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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)

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

For the quarterly period ended October 5, 2003

OR

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

For the transition period fromto .

Commission file number 333-57925

The Restaurant Company

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 62-1254388                          
|                                                              
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification no.)

|                                           |  |  |            | 
|------------------------------------------ |  |  | ---------- | 
|6075 Poplar Avenue, Suite 800, Memphis, TN |  |  | 38119      | 
|                                          
|(Address of principal executive offices)   |  |  | (Zip code) | 

(901) 766-6400

(Registrants telephone number, including area code)


Indicate by üwhether 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 üNo

Indicate by üwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes   No ü

Number of shares of common stock outstanding: 10,820.

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TABLE OF CONTENTS



|                                             |                                                                                                                                           |  |  |  |  |  |  | 
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I - FINANCIAL INFORMATION              
|                                             | ITEM 1. FINANCIAL STATEMENTS                                                                                                             
|                                             | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THIRD QUARTER ENDED OCTOBER 5, 2003
|                                             | ITEM 4. CONTROLS AND PROCEDURES                                                                                                          
|PART II  OTHER INFORMATION                 
|                                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                                                                 
|Signature                                   
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO



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##### Table of Contents






PART I - FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS
THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands)


|                                                    |                             |   |            |        |            |   |            |        |            |   |         |         |  |   |         |         | 
|--------------------------------------------------- | --------------------------- | - | ---------- | ------ | ---------- | - | ---------- | ------ | ---------- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                    |                             |   | Quarter    |        | Quarter    |   | Year-to-   |        | Year-to-  
|                                                    |                             |   | Ended      |        | Ended      |   | Date       |        | Date      
|                                                    |                             |   | October 5, |        | October 6, |   | October 5, |        | October 6,
|                                                    |                             |   | 2003       |        | 2002       |   | 2003       |        | 2002      
|                                                    |                             |   |            |        |            |   |            |        |           
|REVENUES:                                           |                             |   |            |        |            |   |            |        |            |   |         |         |  |   |         |        
|                                                    | Food sales                  |   | $          | 71,731 |            |   | $          | 72,906 |            |   | $       | 237,749 |  |   | $       | 243,952 | 
|                                                    | Franchise and other revenue |   |            | 5,313  |            |   |            | 5,299  |            |   |         | 16,908  |  |   |         | 17,353  | 
|                                                    |                             |   |            |        |            |   |            |        |            |   |         |         |  |   |         |         | 
|Total Revenues                                      |                             |   | 77,044     |        |            |   | 78,205     |        |            |   | 254,657 |         |  |   | 261,305 |        
|                                                    |                             |   |            |        |            |   |            |        |            |   |         |         |  |   |         |        
|COSTS AND EXPENSES:                                 |                             |   |            |        |            |   |            |        |            |   |         |         |  |   |         |        
|Cost of sales (excluding depreciation shown below): |                             |   |            |        |            |   |            |        |            |   |         |         |  |   |         |        
|                                                    | Food cost                   |   |            | 20,269 |            |   |            | 19,979 |            |   |         | 67,522  |  |   |         | 67,411  | 
|                                                    | Labor and benefits          |   |            | 25,350 |            |   |            | 24,810 |            |   |         | 84,372  |  |   |         | 85,383  | 
|                                                    | Operating expenses          |   |            | 14,826 |            |   |            | 15,608 |            |   |         | 49,731  |  |   |         | 50,721  | 
|General and administrative                          |                             |   | 6,681      |        |            |   | 6,563      |        |            |   | 22,468  |         |  |   | 23,275  |        
|Depreciation and amortization                       |                             |   | 3,977      |        |            |   | 4,843      |        |            |   | 13,898  |         |  |   | 16,614  |        
|Interest, net                                       |                             |   | 3,648      |        |            |   | 4,095      |        |            |   | 12,692  |         |  |   | 13,844  |        
|Provision for (benefit from)
disposition of assets  |                             |   | 190        |        |            |   | (496       | )      |            |   | 245     |         |  |   | (466    | )      
|Loss on lease termination                           |                             |   | 761        |        |            |   |           |        |            |   | 761     |         |  |   |        |        
|Asset write-down                                    |                             |   |           |        |            |   | 1,027      |        |            |   | 150     |         |  |   | 1,027   |        
|Other, net                                          |                             |   | (50        | )      |            |   | (70        | )      |            |   | (337    | )       |  |   | (433    | )      
|                                                    |                             |   |            |        |            |   |            |        |            |   |         |         |  |   |         |         | 
|Total Costs and Expenses                            |                             |   | 75,652     |        |            |   | 76,359     |        |            |   | 251,502 |         |  |   | 257,376 |        
|                                                    |                             |   |            |        |            |   |            |        |            |   |         |         |  |   |         |        
|Income before income taxes                          |                             |   | 1,392      |        |            |   | 1,846      |        |            |   | 3,155   |         |  |   | 3,929   |        
|Provision for income taxes                          |                             |   | (216       | )      |            |   | (154       | )      |            |   | (598    | )       |  |   | (758    | )      
|                                                    |                             |   |            |        |            |   |            |        |            |   |         |         |  |   |         |        
|NET INCOME                                          |                             | $ | 1,176      |        |            | $ | 1,692      |        |            | $ | 2,557   |         |  | $ | 3,171   |        
|                                                    |                             |   |            |        |            |   |            |        |            |   |         |         |  |   |         |        

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

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THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)

|                                                                                  |                      |        |         |             |  |              |         |        |  | 
|--------------------------------------------------------------------------------- | -------------------- | ------ | ------- | ----------- |  | ------------ | ------- | ------ |  | 
|                                                                                  |                      |        |         | October 5,  |  |              |         |       
|                                                                                  |                      |        |         | 2003        |  | December 29,
|                                                                                  |                      |        |         | (Unaudited) |  | 2002        
|                                                                                  |                      |        |         |             |  |             
|                                                                                  |                      | ASSETS |         |             |  |              |         |        |  | 
|CURRENT ASSETS:                                                                   |                      |        |         |             |  |              |         |       
|Cash and cash equivalents                                                         |                      | $      | 5,039   |             |  | $            | 5,813   |       
|Restricted cash                                                                   |                      |        | 6,036   |             |  |              |        |       
|Receivables, less allowance for
doubtful accounts of $960 and $1,041              |                      |        | 9,188   |             |  |              | 9,671   |       
|Inventories, at the lower of first-in, first-out cost or market                   |                      |        | 6,572   |             |  |              | 5,182   |       
|Prepaid expenses and other current assets                                         |                      |        | 1,354   |             |  |              | 1,977   |       
|Deferred income taxes                                                             |                      |        | 721     |             |  |              | 721     |       
|                                                                                  |                      |        |         |             |  |              |         |       
|                                                                                  | Total current assets |        |         | 28,910      |  |              |         | 23,364 | 
|                                                                                  |                      |        |         |             |  |              |         |       
|PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization |                      |        | 119,964 |             |  |              | 126,985 |       
|GOODWILL                                                                          |                      |        | 27,035  |             |  |              | 27,035  |       
|INTANGIBLE ASSETS, net of accumulated
amortization of $5,115 and $4,581           |                      |        | 4,203   |             |  |              | 4,737   |       
|DEFERRED INCOME TAXES                                                             |                      |        | 9,209   |             |  |              | 9,209   |       
|OTHER ASSETS                                                                      |                      |        | 7,042   |             |  |              | 7,354   |       
|                                                                                  |                      |        |         |             |  |              |         |       
|                                                                                  |                      | $      | 196,363 |             |  | $            | 198,684 |       
|                                                                                  |                      |        |         |             |  |              |         |       

The accompanying notes are an integral part of these consolidated balance sheets.

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THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par and Share Amounts)

|                                                                                       |                                          |                                          |                           |       |             |        |              |      |   |        | 
|-------------------------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------- | ------------------------- | ----- | ----------- | ------ | ------------ | ---- | - | ------ | 
|                                                                                       |                                          |                                          |                           |       | October 5,  |        |              |      |  
|                                                                                       |                                          |                                          |                           |       | 2003        |        | December 29,
|                                                                                       |                                          |                                          |                           |       | (Unaudited) |        | 2002        
|                                                                                       |                                          |                                          |                           |       |             |        |             
|                                                                                       |                                          | LIABILITIES AND STOCKHOLDERS INVESTMENT |                           |       |             |        |              |      |   |       
|CURRENT LIABILITIES:                                                                   |                                          |                                          |                           |       |             |        |              |     
|Current maturities of long-term debt and capital lease obligations                     |                                          | $                                        | 521                       |       |             | $      | 9,489        |     
|Accounts payable                                                                       |                                          |                                          | 10,614                    |       |             |        | 14,132       |     
|Franchise advertising contributions                                                    |                                          |                                          | 3,842                     |       |             |        |             |     
|Accrued expenses                                                                       |                                          |                                          | 23,088                    |       |             |        | 17,849       |     
|                                                                                       |                                          |                                          |                           |       |             |        |              |     
|                                                                                       |                                          |                                          | Total current liabilities |       |             | 38,065 |              |      |   | 41,470 | 
|                                                                                       |                                          |                                          |                           |       |             |        |              |     
|CAPITAL LEASE OBLIGATIONS, less
current maturities                                     |                                          |                                          | 963                       |       |             |        | 1,334        |     
|LONG-TERM DEBT                                                                         |                                          |                                          | 148,009                   |       |             |        | 150,015      |     
|OTHER LIABILITIES                                                                      |                                          |                                          | 7,007                     |       |             |        | 6,146        |     
|STOCKHOLDERS INVESTMENT:                                                              |                                          |                                          |                           |       |             |        |              |     
|Common stock, $.01 par value, 100,000 shares authorized,
10,820 issued and outstanding |                                          |                                          | 1                         |       |             |        | 1            |     
|Other comprehensive income                                                             |                                          |                                          | 43                        |       |             |        |             |     
|Accumulated earnings (deficit)                                                         |                                          |                                          | 2,275                     |       |             |        | (282         | )   
|                                                                                       |                                          |                                          |                           |       |             |        |              |     
|                                                                                       | Total stockholders investment (deficit) |                                          |                           | 2,319 |             |        |              | (281 | )
|                                                                                       |                                          |                                          |                           |       |             |        |              |     
|                                                                                       |                                          | $                                        | 196,363                   |       |             | $      | 198,684      |     
|                                                                                       |                                          |                                          |                           |       |             |        |              |     

The accompanying notes are an integral part of these consolidated balance sheets.

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THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)

|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |        |        | 
|--------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------- | ------ | ---------- | ----- | ---------- | ------- | ---------- | ----- | ---------- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                  |                                                    |                   |        | Quarter    |       | Quarter    |         | Year-to-   |       | Year-to-  
|                                                                                  |                                                    |                   |        | Ended      |       | Ended      |         | Date       |       | Date      
|                                                                                  |                                                    |                   |        | October 5, |       | October 6, |         | October 5, |       | October 6,
|                                                                                  |                                                    |                   |        | 2003       |       | 2002       |         | 2003       |       | 2002      
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|Net income                                                                        |                                                    | $                 | 1,176  |            |       | $          | 1,692   |            |       | $          | 2,557   |        |        | $ | 3,171   |       
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|                                                                                  | Depreciation and amortization                      |                   |        | 3,977      |       |            |         | 4,843      |       |            |         | 13,898 |        |   |         | 16,614 |       
|                                                                                  | Accretion of Senior Discount Notes                 |                   |        |           |       |            |         | 6          |       |            |         | 7      |        |   |         | 19     |       
|                                                                                  | Other non-cash income and expense items            |                   |        | 157        |       |            |         | 187        |       |            |         | 399    |        |   |         | 408    |       
|                                                                                  | Provision for (benefit from) disposition of assets |                   |        | 190        |       |            |         | (496       | )     |            |         | 245    |        |   |         | (466   | )     
|                                                                                  | Asset write-down                                   |                   |        |           |       |            |         | 1,027      |       |            |         | 150    |        |   |         | 1,027  |       
|                                                                                  | Net changes in operating assets and liabilities    |                   |        | (478       | )     |            |         | 1,928      |       |            |         | (211   | )      |   |         | 2,063  |       
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|                                                                                  |                                                    | Total adjustments |        |            | 3,846 |            |         |            | 7,495 |            |         |        | 14,488 |   |         |        | 19,665 | 
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|Net cash provided by operating activities                                         |                                                    |                   | 5,022  |            |       |            | 9,187   |            |       |            | 17,045  |        |        |   | 22,836  |       
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|Cash paid for property and equipment                                              |                                                    |                   | (1,768 | )          |       |            | (3,073  | )          |       |            | (6,757  | )      |        |   | (11,907 | )     
|Proceeds from sale of assets held for disposition                                 |                                                    |                   |       |            |       |            | 2,699   |            |       |            | 10      |        |        |   | 4,712   |       
|Payments on notes receivable                                                      |                                                    |                   | 51     |            |       |            | 44      |            |       |            | 280     |        |        |   | 383     |       
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|Net cash used in investing activities                                             |                                                    |                   | (1,717 | )          |       |            | (330    | )          |       |            | (6,467  | )      |        |   | (6,812  | )     
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|Proceeds from long-term debt                                                      |                                                    |                   |       |            |       |            | 1,000   |            |       |            | 3,750   |        |        |   | 28,800  |       
|Payments on long-term debt                                                        |                                                    |                   | (3,750 | )          |       |            | (10,000 | )          |       |            | (14,603 | )      |        |   | (43,800 | )     
|Principal payments under capital lease obligations                                |                                                    |                   | (150   | )          |       |            | (150    | )          |       |            | (499    | )      |        |   | (838    | )     
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|Net cash used in financing activities                                             |                                                    |                   | (3,900 | )          |       |            | (9,150  | )          |       |            | (11,352 | )      |        |   | (15,838 | )     
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|Net (decrease) increase in cash and cash equivalents                              |                                                    |                   | (595   | )          |       |            | (293    | )          |       |            | (774    | )      |        |   | 186     |       
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|CASH AND CASH EQUIVALENTS:                                                        |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|Balance, beginning of period                                                      |                                                    |                   | 5,634  |            |       |            | 4,980   |            |       |            | 5,813   |        |        |   | 4,501   |       
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       
|Balance, end of period                                                            |                                                    | $                 | 5,039  |            |       | $          | 4,687   |            |       | $          | 5,039   |        |        | $ | 4,687   |       
|                                                                                  |                                                    |                   |        |            |       |            |         |            |       |            |         |        |        |   |         |       

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

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THE RESTAURANT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Organization

The Restaurant Company (the Company, Perkins, or TRC) is a
wholly-owned subsidiary of The Restaurant Holding Corporation (RHC).
TRC conducts business under the name Perkins Restaurant and Bakery. TRC
is also the sole stockholder of TRC Realty LLC, The Restaurant Company of
Minnesota and Perkins Finance Corp. RHCs principal stockholders are
Donald N. Smith (Mr. Smith), TRCs Chairman and Chief Executive Officer,
and BancBoston Ventures, Inc. (BBV). Mr. Smith is also the Chairman of
Friendly Ice Cream Corporation (FICC), which operates and franchises
approximately 541 restaurants, located primarily in the northeastern
United States.

Basis of Presentation

The accompanying unaudited consolidated financial statements of TRC have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and notes necessary for complete
financial statements in conformity with generally accepted accounting
principles. The results for the periods indicated are unaudited but
reflect all adjustments (consisting only of normal recurring adjustments)
which management considers necessary for a fair presentation of the
operating results. Results of operations for the interim periods are not
necessarily indicative of a full year of operations. The notes to the
financial statements contained in the 2002 Annual Report on Form 10-K
should be read in conjunction with these statements.

Certain prior year amounts have been reclassified to conform to current
year presentation.

Accounting Reporting Period

The Companys fiscal calendar year consists of thirteen four-week periods
ending on the last Sunday in December. The first quarter each year will
include four four-week periods. The first, second and third quarters ended
on April 20, July 13 and October 5, respectively. The fourth quarter of
2003 will end on December 28.

Contingencies

The Company is a party to various legal proceedings in the ordinary course
of business. Management does not believe it is likely that these
proceedings, either individually or in the aggregate, will have a material
adverse effect on the Companys financial position or results of
operations.

On June 9, 2000, the Company entered into an agreement to guarantee fifty
percent of borrowings up to a total guarantee of $1,500,000 for use by a
franchisee to remodel and upgrade existing restaurants. As of October 5,
2003, there was $3,000,000 in borrowings outstanding under this agreement
of which the Company guaranteed $1,500,000. The franchisee intends to
refinance the indebtedness, at which time, the Companys obligation under
the current agreement would terminate.

Asset Write-Down

During the second quarter of 2003, the Company determined that impairment
existed with respect to one Company owned restaurant. This determination was
made based on the Companys projections that the future cash flows of this
restaurant would not exceed the present carrying value of the assets.
Accordingly, the Company recorded an impairment charge of $150,000 to adjust
the assets of this restaurant to net realizable value.

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Supplemental Cash Flow Information

The increase or decrease in cash and cash equivalents due to changes in
operating assets and liabilities for the quarters and year-to-date periods
ended October 5 and October 6, consists of the following (in thousands):

|                        |                                           |   |                 |        |                 |   |                 |        |                 |   |      |        |   |   |       |        |  
|----------------------- | ----------------------------------------- | - | --------------- | ------ | --------------- | - | --------------- | ------ | --------------- | - | ---- | ------ | - | - | ----- | ------ | -
|                        |                                           |   |                 |        |                 |   |                 |        |                 |   |      |        |   |   |      
|                        |                                           |   | Quarter Ended   |        | Quarter Ended   |   | Year-to-Date    |        | Year-to-Date   
|                        |                                           |   | October 5, 2003 |        | October
6, 2002 |   | October 5, 2003 |        | October 6, 2002
|                        |                                           |   |                 |        |                 |   |                 |        |                
|(Increase) Decrease in: |                                           |   |                 |        |                 |   |                 |        |                 |   |      |        |   |   |       |       
|                        | Receivables                               |   | $               | (779   | )               |   | $               | 228    |                 |   | $    | 162    |   |   | $     | (1,055 | )
|                        | Inventories                               |   |                 | (758   | )               |   |                 | (356   | )               |   |      | (1,390 | ) |   |       | (857   | )
|                        | Prepaid expenses and
other current assets |   |                 | 825    |                 |   |                 | 821    |                 |   |      | 623    |   |   |       | 1,125  |  
|                        | Other assets                              |   |                 | (234   | )               |   |                 | 1,446  |                 |   |      | 2      |   |   |       | 2,041  |  
|Increase (Decrease) in: |                                           |   |                 |        |                 |   |                 |        |                 |   |      |        |   |   |       |       
|                        | Accounts payable                          |   |                 | (1,167 | )               |   |                 | (1,079 | )               |   |      | (3,518 | ) |   |       | (1,273 | )
|                        | Accrued expenses                          |   |                 | 980    |                 |   |                 | 2,228  |                 |   |      | 3,045  |   |   |       | 3,982  |  
|                        | Other liabilities                         |   |                 | 655    |                 |   |                 | (1,360 | )               |   |      | 865    |   |   |       | (1,900 | )
|                        |                                           |   |                 |        |                 |   |                 |        |                 |   |      |        |   |   |       |        |  
|                        |                                           | $ | (478            | )      |                 | $ | 1,928           |        |                 | $ | (211 | )      |   | $ | 2,063 |       
|                        |                                           |   |                 |        |                 |   |                 |        |                 |   |      |        |   |   |       |       

Other supplemental cash flow information is as follows (in thousands):

|                            |  |                 |     |                 |  |                 |     |                 |  |   |       |  |  |   |       | 
|--------------------------- |  | --------------- | --- | --------------- |  | --------------- | --- | --------------- |  | - | ----- |  |  | - | ----- | 
|                            |  |                 |     |                 |  |                 |     |                 |  |  
|                            |  | Quarter Ended   |     | Quarter Ended   |  | Year-to-Date    |     | Year-to-Date   
|                            |  | October
5, 2003 |     | October 6, 2002 |  | October
5, 2003 |     | October
6, 2002
|                            |  |                 |     |                 |  |                 |     |                
|Cash paid for interest      |  | $               | 110 |                 |  | $               | 230 |                 |  | $ | 8,482 |  |  | $ | 9,006 | 
|Income taxes paid           |  |                 | 679 |                 |  |                 | 704 |                 |  |   | 796   |  |  |   | 1,600 | 
|Income tax refunds received |  |                 | 1   |                 |  |                 |    |                 |  |   | 60    |  |  |   | 639   | 

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Segment Reporting

The following presents revenue and other financial information by business
segment for the quarters and year-to-date periods ended October 5 and October 6
(in thousands):

|                                |  |             |        |           |  |               |       |       |  |        |       |  |  |   |         |   |  |   |        |  | 
|------------------------------- |  | ----------- | ------ | --------- |  | ------------- | ----- | ----- |  | ------ | ----- |  |  | - | ------- | - |  | - | ------ |  | 
|Quarter:                        |  | Restaurants |        | Franchise |  | Manufacturing |       | Other |  | Totals
|                                |  |             |        |           |  |               |       |       |  |       
|Quarter ended October 5, 2003:  |  |             |        |           |  |               |       |       |  |        |       |  |  |   |         |   |  |   |        | 
|Revenue from external customers |  | $           | 63,713 |           |  | $             | 5,246 |       |  | $      | 8,018 |  |  | $ | 67      |   |  | $ | 77,044 | 
|Intersegment revenue            |  |             |       |           |  |               |      |       |  |        | 1,972 |  |  |   |        |   |  |   | 1,972  | 
|Segment profit (loss)           |  |             | 5,437  |           |  |               | 4,626 |       |  |        | 1,997 |  |  |   | (10,884 | ) |  |   | 1,176  | 
|Quarter ended October 6, 2002:  |  |             |        |           |  |               |       |       |  |        |       |  |  |   |         |   |  |   |        | 
|Revenue from external customers |  | $           | 63,783 |           |  | $             | 5,198 |       |  | $      | 8,726 |  |  | $ | 498     |   |  | $ | 78,205 | 
|Intersegment revenue            |  |             |       |           |  |               |      |       |  |        | 1,770 |  |  |   |        |   |  |   | 1,770  | 
|Segment profit (loss)           |  |             | 6,464  |           |  |               | 4,404 |       |  |        | 1,978 |  |  |   | (11,154 | ) |  |   | 1,692  | 

|                                    |  |             |         |           |  |               |        |       |  |        |        |  |  |   |         |   |  |   |         |  | 
|----------------------------------- |  | ----------- | ------- | --------- |  | ------------- | ------ | ----- |  | ------ | ------ |  |  | - | ------- | - |  | - | ------- |  | 
|Year-to-Date:                       |  | Restaurants |         | Franchise |  | Manufacturing |        | Other |  | Totals
|                                    |  |             |         |           |  |               |        |       |  |       
|Year-to-Date ended October 5, 2003: |  |             |         |           |  |               |        |       |  |        |        |  |  |   |         |   |  |   |         | 
|Revenue from external customers     |  | $           | 212,941 |           |  | $             | 16,604 |       |  | $      | 24,808 |  |  | $ | 304     |   |  | $ | 254,657 | 
|Intersegment revenue                |  |             |        |           |  |               |       |       |  |        | 7,295  |  |  |   |        |   |  |   | 7,295   | 
|Segment profit (loss)               |  |             | 16,910  |           |  |               | 14,493 |       |  |        | 5,916  |  |  |   | (34,762 | ) |  |   | 2,557   | 
|Year-to-Date ended October 6, 2002: |  |             |         |           |  |               |        |       |  |        |        |  |  |   |         |   |  |   |         | 
|Revenue from external customers     |  | $           | 217,283 |           |  | $             | 17,005 |       |  | $      | 25,210 |  |  | $ | 1,807   |   |  | $ | 261,305 | 
|Intersegment revenue                |  |             |        |           |  |               |       |       |  |        | 6,556  |  |  |   |        |   |  |   | 6,556   | 
|Segment profit (loss)               |  |             | 20,922  |           |  |               | 14,352 |       |  |        | 5,754  |  |  |   | (37,857 | ) |  |   | 3,171   | 

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A reconciliation of other segment loss is as follows (in thousands):

|                                                   |  |            |        |            |  |            |        |            |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ---------- | ------ | ---------- |  | ---------- | ------ | ---------- |  | - | ------ | - |  | - | ------ | -
|                                                   |  | Quarter    |        | Quarter    |  | Year-to-   |        | Year-to-  
|                                                   |  | Ended      |        | Ended      |  | Date       |        | Date      
|                                                   |  | October 5, |        | October 6, |  | October 5, |        | October 6,
|                                                   |  | 2003       |        | 2002       |  | 2003       |        | 2002      
|                                                   |  |            |        |            |  |            |        |           
|General and administrative expenses                |  | $          | 5,532  |            |  | $          | 5,396  |            |  | $ | 18,675 |   |  | $ | 19,681 |  
|Depreciation and amortization expenses             |  |            | 590    |            |  |            | 1,017  |            |  |   | 2,171  |   |  |   | 3,311  |  
|Interest expense                                   |  |            | 3,648  |            |  |            | 4,095  |            |  |   | 12,692 |   |  |   | 13,844 |  
|Provision for (benefit from) disposition of assets |  |            | 190    |            |  |            | (496   | )          |  |   | 245    |   |  |   | (466   | )
|Loss on lease termination                          |  |            | 761    |            |  |            |       |            |  |   | 761    |   |  |   |       |  
|Asset write-down                                   |  |            |       |            |  |            | 1,027  |            |  |   | 150    |   |  |   | 1,027  |  
|Income tax expense                                 |  |            | 216    |            |  |            | 154    |            |  |   | 598    |   |  |   | 758    |  
|Other                                              |  |            | (53    | )          |  |            | (39    | )          |  |   | (530   | ) |  |   | (298   | )
|                                                   |  |            |        |            |  |            |        |            |  |   |        |   |  |   |        |  
|                                                   |  | $          | 10,884 |            |  | $          | 11,154 |            |  | $ | 34,762 |   |  | $ | 37,857 |  
|                                                   |  |            |        |            |  |            |        |            |  |   |        |   |  |   |        |  

Perkins Marketing Fund

The Company has maintained a Marketing Fund to pool the resources of the
Company and its franchisees for advertising purposes and to promote the Perkins
brand in accordance with the systems advertising policy. Effective with the
third quarter of 2003, the Company consolidated the Marketing Fund with TRC.
Accordingly, the Company has recorded $6,036,000 of restricted cash on its
balance sheet that represents the funds contributed by TRC and the franchisees
specifically for the purpose of advertising. The Company has also recorded
liabilities of approximately $2,200,000 for accrued advertising, which is
included in accrued expenses on the accompanying balance sheet, and
approximately $3,800,000, which represents franchisee contributions for
advertising services not yet provided. The results of operations of the
Marketing Fund primarily consist of general and administrative expenses and
interest income, both of which are immaterial to the Company as a whole.

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Revolving Credit Agreement

As of October 5, 2003, the Company has a secured $25,000,000 revolving line of
credit facility (the Credit Facility) with a sub-limit for up to $5,000,000
of letters of credit. All amounts under the Credit Facility bear interest at
floating rates based on the agents base rate or Eurodollar rates as defined in
the agreement. All indebtedness under the Credit Facility is collateralized by
a first priority lien on substantially all of the assets of the Company. As of
October 5, 2003, there were no borrowings and approximately $4,018,000 of
letters of credit outstanding under the Credit Facility.

At April 20, 2003, the Company failed to meet the criteria of one of the
financial covenants of the Credit Facility. On May 14, 2003, the Company
executed an amendment to the Credit Facility that waives the April 20, 2003
covenant violation, reduces the requirements of the financial covenants and
lowers the total amount available under the Credit Facility from $40,000,000 to
$25,000,000. At October 5, 2003, the Company was in compliance with the
requirements of the financial covenants. However, based on current trends, the
Company believes that it is likely that the Company will not comply with one or
more covenants at the end of the first quarter of 2004. The Company has begun
discussions with the Credit Facility lender to negotiate modified covenants
that will ensure future compliance. If the Company is unable to modify the
terms of this agreement and is unable to obtain waivers from the lender for
possible future violations of these covenants, the lender could demand payment
of the balance of the Credit Facility, which could constitute a default under
the Notes and Discount Notes. If the Credit Facility lender, or the trustee or
the holders of the Notes and the Discount Notes demanded repayment, the Company
would seek to refinance the balance of the Credit Facility, the Notes and the
Discount Notes with another lender. There can be no assurance that we will
successfully modify the terms of the covenants or refinance the balance under
the Credit Facility, the Notes and the Discount Notes.

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities
(VIEs), an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to improve financial reporting of special
purpose and other entities. In accordance with the interpretation, business
enterprises that represent the primary beneficiary of another entity by
retaining a controlling financial interest in that entitys assets,
liabilities, and results of operating activities must consolidate the entity in
their financial statements. Prior to the issuance of FIN 46, consolidation
generally occurred when an enterprise controlled another entity through voting
interests. Certain VIEs that are qualifying special purpose entities (QSPEs)
subject to the reporting requirements of SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, will not be
required to be consolidated under the provisions of FIN 46. The consolidation
provisions of FIN 46 apply to VIEs created or entered into after January 31,
2003, and for pre-existing VIEs in the first reporting period beginning after
June 15, 2003. If applicable, transition rules allow the restatement of
financial statements or prospective application with a cumulative effect
adjustment. In addition, FIN 46 expands the disclosure requirements for the
beneficiary of a significant or a majority of the variable interests to provide
information regarding the nature, purpose and financial characteristics of the
entities. On October 9, 2003, the FASB issued FASB Staff Position 46-6,
Effective Date of FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, which deferred the effective date of FIN 46 until the end of
first interim or annual period ending after December 15, 2003 (as of December
31, 2003, for an entity with a calendar year-end or quarter-end of December
31.) The Company does not anticipate that the adoption of FIN 46 will have a
material adverse effect on the Companys financial statements.

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In January 2003, the Emerging Issues Task Force (EITF) issued EITF Issue No.
02-16, Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor, which states that cash consideration
received from a vendor is presumed to be a reduction of the prices of the
vendors products or services and should, therefore, be characterized as a
reduction of cost of sales when recognized in the statement of operations. That
presumption is overcome when the consideration is either a reimbursement of
specific, incremental, identifiable costs incurred to sell the vendors
products, or a payment for assets or services delivered to the vendor. EITF
Issue No. 02-16 is effective for arrangements entered into after November 21,
2002. The Company is already accounting for vendor rebates in a manner
consistent with the EITF consensus. Therefore, applying the provisions of EITF
Issue No. 02-16 did not have a material impact on the Companys financial
position or results of operations.

In April 2003, the FASB issued Statement of Financial Accounting Standard No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement is effective for contracts
entered into or modified after June 30, 2003. The adoption of this Statement
did not have a material effect on the results of operations or financial
position of the Company.

In May 2003, the FASB issued Statement of Financial Accounting Standard No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement requires an issuer to classify a
financial instrument that is within its scope as a liability. This statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of the Statement did not have a
material effect on the Companys financial statements.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THIRD QUARTER ENDED OCTOBER 5, 2003

RESULTS OF OPERATIONS

Overview:

The Company is a leading operator and franchisor of mid-scale restaurants
located in 35 states and four Canadian provinces. As of October 5, 2003, the
Company owned and operated 154 and franchised 340 Perkins Restaurants.
Both the Company-operated and franchised Perkins Restaurants operate under the
names Perkins Restaurant and Bakery, Perkins Family Restaurant, Perkins
Family Restaurant and Bakery, or Perkins Restaurant and the mark Perkins.
The Company also offers cookie doughs, muffin batters, pancake mixes, pies and
other food products for sale to our Company-operated and franchised restaurants
and bakery and food service distributors through Foxtail Foods (Foxtail) our
manufacturing division. The business of Perkins was founded in 1958, and since
then Perkins has continued to adapt its menus, product offerings, building
designs and decor to meet changing consumer preferences. Perkins is a highly
recognized brand in the geographic areas it serves.

The Companys revenues are derived primarily from the operation of
Company-owned restaurants, the sale of bakery products produced by Foxtail and
franchise royalties. In order to ensure consistency and availability of
Perkins proprietary products to each unit in the system, Foxtail offers cookie
doughs, muffin batters, pancake mixes, pies and other food products to
Company-operated and franchised restaurants through food service distributors.
Sales to Company-operated restaurants are eliminated in the accompanying
statements of operations. For the quarter ended October 5, 2003, revenues from
Company-operated restaurants, Foxtail, and franchise and other accounted for
82.7%, 10.4% and 6.9% of total revenue, respectively.

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A summary of the Companys results for the quarters and year-to-date periods
ended October 5, 2003 and October 6, 2002 are presented in the following table.
All revenues, costs and expenses are expressed as a percentage of total
revenues.

|                           |                                                     |                             |                    |     |            |      |            |      |            |            |       |      |      |      |       |      |      |      | 
|-------------------------- | --------------------------------------------------- | --------------------------- | ------------------ | --- | ---------- | ---- | ---------- | ---- | ---------- | ---------- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | ---- | 
|                           |                                                     |                             |                    |     | Quarter    |      | Quarter    |      | Year-to-   | Year-to-  
|                           |                                                     |                             |                    |     | Ended      |      | Ended      |      | Date       | Date      
|                           |                                                     |                             |                    |     | October 5, |      | October 6, |      | October 5, | October 6,
|                           |                                                     |                             |                    |     | 2003       |      | 2002       |      | 2003       |            | 2002 
|                           |                                                     |                             |                    |     |            |      |            |      |            |            |      
|Revenues:                  |                                                     |                             |                    |     |            |      |            |      |            |            |       |      |      |      |       |     
|                           |                                                     | Food sales                  |                    |     | 93.1       | %    |            |      | 93.2       | %          |       |      | 93.4 | %    |       |      | 93.4 | %   
|                           |                                                     | Franchise and other revenue |                    |     | 6.9        |      |            |      | 6.8        |            |       |      | 6.6  |      |       |      | 6.6  |     
|                           |                                                     |                             |                    |     |            |      |            |      |            |            |       |      |      |      |       |      |      |     
|Total Revenues             |                                                     |                             | 100.0              |     |            |      | 100.0      |      |            |            | 100.0 |      |      |      | 100.0 |     
|                           |                                                     |                             |                    |     |            |      |            |      |            |            |       |      |      |      |       |      |      |     
|Costs and Expenses:        |                                                     |                             |                    |     |            |      |            |      |            |            |       |      |      |      |       |     
|                           | Cost of sales (excluding depreciation shown
below): |                             |                    |     |            |      |            |      |            |            |       |      |      |      |       |      |     
|                           |                                                     |                             | Food cost          |     |            | 26.3 |            |      |            | 25.5       |       |      |      | 26.5 |       |      |      | 25.8 | 
|                           |                                                     |                             | Labor and benefits |     |            | 32.9 |            |      |            | 31.7       |       |      |      | 33.1 |       |      |      | 32.7 | 
|                           |                                                     |                             | Operating expenses |     |            | 19.2 |            |      |            | 20.0       |       |      |      | 19.5 |       |      |      | 19.4 | 
|                           | General and administrative                          |                             |                    | 8.7 |            |      |            | 8.4  |            |            |       | 8.8  |      |      |       | 8.9  |     
|                           | Depreciation and amortization                       |                             |                    | 5.2 |            |      |            | 6.2  |            |            |       | 5.5  |      |      |       | 6.4  |     
|                           | Interest, net                                       |                             |                    | 4.7 |            |      |            | 5.2  |            |            |       | 5.0  |      |      |       | 5.3  |     
|                           | Provision for (benefit from) disposition of assets  |                             |                    | 0.2 |            |      |            | (0.6 | )          |            |       | 0.1  |      |      |       | (0.2 | )   
|                           | Loss on lease termination                           |                             |                    | 1.0 |            |      |            |     |            |            |       | 0.3  |      |      |       |     |     
|                           | Asset write-down                                    |                             |                    |    |            |      |            | 1.3  |            |            |       | 0.1  |      |      |       | 0.4  |     
|                           | Other, net                                          |                             |                    |    |            |      |            | (0.1 | )          |            |       | (0.1 | )    |      |       | (0.2 | )   
|                           |                                                     |                             |                    |     |            |      |            |      |            |            |       |      |      |      |       |      |      |     
|Total Costs and Expenses   |                                                     |                             | 98.2               |     |            |      | 97.6       |      |            |            | 98.8  |      |      |      | 98.5  |     
|                           |                                                     |                             |                    |     |            |      |            |      |            |            |       |      |      |      |       |      |      |     
|Income before income taxes |                                                     |                             | 1.8                |     |            |      | 2.4        |      |            |            | 1.2   |      |      |      | 1.5   |     
|Provision for income taxes |                                                     |                             | (0.3               | )   |            |      | (0.2       | )    |            |            | (0.2  | )    |      |      | (0.3  | )   
|                           |                                                     |                             |                    |     |            |      |            |      |            |            |       |      |      |      |       |      |      |     
|Net Income                 |                                                     |                             | 1.5                | %   |            |      | 2.2        | %    |            |            | 1.0   | %    |      |      | 1.2   | %   
|                           |                                                     |                             |                    |     |            |      |            |      |            |            |       |      |      |      |       |      |      |     

Net Income for the third quarter of 2003 was $1,176,000 versus net income of
$1,692,000 for the third quarter of 2002. For the year-to-date period ended
October 5, 2003, net income was $2,557,000 compared to $3,171,000 for the
year-to-date period ended October 6, 2002.

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Revenues:

Total revenues for the third quarter of 2003 decreased 1.5% from the prior year
third quarter. Year-to-date total revenues decreased 2.5% from the prior
year-to-date period. This decrease is primarily due to lower comparable
restaurant sales.

Same store comparable sales in Company-operated restaurants decreased 1.3% for
the third quarter and 3.8% year-to-date due to a decline in comparable guest
visits of 4.4% and 7.0%, respectively. Continued economic weakness and
increased competition in certain key markets contributed to the decrease in
comparable guest visits. The decrease in comparable guest visits was partially
offset by an increase in the guest check average due to cumulative price
increases and the introduction of a new menu with a focus on lunch and dinner
items, which have a higher menu price than breakfast items.

Revenues from Foxtail decreased approximately 8.1% from the prior year quarter
and 1.6% from the prior year-to-date period and constituted approximately 10.4%
and 9.7%, respectively, of the Companys total revenues. The decrease is
primarily due to a decrease in sales to customers within the Perkins system.

Franchise revenue, composed primarily of franchise royalties, increased 0.9%
over the third quarter of 2002 and decreased 2.4% from the prior year-to-date
period. Year-to-date, royalty revenues declined slightly due to a decrease in
both average franchise stores in operation and comparable sales. Since the
third quarter of 2002, the Companys franchisees have opened 10 restaurants and
have closed 15 restaurants.

Costs and Expenses:

Food cost:

In terms of total revenues, food cost increased 0.8 percentage points over the
third quarter of 2002 and increased 0.7 percentage points over the previous
year-to-date period. Restaurant food cost, as a percentage of restaurant
sales, increased 1.7 and 1.0 percentage points for the third quarter and
year-to-date periods, respectively, over 2002 primarily due to increased
commodity costs and the introduction of a new menu which resulted in a menu mix
shift to higher food cost lunch and dinner items. These increases were
partially offset by the impact of selective menu price increases. As a
percentage of Foxtail sales, Foxtail food cost decreased 1.9 percentage points
for the quarter and increased 0.6 percentage points for the year-to-date
period.

Labor and benefits:

Labor and benefits expense, as a percentage of total revenues, increased 1.2
percentage points over the third quarter of 2002 and increased 0.4 percentage
points for the year-to-date period ended October 5, 2003. The year-to-date
increase is primarily due to a decrease in productivity in Company-operated
restaurants and an increase in employee insurance costs.

Federal and state minimum wage laws impact the wage rates of the Companys
hourly employees. Certain states do not allow tip credits for servers which
results in higher payroll costs as well as greater exposure to increases in
minimum wage rates. In the past, the Company has been able to offset increases
in labor costs through selective menu price increases and improvements in labor
productivity. However, there is no assurance that future increases can be
mitigated through raising menu prices.

Operating expenses:

Expressed as a percentage of total revenues, operating expenses decreased 0.8
percentage points from the third quarter and increased 0.1 percentage points
over the year-to-date period. The decrease as compared to the prior year quarter is primarily due to
reductions in franchise related expenses and a decrease in local store
marketing expenses.

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General and administrative:

General and administrative expenses, as a percentage of total revenues,
increased 0.3 percentage points over the third quarter 2002 and decreased 0.1
percentage points from the year-to-date period of 2002.

Depreciation and amortization:

Depreciation and amortization expense decreased from 6.2 percent of sales to
5.2 percent of sales over the third quarter 2002 and decreased from 6.4 percent
of sales to 5.5 percent of sales over the year-to-date period. This decrease
is primarily due to the Companys reduction in capital spending since 2001.

Interest, net:

Interest expense, as a percentage of total revenue, decreased 0.5 and 0.3
percentage points from the third quarter and year-to-date periods of 2002,
respectively, primarily due to a reduction in the overall borrowings by the
Company.

Other, net:

Other expenses, as a percentage of
total revenue, increased 0.1 percentage point from the third
quarter and year-to-date periods of 2002.

CAPITAL RESOURCES AND LIQUIDITY

The Companys primary sources of funding during the quarter were cash flows
from operating activities. The principal uses of cash during the quarter were
payments on long-term debt and capital expenditures. Capital expenditures
consisted primarily of capital required to maintain operations and costs
related to remodeling and upgrading existing restaurants.

The following table summarizes capital expenditures for the year-to-date
periods ended October 5, 2003 and October 6, 2002 (in thousands):

|                           |  |                 |       |                 |  |   |        | 
|-------------------------- |  | --------------- | ----- | --------------- |  | - | ------ | 
|                           |  | Year-to-Date   
|                           |  |                
|                           |  | October 5, 2003 |       | October 6, 2002
|                           |  |                 |       |                
|New restaurants            |  | $               | 23    |                 |  | $ | 2,121  | 
|Maintenance                |  |                 | 3,702 |                 |  |   | 4,537  | 
|Remodeling and reimaging   |  |                 | 1,101 |                 |  |   | 2,399  | 
|Manufacturing              |  |                 | 259   |                 |  |   | 239    | 
|Other                      |  |                 | 1,672 |                 |  |   | 2,611  | 
|                           |  |                 |       |                 |  |   |        | 
|Total Capital Expenditures |  | $               | 6,757 |                 |  | $ | 11,907 | 
|                           |  |                 |       |                 |  |   |        | 

The Companys capital budget for 2003 is $12.6 million and includes plans to
open no new Company-operated restaurants. Actual capital expenditures have
been primarily applied to remodeling of existing restaurants and restaurant
maintenance. The primary source of funding for these projects was cash flows
from operating activities.

The Company ordinarily operates with a working capital deficit since funds
generated by cash sales in excess of those needed to service current
liabilities are used by the Company to reduce debt and acquire capital assets.
At October 5, 2003, this working capital deficit was $9,155,000.

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As of October 5, 2003, the Company has a secured $25,000,000 revolving line of
credit facility (the Credit Facility) with a sub-limit for up to $5,000,000
of letters of credit. All amounts under the Credit Facility bear interest at
floating rates based on the agents base rate or Eurodollar rates as defined in
the agreement. All indebtedness under the Credit Facility is collateralized by
a first priority lien on substantially all of the assets of the Company. As of
October 5, 2003, there were no borrowings and approximately $4,018,000 of
letters of credit outstanding under the Credit Facility.

At April 20, 2003, the Company failed to meet the criteria of one of the
financial covenants of the Credit Facility. On May 14, 2003, the Company
executed an amendment to the Credit Facility that waives the April 20, 2003
covenant violation, reduces the requirements of the financial covenants and
lowers the total amount available under the Credit Facility from $40,000,000 to
$25,000,000. At October 5, 2003, the Company was in compliance with the
requirements of the financial covenants. However, based on current trends, the
Company believes that it is likely that the Company will not comply with one or
more covenants at the end of the first quarter of 2004. The Company has begun
discussions with the Credit Facility lender to negotiate modified covenants
that will ensure future compliance. If the Company is unable to modify the
terms of this agreement and is unable to obtain waivers from the lender for
possible future violations of these covenants, the lender could demand payment
of the balance of the Credit Facility, which could constitute a default under
the Notes and Discount Notes. If the Credit Facility lender, or the trustee or
the holders of the Notes and the Discount Notes demanded repayment, the Company
would seek to refinance the balance of the Credit Facility, the Notes and the
Discount Notes with another lender. There can be no assurance that we will
successfully modify the terms of the covenants or refinance the balance under
the Credit Facility, the Notes and the Discount Notes.

On November 15, 2001 the Company elected to begin accruing cash interest on its
11.25% Senior Discount Notes (the Notes). Cash interest will be payable
semi-annually on May 15 and November 15. The principal balance of the Notes on
October 5, 2003 was $18,009,000. On May 15, 2003 the Company paid $8,383,000
in principal of the Notes at a redemption price of 105.625% of the face amount
of the notes.

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The Company has contractual obligations and commercial commitments including
long-term debt, land lease obligations for Company operated restaurants and
office space for corporate operations. The table below presents, as of October
5, 2003, the Companys future scheduled principal repayments of long-term debt
and lease obligations (in thousands).

|                      |                               |   |           |   |             |   |             |      |                  |   |        |  |  |   |         |  | 
|--------------------- | ----------------------------- | - | --------- | - | ----------- | - | ----------- | ---- | ---------------- | - | ------ |  |  | - | ------- |  | 
|                      |                               |   |           |   |             |   | Capital     |      | Operating        |   | Total 
|                      |                               |   | Long-Term |   | Lease       |   | Lease       |      | Contractual     
|                      |                               |   | Debt      |   | Obligations |   | Obligations |      | Cash Obligations
|                      |                               |   |           |   |             |   |             |      |                 
|2003                  |                               | $ |          |   |             | $ | 185         |      |                  | $ | 2,446  |  |  | $ | 2,631   | 
|2004                  |                               |   |          |   |             |   | 575         |      |                  |   | 9,165  |  |  |   | 9,740   | 
|2005                  |                               |   |          |   |             |   | 399         |      |                  |   | 8,452  |  |  |   | 8,851   | 
|2006                  |                               |   |          |   |             |   | 312         |      |                  |   | 8,151  |  |  |   | 8,463   | 
|2007                  |                               |   | 130,000   |   |             |   | 166         |      |                  |   | 7,587  |  |  |   | 137,753 | 
|Thereafter            |                               |   | 18,009    |   |             |   | 113         |      |                  |   | 37,766 |  |  |   | 55,888  | 
|                      |                               |   |           |   |             |   |             |      |                  |   |        |  |  |   |         | 
|Total                 |                               | $ | 148,009   |   |             | $ | 1,750       |      |                  | $ | 73,567 |  |  | $ | 223,326 | 
|                      |                               |   |           |   |             |   |             |      |                  |   |        |  |  |   |         | 
|Less: Current Portion |                               |   |          |   |             |   | (521        | )    |                  |   |        |  |  |   |         | 
|                      | Amounts representing interest |   |           |  |             |   |             | (266 | )                |   |        |  |  |   |         |  | 
|                      |                               |   |           |   |             |   |             |      |                  |   |        |  |  |   |         | 
|Total                 |                               | $ | 148,009   |   |             | $ | 963         |      |                  |   |        |  |  |   |         | 
|                      |                               |   |           |   |             |   |             |      |                  |   |        |  |  |   |         | 

TRC Realty LLC leases an aircraft for use by both FICC and TRC. The operating
lease expires in November 2009. During the third quarter, TRC Realty
terminated its lease for the corporate aircraft. In accordance with the terms
of the lease, TRC Realty was required to pay a Termination Value to the lessor
upon termination of the lease. As a result, TRC incurred a loss of
approximately $950,000 on the termination of the lease and disposal of assets
related to the aircraft. Concurrently, TRC Realty entered into a new lease for
a smaller and less expensive aircraft, which will be used solely by TRC.

TRC is a wholly-owned subsidiary of RHC. The common shares of RHC not owned by
Mr. Smith are subject to an option to require RHC to redeem the shares at any
time after December 22, 2004 at fair market value (the Put). As of October 5,
2003, these shares represented 30% of the outstanding common stock of RHC. As
of December 28, 2002, the estimated fair market value of the Put was
$9,220,000. RHC has a management fee agreement dated as of December 22, 1999,
with BBV whereby BBV provides certain consulting services to RHC. In
consideration for these services, a fee of $250,000 accrues annually and is
payable by RHC on December 22, 2004.

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Additionally, RHC issued 50,000 shares of non-voting preferred stock on
December 22, 1999. The preferred stock is mandatorily redeemable for $1,000 per
share (the Liquidation Value) plus all accrued but unpaid dividends, if any,
on December 22, 2006. Preferred dividends of 8% per annum of the Liquidation
Value of each share are payable quarterly. As of October 5, 2003, approximately
$17,483,000 of in-kind dividends had been paid through the issuance of
additional shares of preferred stock. Assuming a continuation of in-kind
dividends, the redemption price on December 22, 2006 is estimated to be
$87,044,000. The holders of preferred stock are entitled to be paid in cash the
Liquidation Value of each share of preferred stock before any payments are made
to any holders of common stock. The preferred stock is redeemable at the option
of the Company at any time prior to the mandatory redemption date at the
Liquidation Value.

RHC has no material assets other than its investment in TRC. The ability of TRC
to pay dividends to or make distributions to RHC in order to redeem common or
preferred shares or pay the management fee to BBV is restricted under its
senior notes and the Credit Facility.

The Companys ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance, its indebtedness,
or to fund planned capital expenditures, or to meet its or RHCs other
liquidity needs will depend on the Companys future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond control of the
Company. Based upon the current level of operations, management believes that
cash flow from operating activities and available cash, together with available
borrowings under the Credit Facility, will be adequate to meet the Companys
liquidity needs in the normal course of its operations. There can be no
assurance that the Company will generate sufficient cash flow from operations,
have access to capital markets or that future borrowings will be available in
an amount sufficient to enable the Company to service its indebtedness or to
fund its other liquidity needs. In addition, there can be no assurance that the
Company will be able to effect any necessary recapitalization or refinancing on
commercially reasonable terms or at all.

SEASONALITY

Company revenues are subject to seasonal fluctuations. Customer counts (and
consequently revenues) are highest in the summer months and lowest during the
winter months because of the high proportion of restaurants located in states
where inclement weather adversely affects guest visits.

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NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities
(VIEs), an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to improve financial reporting of special
purpose and other entities. In accordance with the interpretation, business
enterprises that represent the primary beneficiary of another entity by
retaining a controlling financial interest in that entitys assets,
liabilities, and results of operating activities must consolidate the entity in
their financial statements. Prior to the issuance of FIN 46, consolidation
generally occurred when an enterprise controlled another entity through voting
interests. Certain VIEs that are qualifying special purpose entities (QSPEs)
subject to the reporting requirements of SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, will not be
required to be consolidated under the provisions of FIN 46. The consolidation
provisions of FIN 46 apply to VIEs created or entered into after January 31,
2003, and for pre-existing VIEs in the first reporting period beginning after
June 15, 2003. If applicable, transition rules allow the restatement of
financial statements or prospective application with a cumulative effect
adjustment. In addition, FIN 46 expands the disclosure requirements for the
beneficiary of a significant or a majority of the variable interests to provide
information regarding the nature, purpose and financial characteristics of the
entities. On October 9, 2003, the FASB issued FASB Staff Position 46-6,
Effective Date of FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, which deferred the effective date of FIN 46 until the end of
first interim or annual period ending after December 15, 2003 (as of December
31, 2003, for an entity with a calendar year-end or quarter-end of December
31.) The Company does not anticipate that the adoption of FIN 46 will have a
material adverse effect on the Companys financial statements.

In January 2003, the Emerging Issues Task Force (EITF) issued EITF Issue No.
02-16, Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor, which states that cash consideration
received from a vendor is presumed to be a reduction of the prices of the
vendors products or services and should, therefore, be characterized as a
reduction of cost of sales when recognized in the statement of operations. That
presumption is overcome when the consideration is either a reimbursement of
specific, incremental, identifiable costs incurred to sell the vendors
products, or a payment for assets or services delivered to the vendor. EITF
Issue No. 02-16 is effective for arrangements entered into after November 21,
2002. The Company is already accounting for vendor rebates in a manner
consistent with the EITF consensus. Therefore, applying the provisions of EITF
Issue No. 02-16 did not have a material impact on the Companys financial
position or results of operations.

In April 2003, the FASB issued Statement of Financial Accounting Standard No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement is effective for contracts
entered into or modified after June 30, 2003. The adoption of this Statement
did not have a material effect on the results of operations or financial
position of the Company.

In May 2003, the FASB issued Statement of Financial Accounting Standard No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement requires an issuer to classify a
financial instrument that is within its scope as a liability. This statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of the Statement did not have a
material effect on the Companys financial statements.

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FORWARD-LOOKING STATEMENTS

This discussion contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are based on current expectations that are subject to known and
unknown risks, uncertainties and other factors that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
Such factors include, but are not limited to, the following: general economic
conditions, competitive factors, consumer taste and preferences and adverse
weather conditions. The Company does not undertake to publicly update or
revise the forward-looking statements even if experience or future changes make
it clear that the projected results expressed or implied therein will not be
realized.

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ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures and internal controls
designed to ensure that information required to be disclosed in our filings
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. Our principal executive and financial officers
have evaluated our disclosure controls and procedures as of the end of the
period covered by this Quarterly Report on Form
10-Q and have determined that such disclosure controls and procedures are
effective.

Subsequent to our evaluation, there were no significant changes in
internal controls or other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

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PART II  OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits -

| |  |  |      |  |  |                                                                                               
| |  |  | ---- |  |  | ----------------------------------------------------------------------------------------------
| |  |  | 31.1 |  |  | Principal Executive Officer Certification
Pursuant to Sarbanes-Oxley Act of 2002, Section 302.
| |  |  |      |  |  |                                                                                               
| |  |  | 31.2 |  |  | Principal Financial Officer Certification
Pursuant to Sarbanes-Oxley Act of 2002, Section 302.

(b)  Reports on Form 8-K   The Company did not file any reports on Form
8-K during the quarter ended October 5, 2003.

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                        |  |                                      |  |                       
|----------------------- |  | ------------------------------------ |  | ----------------------
|                        |  | THE RESTAURANT COMPANY              
|                        |  |                                      |  |                       
|DATE: November 18, 2003 |  | BY:                                  |  | /s/ Michael P. Donahoe
|                        |  |                                      |  |                       
|                        |  | Michael P. Donahoe                  
|                        |  | Executive Vice President,           
|                        |  | Chief Financial Officer and Director

23