 7



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



Intangible Assets. Intangible assets consist of the excess purchase price over net assets
acquired, beneficial leases, unfavorable leases and trademarks. 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. Trademarks
are amortized using the straight-line method over 40 years. Prior to January 1, 2002, the excess purchase price over net assets acquired and trademarks was 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 was amortized over 20 years.



As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, which supercedes Accounting Principles Board (APB) Opinion 17, Intangible Assets. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized, effective January 1, 2002, but are
to be tested at least annually for impairment. The Company performs its impairment evaluation annually at December 31. Separable intangible assets with defined lives will continue to be amortized over their useful lives.



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.



Deferred Financing Costs.Financing costs, that are included in other assets and were incurred in obtaining long-term debt and financing
obligations, are capitalized and amortized over the life of the related obligation 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 and Taco Cabana 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.



F - 8



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



Restaurant Revenue Recognition. Restaurant sales are recognized at time of sale on
substantially a cash basis.



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 a consolidated federal income tax return.



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. 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. The Company does not discount any of its self-insurance obligations.



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



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



| |  | Senior Subordinated Notes. The fair values of outstanding senior subordinated notes are based on quoted market prices. The fair values at December 31, 2003 and 2002 are
approximately $174.5 million and $146.6 million, 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, 2003 and 2002, approximated fair value.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Stock-Based Compensation.SFAS 123, Accounting for Stock-Based Compensation, permits entities to recognize as an expense over the vesting period the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS 123 allows entities to continue to apply the provisions of 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. In
December 2002, the Financial Accounting Standards Board issued SFAS 148, Accounting for Stock-Based Compensation Transition and Disclosure, amending SFAS 123. SFAS 148 provides revised methods of transition if a company elects to change
to the fair-value-based method of accounting for stock-based compensation. Additionally, SFAS 148 requires disclosure in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the
method used on



F - 9



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



reported results. As required, the Company has provided these disclosures in both its annual and interim financial
statements. The Company has not elected to change to the fair value-based-method of accounting for stock-based compensation and will continue applying the provisions of APB 25 and provide the pro forma disclosure provisions of SFAS 123.



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



In
January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), an interpretation of Accounting Research Bulletin (ARB) No. 51. FIN 46 is intended to clarify the
application of the majority voting interest requirement of ARB No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The controlling financial interest may be achieved through arrangements that do not involve voting interests. A
company that holds variable interests in an entity will need to consolidate the variable interest entity (VIE) if the companys interest in the VIE is such that the company will absorb a majority of the VIEs expected losses
and/or receive a majority of the entitys expected residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. FIN 46 may be applied prospectively with a
cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. FIN 46 is
effective immediately to a VIE created or obtained after January 31, 2003. FIN 46, as amended, became effective for variable interests in a VIE created before February 1, 2003 at December 31, 2003.



FIN 46 has been subsequently modified, clarified and replaced by the issuance
of FIN 46R on December 23, 2003. Relative to FIN 46, FIN 46R a) essentially excludes operating businesses from its provisions subject to four conditions, b) states the provisions of FIN 46R are not required to be applied if a company is unable,
subject to making an exhaustive effort, to obtain the necessary information, c) includes new definitions and examples of what variable interests are, d) clarifies and changes the definition of a variable interest entity, and e) clarifies and changes
the definition and treatment of de facto agents, as that term is defined in FIN 46 and FIN 46R. FIN 46R was issued December 23, 2003 and, for the Company, is effective no later than the end of the first quarter of 2005. The Company is currently
reviewing the new provisions of FIN 46R.



F - 10



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



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. All references
herein to fiscal years (52 weeks) December 30, 2001, December 29, 2002 and December 28, 2003 will be referred to as fiscal years December 31, 2001, 2002 and 2003, respectively.



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



2. Restatement of Previously Issued Financial Statements



The Company has restated its financial statements
including applicable footnotes for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98 Accounting for Leases rather
than as sale/leaseback transactions as previously reported. The impact of the restatement is to record on the Companys balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from
these transactions, (including the gains previously deferred) as a form of debt financing. The restatement also impacted our operating results by increasing the depreciation expense for the property and equipment subject to these transactions and
recharacterizing the lease payments previously reported as rent expense for these restaurants as principal repayments and interest expense. There was no impact on sale/leaseback transactions that were consummated in 2002 and 2003.



As a result of the restatement, the Company was in default related to certain
required financial leverage ratios and other covenants under its senior secured credit facility. The Company has obtained a waiver from its senior secured lenders of any prior non-compliance resulting from the restatement. In addition, the
Companys senior credit facility has been amended to exclude all adjustments resulting from this restatement on its financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or
recharacterization has occurred.



The following table sets
forth the previously reported amounts and the restated amounts reflected in the accompanying consolidated financial statements:



|                                                                    |  |                                        |         |   |                           |   |         |                      |  |   |            |   |  |   |         |  
|------------------------------------------------------------------- |  | -------------------------------------- | ------- | - | ------------------------- | - | ------- | -------------------- |  | - | ---------- | - |  | - | ------- | -
|                                                                    |  | December 31, 2002                      |         |   |                           |   |         |                      | 
|                                                                    |  | AsPreviouslyReported                   |         |   | AsRestated                |   |         |                      |  |   |            |  
|Consolidated Balance Sheet:                                         |  |                                        |         |   |                           |   |         |                      |  |   |            |   |  |   |         |  
|Property and equipment, net                                         |  | $                                      | 219,686 |   |                           | $ | 288,288 |                      |  |   |            |   |  |   |         |  
|Accumulated depreciation and amortization on property and equipment |  |                                        | 146,782 |   |                           |   | 168,523 |                      |  |   |            |   |  |   |         |  
|Deferred income taxes                                               |  |                                        | 535     |   |                           |   | 5,321   |                      |  |   |            |   |  |   |         |  
|Other assets                                                        |  |                                        | 9,820   |   |                           |   | 11,713  |                      |  |   |            |   |  |   |         |  
|Total assets                                                        |  |                                        | 472,107 |   |                           |   | 547,388 |                      |  |   |            |   |  |   |         |  
|                                                                    |  |                                        |         |  
|Current portion of financing obligations                            |  |                                        |        |   |                           |   | 2,017   |                      |  |   |            |   |  |   |         |  
|Total current liabilities                                           |  |                                        | 59,358  |   |                           |   | 61,375  |                      |  |   |            |   |  |   |         |  
|Financing obligations, net of current portion                       |  |                                        |        |   |                           |   | 84,685  |                      |  |   |            |   |  |   |         |  
|Deferred income-sale/leaseback of real estate                       |  |                                        | 5,887   |   |                           |   | 2,523   |                      |  |   |            |   |  |   |         |  
|Total liabilities                                                   |  |                                        | 445,448 |   |                           |   | 528,786 |                      |  |   |            |   |  |   |         |  
|                                                                    |  |                                        |         |  
|Retained earnings (accumulated deficit)                             |  |                                        | 2,174   |   |                           |   | (5,883  | )                    |  |   |            |   |  |   |         |  
|Total stockholder's equity                                          |  |                                        | 26,659  |   |                           |   | 18,602  |                      |  |   |            |   |  |   |         |  
|                                                                    |  |                                        |         |  
|Total liabilities and stockholder's equity                          |  |                                        | 472,107 |   |                           |   | 547,388 |                      |  |   |            |   |  |   |         |  
|                                                                    |  | Year Ended                             |        
|                                                                    |  |                                       
|                                                                    |  | December 31, 2002                      |         |   | December 31, 2001         |  
|                                                                    |  | AsPreviouslyReported                   |         |   | AsRestated                |   |         | AsPreviouslyReported |  |   | AsRestated |  
|Consolidated Statement of Operations:                               |  |                                        |         |   |                           |   |         |                      |  |   |            |   |  |   |         |  
|Restaurant rent expense                                             |  | $                                      | 39,423  |   |                           | $ | 30,494  |                      |  | $ | 40,042     |   |  | $ | 31,207  |  
|Depreciation and amortization                                       |  |                                        | 39,580  |   |                           |   | 44,051  |                      |  |   | 43,495     |   |  |   | 47,966  |  
|Total operating expenses                                            |  |                                        | 611,223 |   |                           |   | 606,765 |                      |  |   | 625,901    |   |  |   | 621,537 |  
|                                                                    |  |                                        |         |  
|Income from operations                                              |  |                                        | 45,804  |   |                           |   | 50,262  |                      |  |   | 30,388     |   |  |   | 34,752  |  
|Interest expense                                                    |  |                                        | 27,532  |   |                           |   | 34,955  |                      |  |   | 32,988     |   |  |   | 40,552  |  
|                                                                    |  |                                        |         |  
|Income (loss) before income taxes                                   |  |                                        | 18,272  |   |                           |   | 15,307  |                      |  |   | (2,600     | ) |  |   | (5,800  | )
|Provision for income taxes                                          |  |                                        | 6,668   |   |                           |   | 5,593   |                      |  |   | 1,364      |   |  |   | 274     |  
|                                                                    |  |                                        |         |  
|Net income (loss)                                                   |  |                                        | 11,604  |   |                           |   | 9,714   |                      |  |   | (3,964     | ) |  |   | (6,074  | )
|                                                                    |  |                                        |         |  
|Consolidated Statements of Cash Flows:                              |  |                                        |         |   |                           |   |         |                      |  |   |            |   |  |   |         |  
|Net income (loss)                                                   |  | $                                      | 11,604  |   |                           | $ | 9,714   |                      |  | $ | (3,964     | ) |  | $ | (6,074  | )
|Depreciation and amortization                                       |  |                                        | 39,580  |   |                           |   | 44,051  |                      |  |   | 43,495     |   |  |   | 47,966  |  
|Deferred income taxes                                               |  |                                        | 6,628   |   |                           |   | 5,553   |                      |  |   | (599       | ) |  |   | (1,688  | )
|Other                                                               |  |                                        | (406    | ) |                           |   | (143    | )                    |  |   | 691        |   |  |   | 952     |  
|Net cash provided from operating activities                         |  |                                        | 54,195  |   |                           |   | 55,964  |                      |  |   | 46,435     |   |  |   | 47,968  |  
|                                                                    |  |                                        |         |  
|Principal payments on financing obligations                         |  |                                        |        |   |                           |   | (1,769  | )                    |  |   |           |   |  |   | (1,533  | )
|Net cash provided from (used for) financing activities              |  |                                        | 1,009   |   |                           |   | (760    | )                    |  |   | 2,414      |   |  |   | 881     |  
|Interest paid on long-term debt and financing obligations           |  |                                        | 27,635  |   |                           |   | 35,058  |                      |  |   | 33,717     |   |  |   | 41,281  |  
|                                                                    |  |                                        |         |  
|Consolidated Statements of Stockholder's Equity:                    |  |                                        |         |   |                           |   |         |                      |  |   |            |   |  |   |         |  
|                                                                    |  | Retained Earnings(Accumulated Deficit) |         |   | Total Stockholder'sEquity |  
|                                                                    |  | AsPreviouslyReported                   |         |   | AsRestated                |   |         | AsPreviouslyReported |  |   | AsRestated |  
|Balance at December 31, 2000                                        |  | $                                      | (5,466  | ) |                           | $ | (9,523  | )                    |  | $ | 19,019     |   |  | $ | 14,962  |  
|Net loss                                                            |  |                                        | (3,964  | ) |                           |   | (6,074  | )                    |  |   | (3,964     | ) |  |   | (6,074  | )
|                                                                    |  |                                        |         |   |                           |   |         |                      |  |   |            |   |  |   |         |  
|Balance at December 31, 2001                                        |  |                                        | (9,430  | ) |                           |   | (15,597 | )                    |  |   | 15,055     |   |  |   | 8,888   |  
|Net income                                                          |  |                                        | 11,604  |   |                           |   | 9,714   |                      |  |   | 11,604     |   |  |   | 9,714   |  
|                                                                    |  |                                        |         |   |                           |   |         |                      |  |   |            |   |  |   |         |  
|Balance at December 31, 2002                                        |  | $                                      | 2,174   |   |                           | $ | (5,883  | )                    |  | $ | 26,659     |   |  | $ | 18,602  |  
|                                                                    |  |                                        |         |   |                           |   |         |                      |  |   |            |   |  |   |         |  



The accumulated
deficit previously reported at December 31, 2000 of $5,466 has been restated to $9,523, which is an increase of $4,057, to reflect the effect of the restatement adjustments for the periods prior to fiscal 2001. Such cumulative adjustments also had
the corresponding effect of increasing property and equipment by $77,303, increasing other assets by $2,135 for the transactional costs associated with the financing obligations, increasing deferred tax assets by $2,620, increasing financing
obligations by $90,004 and decreasing deferred income on sale/leaseback of real estate by $3,889.



All previously reported amounts affected by the restatement that appear elsewhere in these footnotes to the consolidated financial statements have also
been restated.



3. Property and Equipment and Intangible Assets



Property and equipment at December 31 consist of the
following:



|                                               |  |      |          |   |                         |   |          |  
|---------------------------------------------- |  | ---- | -------- | - | ----------------------- | - | -------- | -
|                                               |  | 2003 |          |   | 2002 As Restated Note 2 |  
|Land                                           |  | $    | 14,700   |   |                         | $ | 32,294   |  
|Buildings and improvements                     |  |      | 34,446   |   |                         |   | 48,231   |  
|Leasehold improvements                         |  |      | 107,463  |   |                         |   | 107,663  |  
|Equipment                                      |  |      | 171,092  |   |                         |   | 165,007  |  
|Assets subject to financing obligations        |  |      | 90,343   |   |                         |   | 90,343   |  
|Capital leases                                 |  |      | 12,961   |   |                         |   | 13,273   |  
|                                               |  |      |          |   |                         |   |          |  
|                                               |  |      | 431,005  |   |                         |   | 456,811  |  
|Less accumulated depreciation and amortization |  |      | (194,652 | ) |                         |   | (168,523 | )
|                                               |  |      |          |   |                         |   |          |  
|                                               |  | $    | 236,353  |   |                         | $ | 288,288  |  
|                                               |  |      |          |   |                         |   |          |  



Capital lease assets
pertain to buildings leased for certain restaurant locations. Accumulated amortization pertaining to capital lease assets at December 31, 2003 and 2002 was $12,030 and $11,710, respectively. Assets subject to financing obligations pertain to certain
land and buildings which have been sold and accounted for as financing transactions. Accumulated depreciation pertaining to assets subject to financing obligations at December 31, 2003 and 2002 was $26,092 and $21,741, respectively. Depreciation
expense for the years ended December 31, 2003, 2002 and 2001 was $40,611, $36,851 and $35,361, respectively.



The Company reviews its long-lived assets, excluding goodwill, for impairment at the restaurant level. If an indicator of impairment exists for any of the
assets, an estimate of undiscounted future cash flows produced by each restaurant is compared to that restaurants carrying value. If an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset
over its fair value. For the years ended December 31, 2003, 2002 and 2001, the Company has recorded impairment charges, included in depreciation and amortization, of $706, $1,033 and $578, respectively, related to all of its property and equipment
for certain of its operating Burger King restaurants and $3,445, $253 and $0, respectively, related to all of its property and equipment for certain of its operating Taco Cabana restaurants.



F - 11



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



As of January 1, 2002, the Company adopted SFAS 142, Goodwill and Other Intangible
Assets, which supercedes APB Opinion 17, Intangible Assets. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized, effective January 1, 2002, 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 apply to goodwill and intangible assets acquired before and after the statements effective date. SFAS
142 required the Company to complete Step 1 of a transitional goodwill impairment test by June 30, 2002. Step 1 required the comparison of the fair value of a reporting unit to its carrying value at January 1, 2002 to determine whether there was an
indicated transitional goodwill impairment. Our evaluation of impairment under Step 1 of the transitional goodwill impairment test indicated that our reporting units fair values are above their carrying values at January 1, 2002 and that there
is no transitional goodwill impairment charge required.



The
Company has elected to annually test for goodwill impairment at December 31. In accordance with SFAS 142, the Company has determined its reporting units to be at the operating segment level. The Companys operating segments include: Burger
King, operating as a franchisee, Pollo Tropical and Taco Cabana, both Company owned concepts. At December 31, 2003, using the market multiple method of valuation, the identified reporting units were measured for goodwill impairment by comparing the
fair value of the reporting unit goodwill with the carrying amount of the goodwill. The result of this test determined there has been no goodwill impairment.



Provided below is a reconciliation of restated financial statement information to pro forma amounts that reflect the elimination of goodwill amortization
for the comparable annual period prior to adoption of SFAS 142, for the year ended December 31:



|                                       |  |             |        |  
|-------------------------------------- |  | ----------- | ------ | -
|                                       |  | 2001 Note 2 |       
|Net income (loss), as restated         |  | $           | (6,074 | )
|Add: Goodwill amortization, net of tax |  |             | 4,966  |  
|                                       |  |             |        |  
|Pro forma net income                   |  | $           | (1,108 | )
|                                       |  |             |        |  



Intangible assets at
December 31 consist of the following:



|                                                                             |  |      |         |      |   |        
|---------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                             |  | 2003 |         | 2002
|Goodwill, net of accumulated amortizationof $10,053 and $9,902, respectively |  | $    | 123,861 |      | $ | 124,012
|Trademarks, net of accumulated amortizationof $36 and $36, respectively      |  |      | 228     |      |   | 228    
|Other, net of accumulated amortizationof $169 and $123, respectively         |  |      | 755     |      |   | 806    
|                                                                             |  |      |         |      |   |        
|                                                                             |  | $    | 124,844 |      | $ | 125,046
|                                                                             |  |      |         |      |   |        



F - 12



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



Goodwill for Burger King and Pollo Tropical was $1,450 and $57,154, respectively, at both December
31, 2003 and 2002. Taco Cabana goodwill at December 31, 2003 and 2002 was $65,257 and $65,408, respectively.



Amortization expense of intangible assets for the years ended December 31, 2003, 2002 and 2001 was $201, $63 and $5,048, respectively.



Annual amortization expense for all intangible assets is estimated to be $23
in the year 2004 and $0 in years 2005 through 2008.



4. Other Liabilities,
Long-Term



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



|                            |  |      |        |      |   |       
|--------------------------- |  | ---- | ------ | ---- | - | ------
|                            |  | 2003 |        | 2002
|Unearned purchase discounts |  | $    | 10,888 |      | $ | 13,330
|Accrued occupancy costs     |  |      | 8,012  |      |   | 12,035
|Other                       |  |      | 8,627  |      |   | 4,207 
|                            |  |      |        |      |   |       
|                            |  | $    | 27,527 |      | $ | 29,572
|                            |  |      |        |      |   |       



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, 2003, 2002 and 2001 was $2.2 million, $2.2 million and $2.0 million, respectively.



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.



5. 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 certain 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.



F - 13



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



Minimum rent commitments under capital and non-cancelable operating leases at December 31, 2003 were
as follows:



|                                           |  |         |       |   |                              |   |        
|------------------------------------------ |  | ------- | ----- | - | ---------------------------- | - | -------
|Years Ending                               |  | Capital |       |   | Operating As Restated Note 2
|2004                                       |  | $       | 554   |   |                              | $ | 32,673 
|2005                                       |  |         | 534   |   |                              |   | 31,284 
|2006                                       |  |         | 438   |   |                              |   | 29,010 
|2007                                       |  |         | 289   |   |                              |   | 26,001 
|2008                                       |  |         | 114   |   |                              |   | 22,758 
|Thereafter                                 |  |         | 130   |   |                              |   | 168,088
|                                           |  |         |       |   |                              |   |        
|Total minimum lease payments               |  |         | 2,059 |   |                              | $ | 309,814
|                                           |  |         |       |   |                              |   |        
|Less amount representing interest          |  |         | (444  | ) |                              |   |        
|                                           |  |         |       |   |                              |   |        
|Total obligations under capital leases     |  |         | 1,615 |   |                              |   |        
|Less current portion                       |  |         | (388  | ) |                              |   |        
|                                           |  |         |       |   |                              |   |        
|Long-term obligations under capital leases |  | $       | 1,227 |   |                              |   |        
|                                           |  |         |       |   |                              |   |        



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



|                                               |  |      |        |                         |   |                         |  |   |       
|---------------------------------------------- |  | ---- | ------ | ----------------------- | - | ----------------------- |  | - | ------
|                                               |  | 2003 |        | 2002 As Restated Note 2 |   | 2001 As Restated Note 2
|Minimum rent on real property                  |  | $    | 29,395 |                         | $ | 27,328                  |  | $ | 27,525
|Additional rent based on a percentage of sales |  |      | 1,988  |                         |   | 3,166                   |  |   | 3,682 
|                                               |  |      |        |                         |   |                         |  |   |       
|Restaurant rent expense                        |  |      | 31,383 |                         |   | 30,494                  |  |   | 31,207
|                                               |  |      |        |                         |   |                         |  |   |       
|Administrative rent                            |  |      | 799    |                         |   | 747                     |  |   | 767   
|Equipment rent                                 |  |      | 373    |                         |   | 294                     |  |   | 255   
|                                               |  |      |        |                         |   |                         |  |   |       
|                                               |  | $    | 32,555 |                         | $ | 31,535                  |  | $ | 32,229
|                                               |  |      |        |                         |   |                         |  |   |       



F - 14



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



6. Long-Term Debt



Long-term debt at December 31 consisted of:



|                                         |  |      |         |   |      |   |         |  
|---------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                         |  | 2003 |         |   | 2002 |  
|Collateralized:                          |  |      |         |   |      |   |         |  
|Senior Credit Facility:                  |  |      |         |   |      |   |         |  
|Revolving credit facility                |  | $    | 600     |   |      | $ | 52,800  |  
|Term loan A facility                     |  |      | 46,500  |   |      |   | 56,500  |  
|Term loan B facility                     |  |      | 77,000  |   |      |   | 78,000  |  
|Other notes payable                      |  |      | 117     |   |      |   | 964     |  
|Unsecured 9.5% senior subordinated notes |  |      | 170,000 |   |      |   | 170,000 |  
|Capital leases                           |  |      | 1,615   |   |      |   | 2,081   |  
|                                         |  |      |         |   |      |   |         |  
|                                         |  |      | 295,832 |   |      |   | 360,345 |  
|Less current portion                     |  |      | (14,005 | ) |      |   | (12,299 | )
|                                         |  |      |         |   |      |   |         |  
|                                         |  | $    | 281,827 |   |      | $ | 348,046 |  
|                                         |  |      |         |   |      |   |         |  



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 $200 million and consists of a $50 million revolving credit facility (including a standby letter of credit facility for up to $20 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 of December 31, 2003 and 2002 was 4.5% and 5.1%, respectively. After reserving $10.2 million for letters of credit guaranteed by the facility, $39.2 million 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% 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% for the
term loan B facility.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 15



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



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 $12.5 million payable in four quarterly installments in 2004;
| | -- | -----------------------------------------------------------------------------



| | 2) | an aggregate of $9.4 million payable in three quarterly installments in 2005; and
| | -- | ---------------------------------------------------------------------------------



| | 3) | 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 of the years 2004 and 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.



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. The
Company was in compliance at December 31, 2003 with the restrictive covenants with the indenture governing the senior subordinated notes. In addition, the senior credit facility requires the Company to meet certain financial ratio tests. As a result
of the restatement of the Companys previously issued financial statements as discussed in Note 2, the Company was in default related to certain required financial leverage ratios and other covenants under its senior secured credit facility.
The Company has obtained a waiver from its senior secured lenders of any prior non-compliance and defaults resulting from the restatement. In addition, the Companys senior credit facility has been amended to exclude all adjustments resulting
from this restatement on its financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization has occurred.



F - 16



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



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, 2003 and 2002, these notes totaled $117 and $964, respectively.



At December 31, 2003, principal payments required on all long-term debt are as follows:



|           |  |   |        
|---------- |  | - | -------
|2004       |  | $ | 14,005 
|2005       |  |   | 36,011 
|2006       |  |   | 35,360 
|2007       |  |   | 40,246 
|2008       |  |   | 170,095
|Thereafter |  |   | 115    
|           |  |   |        
|           |  | $ | 295,832
|           |  |   |        



The weighted average
interest rate on all debt for the years ended December 31, 2003, 2002 and 2001 was 7.2%, 7.3% and 8.5%, respectively.



7. Financing Obligations



As discussed in Note 2 to the consolidated financial statements the Companys financial statements as previously reported for the years ended
December 31, 2001, 2002 and for the first nine months of 2003 have been restated to account for certain sales of real estate as financing transactions under SFAS No. 98, Accounting For Leases, rather than as sale/leaseback transactions
as previously reported in the Companys financial statements.



The adjustments in the restated financial statements classify the proceeds from these sales, including gains previously deferred over the related lease terms, as financing obligations on the Companys balance sheet. Also, the payments
under these leases have been reclassified from rent expense to payments of interest and principal on the underlying financing obligations.



These leases generally contain an initial term of twenty years plus renewal options. The rent payable under such leases includes a minimum rent provision
and, in some cases, includes a percentage of sales provision. These leases also require payment of property taxes, insurance and utilities.



At December 31, 2003, payments required on financing obligations are as follows:



|                                  |  |   |         |  
|--------------------------------- |  | - | ------- | -
|2004                              |  | $ | 9,365   |  
|2005                              |  |   | 9,459   |  
|2006                              |  |   | 9,560   |  
|2007                              |  |   | 9,675   |  
|2008                              |  |   | 10,058  |  
|Thereafter, through 2020          |  |   | 105,561 |  
|                                  |  |   |         |  
|Total payments                    |  |   | 153,678 |  
|Less amount representing interest |  |   | (68,993 | )
|                                  |  |   |         |  
|Total financing obligation        |  |   | 84,685  |  
|Less current portion              |  |   | (2,288  | )
|                                  |  |   |         |  
|Long-term financing obligations   |  | $ | 82,397  |  
|                                  |  |   |         |  



The interest rates on
financing obligations range from 7.2% to 10.2%.



8. Other Expense



During the fourth quarter of 2001, management made the
decision to close seven Taco Cabana restaurants in the Phoenix, Arizona market and discontinue restaurant development underway in that market. This decision resulted in a charge to other expense of $8.8 million in the fourth quarter of 2001,
comprised of $7.1 million in asset impairments, primarily leasehold improvements, $1.0 million in future occupancy costs and $0.7 million in other exit costs estimated to be incurred over a two-year period. The Company closed one restaurant in
December 2001 and the remaining six restaurants in February 2002. For the years ended December 31, 2002 and 2001, these restaurants had net sales of $0.4 million and $3.9 million, respectively, with losses before interest, income taxes, depreciation
and amortization of $0.2 million and $1.0 million, respectively. At December 31, 2003, the Company had $0.6 million in lease liability reserves and $0.3 million in other exit cost reserves related to these restaurants.



F - 17



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



9. Income Taxes



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



|                    |  |      |       |   |                         |   |       |                         |  |   |        |  
|------------------- |  | ---- | ----- | - | ----------------------- | - | ----- | ----------------------- |  | - | ------ | -
|                    |  | 2003 |       |   | 2002 As Restated Note 2 |   |       | 2001 As Restated Note 2 | 
|Current:            |  |      |       |   |                         |   |       |                         |  |   |        |  
|Federal             |  | $    | 1,405 |   |                         | $ | (591  | )                       |  | $ | 493    |  
|Foreign             |  |      | 279   |   |                         |   | 272   |                         |  |   | 283    |  
|State               |  |      | 214   |   |                         |   | 359   |                         |  |   | 912    |  
|                    |  |      |       |   |                         |   |       |                         |  |   |        |  
|                    |  |      | 1,898 |   |                         |   | 40    |                         |  |   | 1,688  |  
|                    |  |      |       |   |                         |   |       |                         |  |   |        |  
|Deferred (prepaid): |  |      |       |   |                         |   |       |                         |  |   |        |  
|Federal             |  |      | (405  | ) |                         |   | 5,699 |                         |  |   | (1,164 | )
|State               |  |      | 274   |   |                         |   | (146  | )                       |  |   | (250   | )
|                    |  |      |       |   |                         |   |       |                         |  |   |        |  
|                    |  |      | (131  | ) |                         |   | 5,553 |                         |  |   | (1,414 | )
|                    |  |      |       |   |                         |   |       |                         |  |   |        |  
|                    |  | $    | 1,767 |   |                         | $ | 5,593 |                         |  | $ | 274    |  
|                    |  |      |       |   |                         |   |       |                         |  |   |        |  



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



|                                                         |  |      |         |   |                         |   |         |  
|-------------------------------------------------------- |  | ---- | ------- | - | ----------------------- | - | ------- | -
|                                                         |  | 2003 |         |   | 2002 As Restated Note 2 |  
|Current deferred tax assets:                             |  |      |         |   |                         |   |         |  
|Accounts receivable and other reserves                   |  | $    | 249     |   |                         | $ | 277     |  
|Accrued vacation benefits                                |  |      | 1,533   |   |                         |   | 1,376   |  
|Other accruals                                           |  |      | 2,695   |   |                         |   | 1,990   |  
|Net operating loss carryforwards                         |  |      | 1,809   |   |                         |   | 5,811   |  
|                                                         |  |      |         |   |                         |   |         |  
|Total current deferred tax assets                        |  |      | 6,286   |   |                         |   | 9,454   |  
|                                                         |  |      |         |   |                         |   |         |  
|Long term deferred tax assets/(liabilities):             |  |      |         |   |                         |   |         |  
|Deferred income on sale/leaseback of certain real estate |  |      | 10,213  |   |                         |   | 6,768   |  
|Postretirement benefit expenses                          |  |      | 1,189   |   |                         |   | 1,014   |  
|Property and equipment depreciation                      |  |      | (13,072 | ) |                         |   | (11,854 | )
|Net operating loss carryforwards                         |  |      | 926     |   |                         |   | 1,519   |  
|Amortization of intangible assets                        |  |      | (5,768  | ) |                         |   | (4,737  | )
|Occupancy costs                                          |  |      | 4,838   |   |                         |   | 4,936   |  
|Tax credit carryforwards                                 |  |      | 6,203   |   |                         |   | 4,449   |  
|Unearned purchase discounts                              |  |      | 3,442   |   |                         |   | 2,561   |  
|Other                                                    |  |      | 648     |   |                         |   | 665     |  
|                                                         |  |      |         |   |                         |   |         |  
|Total long-term net deferred tax assets                  |  |      | 8,619   |   |                         |   | 5,321   |  
|                                                         |  |      |         |   |                         |   |         |  
|Total net deferred tax assets                            |  | $    | 14,905  |   |                         | $ | 14,775  |  
|                                                         |  |      |         |   |                         |   |         |  



F - 18



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



The Company has net operating loss carryforwards for Federal income tax purposes of approximately
$5.3 million at December 31, 2003 that are not limited to their utilization. The net operating loss carryforwards expire in varying amounts beginning in 2014 through 2023. In addition, the Company has available Federal alternative minimum tax credit
carryforwards of $3.7 million with no expiration date and Federal Work Opportunity tax credit carryforwards of $2.6 million that 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:



|                                           |  |      |       |   |                         |      |   |                         |   |       |   |  |      |   |  |   |        |   |  |       |   
|------------------------------------------ |  | ---- | ----- | - | ----------------------- | ---- | - | ----------------------- | - | ----- | - |  | ---- | - |  | - | ------ | - |  | ----- | --
|                                           |  | 2003 |       |   | 2002 As Restated Note 2 |      |   | 2001 As Restated Note 2 |  
|Statutory federal income tax rate          |  | $    | 1,400 |   |                         | 33.9 | % |                         | $ | 5,239 |   |  | 34.1 | % |  | $ | (1,971 | ) |  | (34.0 | )%
|State income taxes, net of federal benefit |  |      | 335   |   |                         | 8.1  |   |                         |   | 154   |   |  | 1.0  |   |  |   | 268    |   |  | 4.6   |   
|Non-deductible expenses                    |  |      | 359   |   |                         | 8.7  |   |                         |   | 305   |   |  | 2.0  |   |  |   | 1,982  |   |  | 34.2  |   
|Foreign taxes                              |  |      | 279   |   |                         | 6.7  |   |                         |   | 273   |   |  | 1.8  |   |  |   | 284    |   |  | 4.9   |   
|Employment tax credits                     |  |      | (354  | ) |                         | (8.6 | ) |                         |   | (202  | ) |  | (1.3 | ) |  |   | (190   | ) |  | (3.3  | ) 
|Deferred revaluation                       |  |      | (176  | ) |                         | (4.3 | ) |                         |   |      |   |  |     |   |  |   |       |   |  |      |   
|Miscellaneous                              |  |      | (76   | ) |                         | (1.8 | ) |                         |   | (176  | ) |  | (1.1 | ) |  |   | (99    | ) |  | (1.7  | ) 
|                                           |  |      |       |   |                         |      |   |                         |   |       |   |  |      |   |  |   |        |   |  |       |   
|                                           |  | $    | 1,767 |   |                         | 42.7 | % |                         | $ | 5,593 |   |  | 36.5 | % |  | $ | 274    |   |  | 4.7   | % 
|                                           |  |      |       |   |                         |      |   |                         |   |       |   |  |      |   |  |   |        |   |  |       |   



In 2003 and 2002
non-deductible expenses consist primarily of the amortization of certain franchise rights. In 2001 non-deductible expenses also include the amortization of non-deductible goodwill.



10. 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.Holdings Restated Certificate of Incorporation
authorizes the following: (1) 7,000,000 shares of common stock; and, (2) 100,000 shares of Preferred Stock, par value $0.01. Holdings Restated Certificate of Incorporation was amended in 2001 when its stockholders approved and adopted a
resolution that increased Holdings authorized common stock from 5,000,000 shares to 7,000,000 shares.



F - 19



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



Holdings common stock has been 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. The holders of the Carrols Stock 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. Of the 7,000,000 common shares authorized, 1,144,144 shares of Holdings Carrols class of
common stock are issued and outstanding.



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 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.



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. The number of shares reserved and authorized under this plan was increased to 111,250 in 2001 and to 189,325 in 2002. 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. On February 26, 2003, the Carrols Holdings Compensation Committee extended the expiration date to
February 29, 2012 for the Non Plan options and the 1996 Plan options, granted prior to March 1, 2002, for all executive officers and certain other officers of the Company.



F - 20



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



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.



A summary of all option activity under Holdings stock
option plans for the years ended December 31, 2003, 2002 and 2001 was as follows:



|                                         |  |                 |        |           |   |         |                |  |            |        |  |           |        |   |  |   |         |  
|---------------------------------------- |  | --------------- | ------ | --------- | - | ------- | -------------- |  | ---------- | ------ |  | --------- | ------ | - |  | - | ------- | -
|                                         |  | NonPlan Options |        | 1996 Plan |   |         | Directors Plan |  | Pollo Plan |        |  | Taco Plan |       
|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 |  
|Granted                                  |  |                 |       |           |   | 71,435  |                |  |            | 500    |  |           | 7,700  |   |  |   | 132,000 |  
|Canceled                                 |  |                 |       |           |   | (511    | )              |  |            |       |  |           | (1,875 | ) |  |   | (21,000 | )
|                                         |  |                 |        |           |   |         |                |  |            |        |  |           |        |   |  |   |         |  
|Outstanding at December 31, 2002         |  |                 | 32,427 |           |   | 180,103 |                |  |            | 3,000  |  |           | 84,075 |   |  |   | 306,000 |  
|Granted                                  |  |                 |       |           |   | 5,250   |                |  |            | 500    |  |           | 6,900  |   |  |   | 99,500  |  
|Cancelled                                |  |                 |       |           |   | (1,705  | )              |  |            |       |  |           | (200   | ) |  |   | (71,500 | )
|                                         |  |                 |        |           |   |         |                |  |            |        |  |           |        |   |  |   |         |  
|Outstanding at December 31, 2003         |  |                 | 32,427 |           |   | 183,648 |                |  |            | 3,500  |  |           | 90,775 |   |  |   | 334,000 |  
|                                         |  |                 |        |           |   |         |                |  |            |        |  |           |        |   |  |   |         |  
|Grant Prices (in whole dollars):         |  |                 |        |           |   |         |                |  |            |        |  |           |        |   |  |   |         |  
|2001                                     |  | $               |       |           | $ | 113.00  |                |  | $          | 113.00 |  | $         |       |   |  | $ | 11.50   |  
|2002                                     |  |                 |       |           |   | 113.00  |                |  |            | 113.00 |  |           | 153.00 |   |  |   | 12.50   |  
|2003                                     |  |                 |       |           |   | 124.00  |                |  |            | 124.00 |  |           | 164.00 |   |  |   | 14.25   |  
|Average Option Price (in whole dollars): |  |                 |        |           |   |         |                |  |            |        |  |           |        |   |  |   |         |  
|At December 31, 2001                     |  | $               | 101.76 |           | $ | 107.51  |                |  | $          | 116.60 |  | $         | 96.60  |   |  | $ | 11.50   |  
|At December 31, 2002                     |  |                 | 101.76 |           |   | 109.65  |                |  |            | 116.00 |  |           | 101.66 |   |  |   | 11.92   |  
|At December 31, 3003                     |  |                 | 101.76 |           |   | 110.00  |                |  |            | 117.14 |  |           | 106.29 |   |  |   | 12.59   |  
|Options Exercisable:                     |  |                 |        |           |   |         |                |  |            |        |  |           |        |   |  |   |         |  
|At December 31, 2001                     |  |                 | 25,943 |           |   | 99,678  |                |  |            | 1,750  |  |           | 48,550 |   |  |   | 39,000  |  
|At December 31, 2002                     |  |                 | 32,427 |           |   | 170,725 |                |  |            | 2,250  |  |           | 62,065 |   |  |   | 96,600  |  
|At December 31, 2003                     |  |                 | 32,427 |           |   | 175,426 |                |  |            | 2,750  |  |           | 77,480 |   |  |   | 141,200 |  



F - 21



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



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 $2,111, $8,579 and ($6,379) for the years ended December 31, 2003, 2002 and 2001, respectively.



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



|                        |  |         |  |         |  |        
|----------------------- |  | ------- |  | ------- |  | -------
|                        |  | 2003    |  | 2002    |  | 2001   
|Risk-free interest rate |  | 3.17%   |  | 4.40%   |  | 4.99%  
|Annual dividend yield   |  | 0%      |  | 0%      |  | 0%     
|Expected life           |  | 5 years |  | 5 years |  | 5 years



11. 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 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.



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.



F - 22



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



|                                             |  |                         |         |                |   |             |  |       |         |  |              |         |   |  |   |        
|-------------------------------------------- |  | ----------------------- | ------- | -------------- | - | ----------- |  | ----- | ------- |  | ------------ | ------- | - |  | - | -------
|                                             |  | Burger King Restaurants |         | Pollo Tropical |   | Taco Cabana |  | Other |         |  | Consolidated
|                                             |  | ($ in thousands)       
|Year Ended December 31, 2003:                |  |                         |         |                |   |             |  |       |         |  |              |         |   |  |   |        
|Revenues                                     |  | $                       | 353,310 |                | $ | 110,194     |  | $     | 181,481 |  | $            |        |   |  | $ | 644,985
|Cost of Sales                                |  |                         | 94,360  |                |   | 33,260      |  |       | 53,562  |  |              |        |   |  |   | 181,182
|Restaurant wages and related expenses        |  |                         | 113,996 |                |   | 28,105      |  |       | 52,214  |  |              |        |   |  |   | 194,315
|Depreciation and amortization                |  |                         | 26,017  |                |   | 4,834       |  |       | 12,222  |  |              | 4,280   |   |  |   | 47,253 
|Income from operations                       |  |                         | 10,870  |                |   | 17,719      |  |       | 12,189  |  |              | (4,280  | ) |  |   | 36,498 
|Identifiable assets                          |  |                         | 208,008 |                |   | 43,612      |  |       | 72,885  |  |              | 162,369 |   |  |   | 486,874
|Capital expenditures, excluding acquisitions |  |                         | 7,845   |                |   | 4,490       |  |       | 16,505  |  |              | 1,404   |   |  |   | 30,244 
|                                             |  |                         |         |                |  
|Year Ended December 31, 2002 (as restated):  |  |                         |         |                |   |             |  |       |         |  |              |         |   |  |   |        
|Revenues                                     |  | $                       | 380,119 |                | $ | 101,497     |  | $     | 175,411 |  | $            |        |   |  | $ | 657,027
|Cost of sales                                |  |                         | 101,851 |                |   | 30,805      |  |       | 51,320  |  |              |        |   |  |   | 183,976
|Restaurant wages and related expenses        |  |                         | 118,754 |                |   | 26,497      |  |       | 51,007  |  |              |        |   |  |   | 196,258
|Depreciation and amortization                |  |                         | 26,858  |                |   | 4,395       |  |       | 8,406   |  |              | 4,392   |   |  |   | 44,051 
|Income from operations                       |  |                         | 16,794  |                |   | 17,988      |  |       | 19,872  |  |              | (4,392  | ) |  |   | 50,262 
|Identifiable assets                          |  |                         | 234,503 |                |   | 53,740      |  |       | 91,347  |  |              | 167,798 |   |  |   | 547,388
|Capital expenditures, excluding acquisitions |  |                         | 26,731  |                |   | 9,257       |  |       | 16,749  |  |              | 1,418   |   |  |   | 54,155 
|                                             |  |                         |         |                |  
|Year Ended December 31, 2001 (as restated):  |  |                         |         |                |   |             |  |       |         |  |              |         |   |  |   |        
|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      |  |       | 51,842  |  |              |        |   |  |   | 192,918
|Depreciation and amortization                |  |                         | 25,767  |                |   | 4,175       |  |       | 8,923   |  |              | 9,101   |   |  |   | 47,966 
|Other expense                                |  |                         |        |                |   |            |  |       | 8,841   |  |              |        |   |  |   | 8,841  
|Income from operations                       |  |                         | 17,452  |                |   | 17,910      |  |       | 8,491   |  |              | (9,101  | ) |  |   | 34,752 
|Identifiable assets                          |  |                         | 238,239 |                |   | 53,584      |  |       | 84,719  |  |              | 175,569 |   |  |   | 552,111
|Capital expenditures, excluding acquisitions |  |                         | 28,992  |                |   | 8,352       |  |       | 8,401   |  |              | 1,830   |   |  |   | 47,575 



12. Contingencies



On November 16, 1998, the Equal Employment Opportunity Commission
(EEOC) filed suit in the United States District Court for the Northern District of New York (the Court), under Title VII of the Civil Rights Act of 1964, as amended, against the Company. The complaint 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 450 individuals
it believes represent the class of claimants. The EEOC is seeking monetary and injunctive relief from the Company.



F - 23



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



On January 15, 2004, the Company filed a renewed Motion for Summary Judgment (the
Motion). The Court held oral argument on the Motion on March 12, 2004 and has taken the Motion under submission. It is not possible to predict whether the Company will prevail on the Motion which, subject to possible appeals by the EEOC,
would effectively end the case. If the Company does not prevail on the Motion the case will proceed to trial. It is too early to make an evaluation of the likelihood of an unfavorable outcome or estimate of the amount or range of potential loss.
Consequently, it is not possible to predict what adverse impact, if any, this case could have on the Companys financial condition or results of operations and cash flows. The Company intends to continue to contest the case vigorously and
believe it is without merit.



The Company is a party to various
other litigation matters incidental to the conduct of its business. The Company does not believe that the outcome of any of these matters will have a material adverse effect on its financial condition or results of operations and cash flows



13. Retirement Plans



Prior to July 1, 2002, the Company offered 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) Plan) and its Taco Cabana employees (the Taco
Cabana Plan).



Effective July 1, 2002, the Company
restated the Carrols Corporation Retirement Savings Plan, and the Pollo Tropical 401(k) Plan and the Taco Cabana Plan merged into the Carrols Corporation Plan. Under the restated plan, the Companys contributions begin to vest after one year
and fully vest after five years of service. A year of service is defined as a plan year during which an employee completes at least 1,000 hours of service. The Companys contributions are equal to 50% of the employees contribution to a
maximum Company contribution of $520 annually. The plan includes a savings option pursuant to section 401(k) of the Internal Revenue Code in addition to a post tax savings option. Participating employees may contribute up to 18% of their salary
annually to either of the savings options, subject to other limitations. The employees have various investment options available under a trust established by the plan. The Carrols Corporation Retirement Savings Plan expense, including Company
contributions, was $471, $468 and $327 for the years ended December 31, 2003, 2002 and 2001, respectively.



Under the Pollo Tropical 401(k) Plan, all employees who were age 21 or older and who had been credited with at least 1,000 hours of service within 12
consecutive months were eligible to participate in the plan. Employees could contribute up to 15% of their salary on a pre-tax basis, and could self-direct contributions to various investment options. The Company made discretionary matching
contributions, which were allocated to participants based on the participants eligible deferrals during the plan year. Company contributions vested at a rate of 33% for each year of service. Company contributions to the Pollo Tropical 401(k)
Plan totaled $21 and $24 for the years ended December 31, 2002 and 2001, respectively.



F - 24



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



Under the Taco Cabana Plan, all employees who were age 21 or older and who had been credited with at
least 1,000 hours of service within 12 consecutive months were eligible to participate in the plan. Employees could contribute up to 15% of their salary on a pre-tax basis and could self-direct contributions to various investment options. During
2000, the plan was modified to include a Company contribution equal to $0.25 for every $1.00 contributed to the plan up to 3% of an employees salary. Company contributions vested at a rate of 20% for each year of service. Company contributions
to the Taco Cabana Plan totaled $2 and $33 for the years ended December 31, 2002 and 2001, respectively.



14. 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, 2003 and 2002:



|                                                |  |      |        |   |      |   |       |  
|----------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | -
|                                                |  | 2003 |        |   | 2002 |  
|Change in benefit obligation:                   |  |      |        |   |      |   |       |  
|Benefit obligation at beginning of the year     |  | $    | 3,331  |   |      | $ | 2,710 |  
|Service cost                                    |  |      | 287    |   |      |   | 223   |  
|Interest cost                                   |  |      | 232    |   |      |   | 195   |  
|Plan participants contributions                |  |      | 2      |   |      |   | 2     |  
|Amendments, curtailments, special terminations  |  |      |       |   |      |   |      |  
|Actuarial loss                                  |  |      | 610    |   |      |   | 333   |  
|Benefits paid                                   |  |      | (152   | ) |      |   | (132  | )
|                                                |  |      |        |   |      |   |       |  
|Benefit obligation at end of the year           |  |      | 4,310  |   |      |   | 3,331 |  
|                                                |  |     
|Change in plan assets:                          |  |      |        |   |      |   |       |  
|Fair value of plan assets at end of year        |  |      |       |   |      |   |      |  
|                                                |  |      |        |   |      |   |       |  
|Funded status                                   |  |      | 4,310  |   |      |   | 3,331 |  
|Unrecognized prior service cost                 |  |      | 133    |   |      |   | 163   |  
|Unrecognized actuarial net loss                 |  |      | (1,481 | ) |      |   | (909  | )
|                                                |  |      |        |   |      |   |       |  
|Accrued benefit cost                            |  | $    | 2,962  |   |      | $ | 2,585 |  
|                                                |  |      |        |   |      |   |       |  
|Weighted average assumptions as of December 31: |  |      |        |   |      |   |       |  
|Discount rate                                   |  |      | 6.15   | % |      |   | 6.75  | %
|                                                |  |      |        |   |      |   |       |  



F - 25



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



For measurement purposes, the 2003 and 2002 annual rates of increase are assumed to be 8.5% and 9%,
respectively, for medical benefits and 12% and 13%, respectively, for prescriptions drug benefits, each rate of increase decreasing gradually to 5% in 2010, and remaining at that level thereafter.



|                                                |  |      |     |   |      |   |     |      |  |   |     |  
|----------------------------------------------- |  | ---- | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                                                |  | 2003 |     |   | 2002 |   |     | 2001 | 
|Components of net periodic benefit cost:        |  |      |     |   |      |   |     |      |  |   |     |  
|Service cost                                    |  | $    | 287 |   |      | $ | 223 |      |  | $ | 167 |  
|Interest cost                                   |  |      | 232 |   |      |   | 195 |      |  |   | 147 |  
|Amortization of gains and losses                |  |      | 37  |   |      |   | 18  |      |  |   |    |  
|Amortization of unrecognized prior service cost |  |      | (30 | ) |      |   | (30 | )    |  |   | (30 | )
|                                                |  |      |     |   |      |   |     |      |  |   |     |  
|Net periodic postretirement benefit cost        |  | $    | 526 |   |      | $ | 406 |      |  | $ | 284 |  
|                                                |  |      |     |   |      |   |     |      |  |   |     |  



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:



|                                                        |  |          |     |          |   |      |  
|------------------------------------------------------- |  | -------- | --- | -------- | - | ---- | -
|                                                        |  | Increase |     | Decrease |  
|Effect on total of service and interest cost components |  | $        | 113 |          | $ | (90  | )
|Effect on postretirement benefit obligation             |  |          | 811 |          |   | (660 | )



F - 26



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



15. 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, 2003
and 2002 and for the years ended December 31, 2003, 2002 and 2001.



For certain of the Companys sale/leaseback transactions, Carrols Corporation has guaranteed on an unsecured basis the rental payments of its subsidiaries. In accordance with Emerging Issues Task Force Issue No. 90-14, Unsecured
Guarantee by Parent of Subsidiarys Lease Payments in a Sale/Leaseback Transaction, the Company has included in the following Guarantor Financial Statements amounts pertaining to these leases as if they were accounted for as financing
transactions of the Guarantor subsidiaries. These adjustments are eliminated in consolidation.



During 2003, the Parent Company entered into an intercompany agreement, retroactive to January 1 2002, to charge interest to the Guarantor Subsidiaries. The retroactive interest recorded in 2003 was $11, 277.



F - 27



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

CONSOLIDATING
BALANCE SHEET

December 31, 2003

(in thousands of dollars)



|                                               |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|---------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | -------- | ------------ |  | - | -------------- | - |  | - | -------
|                                               |  | Parent Company Only |         | Guarantor Subsidiaries |   |          | Eliminations |  |   | Combined Total
|ASSETS                                         |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|Current assets:                                |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|Cash and cash equivalents                      |  | $                   | 708     |                        | $ | 1,706    |              |  | $ |               |   |  | $ | 2,414  
|Trade and other receivables, net               |  |                     | 372     |                        |   | 908      |              |  |   |               |   |  |   | 1,280  
|Inventories                                    |  |                     | 3,413   |                        |   | 1,523    |              |  |   |               |   |  |   | 4,936  
|Prepaid rent                                   |  |                     | 1,309   |                        |   | 1,225    |              |  |   |               |   |  |   | 2,534  
|Prepaid expenses and other current assets      |  |                     | 1,150   |                        |   | 2,893    |              |  |   |               |   |  |   | 4,043  
|Deferred income taxes                          |  |                     | 6,286   |                        |   |         |              |  |   |               |   |  |   | 6,286  
|                                               |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|Total current assets                           |  |                     | 13,238  |                        |   | 8,255    |              |  |   |               |   |  |   | 21,493 
|                                               |  |                     |         |                       
|Property and equipment, net                    |  |                     | 118,489 |                        |   | 142,060  |              |  |   | (24,196        | ) |  |   | 236,353
|Franchise rights, net                          |  |                     | 86,148  |                        |   |         |              |  |   |               |   |  |   | 86,148 
|Intangible assets, net                         |  |                     | 1,473   |                        |   | 123,371  |              |  |   |               |   |  |   | 124,844
|Intercompany receivable (payable)              |  |                     | 147,675 |                        |   | (147,675 | )            |  |   |               |   |  |   |       
|Investment in subsidiaries                     |  |                     | 14,206  |                        |   |         |              |  |   | (14,206        | ) |  |   |       
|Deferred income taxes                          |  |                     | 8,619   |                        |   |         |              |  |   |               |   |  |   | 8,619  
|Other assets                                   |  |                     | 6,163   |                        |   | 4,601    |              |  |   | (1,347         | ) |  |   | 9,417  
|                                               |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|Total assets                                   |  | $                   | 396,011 |                        | $ | 130,612  |              |  | $ | (39,749        | ) |  | $ | 486,874
|                                               |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|Current liabilities:                           |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|Accounts payable                               |  | $                   | 10,918  |                        | $ | 6,312    |              |  | $ |               |   |  | $ | 17,230 
|Accrued interest                               |  |                     | 1,549   |                        |   |         |              |  |   |               |   |  |   | 1,549  
|Accrued payroll, related taxes and benefits    |  |                     | 6,826   |                        |   | 4,719    |              |  |   |               |   |  |   | 11,545 
|Other liabilities                              |  |                     | 6,757   |                        |   | 8,140    |              |  |   |               |   |  |   | 14,897 
|Accrued income taxes payable                   |  |                     | 836     |                        |   |         |              |  |   |               |   |  |   | 836    
|Current portion of long-term debt              |  |                     | 13,758  |                        |   | 247      |              |  |   |               |   |  |   | 14,005 
|Current portion of financing obligations       |  |                     | 1,292   |                        |   | 1,723    |              |  |   | (727           | ) |  |   | 2,288  
|                                               |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|Total current liabilities                      |  |                     | 41,936  |                        |   | 21,141   |              |  |   | (727           | ) |  |   | 62,350 
|                                               |  |                     |         |                       
|Long-term debt, net of current portion         |  |                     | 281,176 |                        |   | 651      |              |  |   |               |   |  |   | 281,827
|Financing obligations, net of current portion  |  |                     | 29,418  |                        |   | 80,290   |              |  |   | (27,311        | ) |  |   | 82,397 
|Deferred income, sale/leaseback of real estate |  |                     | 3,673   |                        |   | 2,192    |              |  |   | 2,976          |   |  |   | 8,841  
|Accrued postretirement benefits                |  |                     | 2,962   |                        |   |         |              |  |   |               |   |  |   | 2,962  
|Other liabilities                              |  |                     | 15,876  |                        |   | 11,621   |              |  |   | 30             |   |  |   | 27,527 
|                                               |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|Total liabilities                              |  |                     | 375,041 |                        |   | 115,895  |              |  |   | (25,032        | ) |  |   | 465,904
|                                               |  |                     |         |                       
|Stockholders equity                           |  |                     | 20,970  |                        |   | 14,717   |              |  |   | (14,717        | ) |  |   | 20,970 
|                                               |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        
|Total liabilities and stockholders equity     |  | $                   | 396,011 |                        | $ | 130,612  |              |  | $ | (39,749        | ) |  | $ | 486,874
|                                               |  |                     |         |                        |   |          |              |  |   |                |   |  |   |        



F - 28



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

CONSOLIDATING
BALANCE SHEET

December 31, 2002

(in thousands of dollars)



|                                               |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|---------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | -------- | ------------ |  | - | --------------------------------- | - |  | - | -------
|                                               |  | Parent Company Only |         | Guarantor Subsidiaries |   |          | Eliminations |  |   | Combined Total As Restated Note 2
|ASSETS                                         |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|Current assets:                                |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|Cash and cash equivalents                      |  | $                   | 715     |                        | $ | 1,823    |              |  | $ |                                  |   |  | $ | 2,538  
|Trade and other receivables, net               |  |                     | 351     |                        |   | 955      |              |  |   |                                  |   |  |   | 1,306  
|Inventories                                    |  |                     | 3,761   |                        |   | 1,479    |              |  |   |                                  |   |  |   | 5,240  
|Prepaid rent                                   |  |                     | 1,229   |                        |   | 998      |              |  |   |                                  |   |  |   | 2,227  
|Prepaid expenses and other current assets      |  |                     | 1,539   |                        |   | 2,843    |              |  |   |                                  |   |  |   | 4,382  
|Refundable income taxes                        |  |                     | 1,253   |                        |   |         |              |  |   |                                  |   |  |   | 1,253  
|Deferred income taxes                          |  |                     | 9,454   |                        |   |         |              |  |   |                                  |   |  |   | 9,454  
|                                               |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|Total current assets                           |  |                     | 18,302  |                        |   | 8,098    |              |  |   |                                  |   |  |   | 26,400 
|                                               |  |                     |         |                       
|Property and equipment, net                    |  |                     | 140,931 |                        |   | 151,872  |              |  |   | (4,515                            | ) |  |   | 288,288
|Franchise rights, net                          |  |                     | 90,620  |                        |   |         |              |  |   |                                  |   |  |   | 90,620 
|Intangible assets, net                         |  |                     | 1,523   |                        |   | 123,523  |              |  |   |                                  |   |  |   | 125,046
|Intercompany receivable (payable)              |  |                     | 171,661 |                        |   | (171,661 | )            |  |   |                                  |   |  |   |       
|Investment in subsidiaries                     |  |                     | 22,293  |                        |   |         |              |  |   | (22,293                           | ) |  |   |       
|Deferred income taxes                          |  |                     | 5,321   |                        |   |         |              |  |   |                                  |   |  |   | 5,321  
|Other assets                                   |  |                     | 7,928   |                        |   | 4,012    |              |  |   | (227                              | ) |  |   | 11,713 
|                                               |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|Total assets                                   |  | $                   | 458,579 |                        | $ | 115,844  |              |  | $ | (27,035                           | ) |  | $ | 547,388
|                                               |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|Current liabilities:                           |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|Accounts payable                               |  | $                   | 10,344  |                        | $ | 5,755    |              |  | $ |                                  |   |  | $ | 16,099 
|Accrued interest                               |  |                     | 1,415   |                        |   |         |              |  |   |                                  |   |  |   | 1,415  
|Accrued payroll, related taxes and benefits    |  |                     | 10,036  |                        |   | 5,094    |              |  |   |                                  |   |  |   | 15,130 
|Other liabilities                              |  |                     | 6,498   |                        |   | 7,917    |              |  |   |                                  |   |  |   | 14,415 
|Current portion of long-term debt              |  |                     | 12,006  |                        |   | 293      |              |  |   |                                  |   |  |   | 12,299 
|Current portion of financing obligations       |  |                     | 1,118   |                        |   | 1,266    |              |  |   | (367                              | ) |  |   | 2,017  
|                                               |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|Total current liabilities                      |  |                     | 41,417  |                        |   | 20,325   |              |  |   | (367                              | ) |  |   | 61,375 
|                                               |  |                     |         |                       
|Long-term debt, net of current portion         |  |                     | 347,151 |                        |   | 895      |              |  |   |                                  |   |  |   | 348,046
|Financing obligations, net of current portion  |  |                     | 30,710  |                        |   | 59,104   |              |  |   | (5,129                            | ) |  |   | 84,685 
|Deferred income, sale/leaseback of real estate |  |                     | 1,628   |                        |   | 146      |              |  |   | 749                               |   |  |   | 2,523  
|Accrued postretirement benefits                |  |                     | 2,585   |                        |   |         |              |  |   |                                  |   |  |   | 2,585  
|Other liabilities                              |  |                     | 16,486  |                        |   | 13,086   |              |  |   |                                  |   |  |   | 29,572 
|                                               |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|Total liabilities                              |  |                     | 439,977 |                        |   | 93,556   |              |  |   | (4,747                            | ) |  |   | 528,786
|                                               |  |                     |         |                       
|Stockholders equity (deficit)                 |  |                     | 18,602  |                        |   | 22,288   |              |  |   | (22,288                           | ) |  |   | 18,602 
|                                               |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        
|Total liabilities and stockholders equity     |  | $                   | 458,579 |                        | $ | 115,844  |              |  | $ | (27,035                           | ) |  | $ | 547,388
|                                               |  |                     |         |                        |   |          |              |  |   |                                   |   |  |   |        



F - 29



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

CONSOLIDATING
STATEMENT OF OPERATIONS

Year Ended December 31, 2003

(in thousands of dollars)



|                                        |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |        
|--------------------------------------- |  | ------------------- | ------- | - | ---------------------- | - | ------- | ------------ |  | - | -------------- | - |  | - | -------
|                                        |  | Parent Company Only |         |   | Guarantor Subsidiaries |   |         | Eliminations |  |   | Combined Total
|Revenues:                               |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |        
|Restaurant sales                        |  | $                   | 353,310 |   |                        | $ | 290,269 |              |  | $ |               |   |  | $ | 643,579
|Franchise and royalty revenues and fees |  |                     |        |   |                        |   | 1,406   |              |  |   |               |   |  |   | 1,406  
|                                        |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |        
|Total revenues                          |  |                     | 353,310 |   |                        |   | 291,675 |              |  |   |               |   |  |   | 644,985
|                                        |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |        
|Costs and expenses:                     |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |        
|Cost of sales                           |  |                     | 94,360  |   |                        |   | 86,822  |              |  |   |               |   |  |   | 181,182
|Restaurant wages and related expenses   |  |                     | 113,996 |   |                        |   | 80,319  |              |  |   |               |   |  |   | 194,315
|Restaurant rent expense                 |  |                     | 20,916  |   |                        |   | 10,467  |              |  |   |               |   |  |   | 31,383 
|Other restaurant operating expenses     |  |                     | 52,302  |   |                        |   | 36,268  |              |  |   | 1,310          |   |  |   | 89,880 
|Advertising expense                     |  |                     | 14,923  |   |                        |   | 12,428  |              |  |   |               |   |  |   | 27,351 
|General and administrative              |  |                     | 20,026  |   |                        |   | 16,292  |              |  |   | 805            |   |  |   | 37,123 
|Depreciation and amortization           |  |                     | 29,284  |   |                        |   | 18,585  |              |  |   | (616           | ) |  |   | 47,253 
|                                        |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |        
|Total operating expenses                |  |                     | 345,807 |   |                        |   | 261,181 |              |  |   | 1,499          |   |  |   | 608,487
|                                        |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |        
|Income from operations                  |  |                     | 7,503   |   |                        |   | 30,494  |              |  |   | (1,499         | ) |  |   | 36,498 
|Interest expense                        |  |                     | 27,582  |   |                        |   | 5,764   |              |  |   | 983            |   |  |   | 32,363 
|Intercompany allocations                |  |                     | (29,502 | ) |                        |   | 29,502  |              |  |   |               |   |  |   |       
|                                        |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |        
|Income (loss) before income taxes       |  |                     | 9,423   |   |                        |   | (4,772  | )            |  |   | (516           | ) |  |   | 4,135  
|Provision for income taxes              |  |                     | (1,033  | ) |                        |   | 2,800   |              |  |   |               |   |  |   | 1,767  
|Equity loss from subsidiaries           |  |                     | (8,088  | ) |                        |   |        |              |  |   | 8,088          |   |  |   |       
|                                        |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |        
|Net income (loss)                       |  | $                   | 2,368   |   |                        | $ | (7,572  | )            |  | $ | 7,572          |   |  | $ | 2,368  
|                                        |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |        



F - 30



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

CONSOLIDATING
STATEMENT OF OPERATIONS

Year Ended December 31, 2002

(in thousands of dollars)



|                                        |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |        
|--------------------------------------- |  | ------------------- | ------- | - | ---------------------- | - | ------------ |  | - | --------------------------------- | - |  | - | -------
|                                        |  | Parent Company Only |         |   | Guarantor Subsidiaries |   | Eliminations |  |   | Combined Total As Restated Note 2
|Revenues:                               |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |        
|Restaurant sales                        |  | $                   | 380,119 |   |                        | $ | 275,426      |  |   |                                  |   |  | $ | 655,545
|Franchise and royalty revenues and fees |  |                     |        |   |                        |   | 1,482        |  |   |                                  |   |  |   | 1,482  
|                                        |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |        
|Total revenues                          |  |                     | 380,119 |   |                        |   | 276,908      |  |   |                                  |   |  |   | 657,027
|                                        |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |        
|Costs and expenses:                     |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |        
|Cost of sales                           |  |                     | 101,851 |   |                        |   | 82,125       |  |   |                                  |   |  |   | 183,976
|Restaurant wages and related expenses   |  |                     | 118,754 |   |                        |   | 77,504       |  |   |                                  |   |  |   | 196,258
|Restaurant rent expense                 |  |                     | 22,155  |   |                        |   | 8,339        |  |   |                                  |   |  |   | 30,494 
|Other restaurant operating expenses     |  |                     | 54,547  |   |                        |   | 32,773       |  |   | 15                                |   |  |   | 87,335 
|Advertising expense                     |  |                     | 16,831  |   |                        |   | 11,210       |  |   |                                  |   |  |   | 28,041 
|General and administrative              |  |                     | 22,329  |   |                        |   | 14,281       |  |   |                                  |   |  |   | 36,610 
|Depreciation and amortization           |  |                     | 30,126  |   |                        |   | 13,933       |  |   | (8                                | ) |  |   | 44,051 
|                                        |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |        
|Total operating expenses                |  |                     | 366,593 |   |                        |   | 240,165      |  |   | 7                                 |   |  |   | 606,765
|                                        |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |        
|Income from operations                  |  |                     | 13,526  |   |                        |   | 36,743       |  |   | (7                                | ) |  |   | 50,262 
|Interest expense                        |  |                     | 30,026  |   |                        |   | 4,941        |  |   | (12                               | ) |  |   | 34,955 
|Intercompany allocations                |  |                     | (6,944  | ) |                        |   | 6,944        |  |   |                                  |   |  |   |       
|                                        |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |        
|Income (loss) before income taxes       |  |                     | (9,556  | ) |                        |   | 24,858       |  |   | 5                                 |   |  |   | 15,307 
|Provision (benefit) for income taxes    |  |                     | (3,841  | ) |                        |   | 9,434        |  |   |                                  |   |  |   | 5,593  
|Equity income from subsidiaries         |  |                     | 15,429  |   |                        |   |             |  |   | (15,429                           | ) |  |   |       
|                                        |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |        
|Net income (loss)                       |  | $                   | 9,714   |   |                        | $ | 15,424       |  | $ | (15,424                           | ) |  | $ | 9,714  
|                                        |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |        



F - 31



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

CONSOLIDATING
STATEMENT OF OPERATIONS

Year Ended December 31, 2001

(in thousands of dollars)



|                                      |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |         |  
|------------------------------------- |  | ------------------- | ------- | - | ---------------------- | - | ------------ |  | - | --------------------------------- | - |  | - | ------- | -
|                                      |  | Parent Company Only |         |   | Guarantor Subsidiaries |   | Eliminations |  |   | Combined Total As Restated Note 2 |  
|Revenues:                             |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |         |  
|Restaurant sales                      |  | $                   | 380,875 |   |                        | $ | 273,835      |  |   |                                  |   |  | $ | 654,710 |  
|Franchise royalty revenues and fees   |  |                     |        |   |                        |   | 1,579        |  |   |                                  |   |  |   | 1,579   |  
|                                      |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |         |  
|Total revenues                        |  |                     | 380,875 |   |                        |   | 275,414      |  |   |                                  |   |  |   | 656,289 |  
|                                      |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |         |  
|Costs and expenses:                   |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |         |  
|Cost of sales                         |  |                     | 107,054 |   |                        |   | 82,893       |  |   |                                  |   |  |   | 189,947 |  
|Restaurant wages and related expenses |  |                     | 117,115 |   |                        |   | 75,803       |  |   |                                  |   |  |   | 192,918 |  
|Restaurant rent expense               |  |                     | 22,380  |   |                        |   | 8,827        |  |   |                                  |   |  |   | 31,207  |  
|Other restaurant operating expenses   |  |                     | 54,289  |   |                        |   | 32,146       |  |   |                                  |   |  |   | 86,435  |  
|Advertising expense                   |  |                     | 16,236  |   |                        |   | 12,594       |  |   |                                  |   |  |   | 28,830  |  
|General and administrative            |  |                     | 20,582  |   |                        |   | 14,811       |  |   |                                  |   |  |   | 35,393  |  
|Depreciation and amortization         |  |                     | 28,894  |   |                        |   | 19,072       |  |   |                                  |   |  |   | 47,966  |  
|Other expense                         |  |                     |        |   |                        |   | 8,841        |  |   |                                  |   |  |   | 8,841   |  
|                                      |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |         |  
|Total operating expenses              |  |                     | 366,550 |   |                        |   | 254,987      |  |   |                                  |   |  |   | 621,537 |  
|                                      |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |         |  
|Income from operations                |  |                     | 14,325  |   |                        |   | 20,427       |  |   |                                  |   |  |   | 34,752  |  
|Interest expense                      |  |                     | 35,282  |   |                        |   | 5,270        |  |   |                                  |   |  |   | 40,552  |  
|Intercompany allocations              |  |                     | (6,947  | ) |                        |   | 6,947        |  |   |                                  |   |  |   |        |  
|                                      |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |         |  
|Income (loss) before income taxes     |  |                     | (14,010 | ) |                        |   | 8,210        |  |   |                                  |   |  |   | (5,800  | )
|Provision (benefit) for income taxes  |  |                     | (5,244  | ) |                        |   | 5,518        |  |   |                                  |   |  |   | 274     |  
|Equity income from subsidiaries       |  |                     | 2,692   |   |                        |   |             |  |   | (2,692                            | ) |  |   |        |  
|                                      |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |         |  
|Net income (loss)                     |  | $                   | (6,074  | ) |                        | $ | 2,692        |  | $ | (2,692                            | ) |  | $ | (6,074  | )
|                                      |  |                     |         |   |                        |   |              |  |   |                                   |   |  |   |         |  



F - 32



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

CONSOLIDATING
STATEMENT OF CASH FLOWS

Year Ended December 31, 2003

(in thousands of dollars)



|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------- | ------- | - | ---------------------- | - | ------- | ------------ |  | - | -------------- | - |  | - | ------- | -
|                                                                                           |  | Parent Company Only |         |   | Guarantor Subsidiaries |   |         | Eliminations |  |   | Combined Total |  
|Cash flows provided from (used for) operating activities:                                  |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Net income (loss)                                                                          |  | $                   | 10,456  |   |                        | $ | (7,572  | )            |  | $ | (516           | ) |  | $ | 2,368   |  
|Adjustments to reconcile net income (loss) to net cash provided from operating activities: |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|(Gain)/loss on disposal of property and equipment                                          |  |                     | (837    | ) |                        |   | (354    | )            |  |   | 805            |   |  |   | (386    | )
|Depreciation and amortization                                                              |  |                     | 29,284  |   |                        |   | 18,585  |              |  |   | (616           | ) |  |   | 47,253  |  
|Deferred income taxes                                                                      |  |                     | (130    | ) |                        |   |        |              |  |   |               |   |  |   | (130    | )
|Changes in operating assets and liabilities                                                |  |                     | 23,186  |   |                        |   | (23,991 | )            |  |   | (61            | ) |  |   | (866    | )
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Net cash provided from (used for) operating activities                                     |  |                     | 61,959  |   |                        |   | (13,332 | )            |  |   | (388           | ) |  |   | 48,239  |  
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Cash flow used for investing activities:                                                   |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Capital expenditures:                                                                      |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|New restaurant development                                                                 |  |                     | (2,631  | ) |                        |   | (15,967 | )            |  |   |               |   |  |   | (18,598 | )
|Restaurant remodeling                                                                      |  |                     | (3,170  | ) |                        |   | (147    | )            |  |   |               |   |  |   | (3,317  | )
|Other restaurant expenditures                                                              |  |                     | (2,044  | ) |                        |   | (4,881  | )            |  |   |               |   |  |   | (6,925  | )
|Corporate information systems                                                              |  |                     | (850    | ) |                        |   | (554    | )            |  |   |               |   |  |   | (1,404  | )
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Total capital expenditures                                                                 |  |                     | (8,695  | ) |                        |   | (21,549 | )            |  |   |               |   |  |   | (30,244 | )
|Purchased properties for sale/leaseback                                                    |  |                     |        |   |                        |   | (3,149  | )            |  |   |               |   |  |   | (3,149  | )
|Proceeds from sales of non-operating properties                                            |  |                     | 1,251   |   |                        |   | 2,670   |              |  |   |               |   |  |   | 3,921   |  
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Net cash used for investing activities                                                     |  |                     | (7,444  | ) |                        |   | (22,028 | )            |  |   |               |   |  |   | (29,472 | )
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Cash flows provided from (used for) financing activities:                                  |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Payments from revolving credit facility, net                                               |  |                     | (52,200 | ) |                        |   |        |              |  |   |               |   |  |   | (52,200 | )
|Principal payments on term loans                                                           |  |                     | (11,000 | ) |                        |   |        |              |  |   |               |   |  |   | (11,000 | )
|Principal payments on financing obligations                                                |  |                     | (1,118  | ) |                        |   | (899    | )            |  |   |               |   |  |   | (2,017  | )
|Payments on other notes payable, net                                                       |  |                     | (847    | ) |                        |   |        |              |  |   |               |   |  |   | (847    | )
|Principal payments on capital leases                                                       |  |                     | (155    | ) |                        |   | (291    | )            |  |   |               |   |  |   | (446    | )
|Proceeds from financing obligations, net                                                   |  |                     |        |   |                        |   | 22,542  |              |  |   | (22,542        | ) |  |   |        |  
|Financing costs associated with financing obligation                                       |  |                     |        |   |                        |   | (1,159  | )            |  |   | 1,159          |   |  |   |        |  
|Proceeds from sale/leaseback transactions                                                  |  |                     | 10,872  |   |                        |   | 14,976  |              |  |   | 21,771         |   |  |   | 47,619  |  
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Net cash provided from (used for) financing activities                                     |  |                     | (54,448 | ) |                        |   | 35,169  |              |  |   | 388            |   |  |   | (18,891 | )
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                       |  |                     | 67      |   |                        |   | (191    | )            |  |   |               |   |  |   | (124    | )
|Cash and cash equivalents, beginning of year                                               |  |                     | 715     |   |                        |   | 1,823   |              |  |   |               |   |  |   | 2,538   |  
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  
|Cash and cash equivalents, end of year                                                     |  | $                   | 782     |   |                        | $ | 1,632   |              |  | $ |               |   |  | $ | 2,414   |  
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                |   |  |   |         |  



F - 33



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

CONSOLIDATING
STATEMENT OF CASH FLOWS

Year Ended December 31, 2002

(in thousands of dollars)



|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------- | ------- | - | ---------------------- | - | ------- | ------------ |  | - | --------------------------------- | - |  | - | ------- | -
|                                                                                           |  | Parent Company Only |         |   | Guarantor Subsidiaries |   |         | Eliminations |  |   | Combined Total As Restated Note 2 |  
|Cash flows provided from operating activities:                                             |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Net income (loss)                                                                          |  | $                   | (5,715  | ) |                        | $ | 15,424  |              |  | $ | 5                                 |   |  | $ | 9,714   |  
|Adjustments to reconcile net income (loss) to net cash provided from operating activities: |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Loss on disposal of property and equipment                                                 |  |                     |        |   |                        |   | 24      |              |  |   |                                  |   |  |   | 24      |  
|Depreciation and amortization                                                              |  |                     | 30,126  |   |                        |   | 13,933  |              |  |   | (8                                | ) |  |   | 44,051  |  
|Deferred income taxes                                                                      |  |                     | 5,553   |   |                        |   |        |              |  |   |                                  |   |  |   | 5,553   |  
|Changes in operating assets and liabilities                                                |  |                     | 5,472   |   |                        |   | (8,848  | )            |  |   | (2                                | ) |  |   | (3,378  | )
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Net cash provided from operating activities                                                |  |                     | 35,436  |   |                        |   | 20,533  |              |  |   | (5                                | ) |  |   | 55,964  |  
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Cash flow used for investing activities:                                                   |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Capital expenditures:                                                                      |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|New restaurant development                                                                 |  |                     | (9,113  | ) |                        |   | (18,352 | )            |  |   |                                  |   |  |   | (27,465 | )
|Restaurant remodeling                                                                      |  |                     | (12,699 | ) |                        |   | (3,555  | )            |  |   |                                  |   |  |   | (16,254 | )
|Corporate and information systems                                                          |  |                     | (651    | ) |                        |   | (767    | )            |  |   |                                  |   |  |   | (1,418  | )
|Other restaurant expenditures                                                              |  |                     | (4,919  | ) |                        |   | (4,099  | )            |  |   |                                  |   |  |   | (9,018  | )
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Total capital expenditures                                                                 |  |                     | (27,382 | ) |                        |   | (26,773 | )            |  |   |                                  |   |  |   | (54,155 | )
|Purchased properties for sale/leaseback                                                    |  |                     | (925    | ) |                        |   |        |              |  |   |                                  |   |  |   | (925    | )
|Proceeds from dispositions of property and equipment                                       |  |                     | 9       |   |                        |   |        |              |  |   |                                  |   |  |   | 9       |  
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Net cash used for investing activities                                                     |  |                     | (28,298 | ) |                        |   | (26,773 | )            |  |   |                                  |   |  |   | (55,071 | )
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Cash flows provided from (used for) financing activities:                                  |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Proceeds on revolving credit facility, net                                                 |  |                     | (2,700  | ) |                        |   |        |              |  |   |                                  |   |  |   | (2,700  | )
|Principal payments on term loans                                                           |  |                     | (8,500  | ) |                        |   |        |              |  |   |                                  |   |  |   | (8,500  | )
|Principal payments on financing obligation                                                 |  |                     | (996    | ) |                        |   | (773    | )            |  |   |                                  |   |  |   | (1,769  | )
|Proceeds on other notes payable, net                                                       |  |                     | (978    | ) |                        |   |        |              |  |   |                                  |   |  |   | (978    | )
|Principal payments on capital leases                                                       |  |                     | (284    | ) |                        |   | (267    | )            |  |   |                                  |   |  |   | (551    | )
|Proceeds from financing obligations                                                        |  |                     |        |   |                        |   | 5,495   |              |  |   | (5,495                            | ) |  |   |        |  
|Financing costs associated with financing obligations                                      |  |                     |        |   |                        |   | (227    | )            |  |   | 227                               |   |  |   |        |  
|Proceeds from sale/leaseback transactions                                                  |  |                     | 6,114   |   |                        |   | 2,351   |              |  |   | 5,273                             |   |  |   | 13,738  |  
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Net cash provided from (used for) financing activities                                     |  |                     | (7,344  | ) |                        |   | 6,579   |              |  |   | 5                                 |   |  |   | (760    | )
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                       |  |                     | (206    | ) |                        |   | 339     |              |  |   |                                  |   |  |   | 133     |  
|Cash and cash equivalents, beginning of year                                               |  |                     | 921     |   |                        |   | 1,484   |              |  |   |                                  |   |  |   | 2,405   |  
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  
|Cash and cash equivalents, end of year                                                     |  | $                   | 715     |   |                        | $ | 1,823   |              |  | $ |                                  |   |  | $ | 2,538   |  
|                                                                                           |  |                     |         |   |                        |   |         |              |  |   |                                   |   |  |   |         |  



F - 34



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

CONSOLIDATING
STATEMENT OF CASH FLOWS

Year Ended December 31, 2001

(in thousands of dollars)



|                                                                                           |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------- | ------- | - | ---------------------- | - | ------- | --------------------------------- |  | - | ------- | -
|                                                                                           |  | Parent Company Only |         |   | Guarantor Subsidiaries |   |         | Combined Total As Restated Note 2 | 
|Cash flows provided from operating activities:                                             |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Net income (loss)                                                                          |  | $                   | (8,766  | ) |                        | $ | 2,692   |                                   |  | $ | (6,074  | )
|Adjustments to reconcile net income (loss) to net cash provided from operating activities: |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Loss on disposal of property and equipment                                                 |  |                     |        |   |                        |   | 390     |                                   |  |   | 390     |  
|Other expense (Note 6)                                                                     |  |                     |        |   |                        |   | 7,053   |                                   |  |   | 7,053   |  
|Depreciation and amortization                                                              |  |                     | 28,894  |   |                        |   | 19,072  |                                   |  |   | 47,966  |  
|Deferred income taxes                                                                      |  |                     | (1,688  | ) |                        |   |        |                                   |  |   | (1,688  | )
|Changes in operating assets and liabilities                                                |  |                     | 11,445  |   |                        |   | (11,124 | )                                 |  |   | 321     |  
|                                                                                           |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Net cash provided from operating activities                                                |  |                     | 29,885  |   |                        |   | 18,083  |                                   |  |   | 47,968  |  
|                                                                                           |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Cash flow used for investing activities:                                                   |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Capital expenditures:                                                                      |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|New restaurant development                                                                 |  |                     | (3,163  | ) |                        |   | (11,362 | )                                 |  |   | (14,525 | )
|Restaurant remodeling                                                                      |  |                     | (21,895 | ) |                        |   |        |                                   |  |   | (21,895 | )
|Corporate and restaurant information systems                                               |  |                     | (1,007  | ) |                        |   | (445    | )                                 |  |   | (1,452  | )
|Other restaurant expenditures                                                              |  |                     | (3,923  | ) |                        |   | (5,780  | )                                 |  |   | (9,703  | )
|Acquisition of Burger King restaurants                                                     |  |                     | (1,612  | ) |                        |   |        |                                   |  |   | (1,612  | )
|                                                                                           |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Total capital expenditures                                                                 |  |                     | (31,600 | ) |                        |   | (17,587 | )                                 |  |   | (49,187 | )
|Proceeds from dispositions of property and equipment                                       |  |                     | 31      |   |                        |   |        |                                   |  |   | 31      |  
|                                                                                           |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Net cash used for investing activities                                                     |  |                     | (31,569 | ) |                        |   | (17,587 | )                                 |  |   | (49,156 | )
|                                                                                           |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Cash flows provided from (used for) financing activities:                                  |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Proceeds on revolving credit facility, net                                                 |  |                     | 9,900   |   |                        |   |        |                                   |  |   | 9,900   |  
|Principal payments and retirements of term loans                                           |  |                     | (7,000  | ) |                        |   |        |                                   |  |   | (7,000  | )
|Principal payments on financing obligations                                                |  |                     | (836    | ) |                        |   | (697    | )                                 |  |   | (1,533  | )
|Proceeds from other notes payable, net                                                     |  |                     | 127     |   |                        |   |        |                                   |  |   | 127     |  
|Principal payments on capital leases                                                       |  |                     | (282    | ) |                        |   | (242    | )                                 |  |   | (524    | )
|Financing costs associated with issuance of debt                                           |  |                     | (89     | ) |                        |   |        |                                   |  |   | (89     | )
|                                                                                           |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Net cash provided from (used for) financing activities                                     |  |                     | 1,820   |   |                        |   | (939    | )                                 |  |   | 881     |  
|                                                                                           |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                       |  |                     | 136     |   |                        |   | (443    | )                                 |  |   | (307    | )
|Cash and cash equivalents, beginning of year                                               |  |                     | 785     |   |                        |   | 1,927   |                                   |  |   | 2,712   |  
|                                                                                           |  |                     |         |   |                        |   |         |                                   |  |   |         |  
|Cash and cash equivalents, end of year                                                     |  | $                   | 921     |   |                        | $ | 1,484   |                                   |  | $ | 2,405   |  
|                                                                                           |  |                     |         |   |                        |   |         |                                   |  |   |         |  



F - 35



---

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Years Ended
December 31, 2003, 2002 and 2001

(in thousands of dollars)



Note 16.  Selected Quarterly Financial Data (Unaudited) (1)



|                  |  |                      |         |   |            |   |              |                      |  |                 |         |                      |   |            |  |   |                      |  |   |            |   |  |   |         |   |  |   |         |  
|----------------- |  | -------------------- | ------- | - | ---------- | - | ------------ | -------------------- |  | --------------- | ------- | -------------------- | - | ---------- |  | - | -------------------- |  | - | ---------- | - |  | - | ------- | - |  | - | ------- | -
|                  |  | Quarter Ended        |        
|2003              |  | March 31             |         |   | June 30    |   | September 30 |                      |  | December 31     |        
|                  |  | AsPreviouslyReported |         |   | AsRestated |   |              | AsPreviouslyReported |  | AsRestated      |         | AsPreviouslyReported |   | AsRestated |  |   |                      |  |   |            |  
|Total revenues    |  | $                    | 152,240 |   |            | $ | 152,240      |                      |  | $               | 165,621 |                      | $ | 165,621    |  | $ | 166,195              |  | $ | 166,195    |   |  |   |         |   |  | $ | 160,929 |  
|Gross profit (2)  |  |                      | 26,312  |   |            |   | 26,312       |                      |  |                 | 32,738  |                      |   | 32,738     |  |   | 32,208               |  |   | 32,208     |   |  |   |         |   |  |   | 29,616  |  
|Net income (loss) |  |                      | (935    | ) |            |   | (1,340       | )                    |  |                 | 2,721   |                      |   | 2,323      |  |   | 1,187                |  |   | 795        |   |  |   |         |   |  |   | 590     |  
|                  | 
|                  |  | Quarter Ended        |        
|2002              |  | March 31             |         |   | June 30    |   | September 30 |                      |  | December 31     |        
|                  |  | AsPreviouslyReported |         |   | AsRestated |   |              | AsPreviouslyReported |  | AsRestated      |         | AsPreviouslyReported |   | AsRestated |  |   | AsPreviouslyReported |  |   | AsRestated |  
|Total revenues    |  | $                    | 157,807 |   |            | $ | 157,807      |                      |  | $               | 173,373 |                      | $ | 173,373    |  | $ | 167,580              |  | $ | 167,580    |   |  | $ | 158,267 |   |  | $ | 158,267 |  
|Gross profit (2)  |  |                      | 29,965  |   |            |   | 29,965       |                      |  |                 | 37,347  |                      |   | 37,347     |  |   | 32,954               |  |   | 32,954     |   |  |   | 30,657  |   |  |   | 30,657  |  
|Net income        |  |                      | 736     |   |            |   | 249          |                      |  |                 | 5,305   |                      |   | 4,825      |  |   | 3,190                |  |   | 2,720      |   |  |   | 2,373   |   |  |   | 1,920   |  
|                  | 
|                  |  | Quarter Ended        |        
|2001              |  | March 31             |         |   | June 30    |   | September 30 |                      |  | December 31 (3) |        
|                  |  | AsPreviouslyReported |         |   | AsRestated |   |              | AsPreviouslyReported |  | AsRestated      |         | AsPreviouslyReported |   | AsRestated |  |   | AsPreviouslyReported |  |   | AsRestated |  
|Total revenues    |  | $                    | 155,112 |   |            | $ | 155,112      |                      |  | $               | 167,037 |                      | $ | 167,037    |  | $ | 170,531              |  | $ | 170,531    |   |  | $ | 163,609 |   |  | $ | 163,609 |  
|Gross profit (2)  |  |                      | 27,938  |   |            |   | 27,938       |                      |  |                 | 34,198  |                      |   | 34,198     |  |   | 32,324               |  |   | 32,324     |   |  |   | 32,492  |   |  |   | 32,492  |  
|Net income (loss) |  |                      | (1,532  | ) |            |   | (2,068       | )                    |  |                 | 1,856   |                      |   | 1,326      |  |   | 420                  |  |   | (105       | ) |  |   | (4,708  | ) |  |   | (5,227  | )

---

|(1) | See Note 2 regarding the restatement of previously issued financial statements.
|--- | -------------------------------------------------------------------------------

|(2) | Gross profit is defined as total revenues less cost of sales, restaurant wages and related expenses, other restaurant operating expenses and advertising expenses.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 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 any further
restaurant development in that market.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 36



---

CARROLS CORPORATION AND SUBSIDIARIES

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2003, 2002 and 2001

(in thousands of dollars)



|                                               |  |                                |     |                               |   |            |  |   |                        |      |  |   |    
|---------------------------------------------- |  | ------------------------------ | --- | ----------------------------- | - | ---------- |  | - | ---------------------- | ---- |  | - | ---
|Col. A                                         |  | Col. B                         |     | Col. C                        |   | Col. D     |  |   | Col. E                
|Description                                    |  | Balance at Beginning of Period |     | Charged to Costs and Expenses |   | Deductions |  |   | Balance at EndofPeriod
|Year ended December 31, 2003:                  |  |                                |     |                               |   |            |  |   |                        |      |  |   |    
|Reserve for doubtful trade accounts receivable |  | $                              | 128 |                               | $ |           |  | $ | (34                    | )(c) |  | $ | 94 
|Reserve for note receivable (a)                |  |                                |    |                               |   |           |  |   |                       |      |  |   |   
|Reserve for inventory (b)                      |  |                                | 108 |                               |   |           |  |   | (102                   | )    |  |   | 6  
|                                               |  |                                |     |                              
|Year ended December 31, 2002:                  |  |                                |     |                               |   |            |  |   |                        |      |  |   |    
|Reserve for doubtful trade accounts receivable |  | $                              | 128 |                               | $ |           |  | $ |                       |      |  | $ | 128
|Reserve for note receivable (a)                |  |                                | 238 |                               |   |           |  |   | (238                   | )    |  |   |   
|Reserve for inventory (b)                      |  |                                | 82  |                               |   | 82         |  |   | (56                    | )    |  |   | 108
|                                               |  |                                |     |                              
|Year ended December 31, 2001:                  |  |                                |     |                               |   |            |  |   |                        |      |  |   |    
|Reserve for doubtful trade accounts receivable |  | $                              | 130 |                               | $ | 31         |  | $ | (33                    | )(c) |  | $ | 128
|Reserve for note receivable (a)                |  |                                | 238 |                               |   |           |  |   |                       |      |  |   | 238
|Reserve for inventory (b)                      |  |                                | 150 |                               |   | 12         |  |   | (80                    | )    |  |   | 82 

---

|(a) | Included in other assets.
|--- | -------------------------

|(b) | Included in inventory.
|--- | ----------------------

|(c) | Represents write-offs of accounts.
|--- | ----------------------------------



F - 37



---

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 6th day of May 2004.



CARROLS CORPORATIONBy:

/s/ Alan VituliAlan Vituli,Chairman of the Board 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 VituliAlan Vituli                     |  | Director, Chairman of the Board and Chief Executive Officer |  | May 6, 2004
|                                               |  |                                                            
|/s/ Daniel T. AccordinoDaniel T. Accordino     |  | President, Chief Operating Officer and Director             |  | May 6, 2004
|                                               |  |                                                            
|/s/ Paul R. FlandersPaul R. Flanders           |  | Vice President  Chief Financial Officer and Treasurer      |  | May 6, 2004
|                                               |  |                                                            
|/s/ Timothy J. LaLondeTimothy J. LaLonde       |  | Vice President  Controller                                 |  | May 6, 2004
|                                               |  |                                                            
|/s/ Benjamin D. ChereskinBenjamin D. Chereskin |  | Director                                                    |  | May 6, 2004
|                                               |  |                                                            
|/s/ Robin P. SelatiRobin P. Selati             |  | Director                                                    |  | May 6, 2004
|                                               |  |                                                            
|/s/ Clayton E. WilhiteClayton E. Wilhite       |  | Director                                                    |  | May 6, 2004
|                                               |  |                                                            
|Brian F. Gleason                               |  | Director                                                    |  | May 6, 2004
|                                               |  |                                                            
|Olaseni Adeyemi Sonuga                         |  | Director                                                    |  | May 6, 2004