FORM 10-Q                              
                                                                      
                     SECURITIES AND EXCHANGE COMMISSION                  
                                                                      
                          Washington, DC      20549                      
                                                                      
       [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE      
                       SECURITIES EXCHANGE ACT OF 1934                   
                                                                      
      For the quarterly period ended June 29, 1997                      
                                                                      
                                     OR                                  
                                                                      
       [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE          
                      SECURITIES EXCHANGE ACT OF 1934                        
                                                                             
       For the transition period from       to                               
                                      -----    -----                         
                       Commission file number  0-20040                       
                       -------------------------------                       
                             THE KRYSTAL COMPANY                             
-----------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)           
                                                                             
                 TENNESSEE                     62-0264140                    
                 ---------                     ----------                    
    (State or other jurisdiction of      (IRS Employer identification        
 incorporation or organization)             Number)                   
                                                                      
              One Union Square, Chattanooga, TN   37402                      
-----------------------------------------------------------------------------
     (Address of principal executive offices, including zip code)        
                                                                      
                         (423) 757-1550                                   
-----------------------------------------------------------------------------
          (Registrant's telephone number, including area code)          
                                                                      
    Indicate by check mark whether the Registrant (1) has filed all  
    reports required to be filed by Section 13 or 15(d) of the           
    Securities Exchange Act of 1934 during the preceding 12 months          
    (or for such shorter period that Registrant was required to file       
    such reports), and (2) has been subject to such filing requirements 
    for the past 90 days.             
                                                                      
               YES  X                     NO                            
                   ----                       ----                           
                                                                      
As of July 25, 1997, 7,476,088 shares of the Registrant's Common Stock were   
issued and outstanding.                                    
                                                                      
                                                                      

                                                                        
                           THE KRYSTAL COMPANY                          
                           -------------------                          
                              JUNE 29, 1997                             
                              -------------                             
                     PART I.  FINANCIAL INFORMATION                     
                     ------------------------------                     
                                                                        
                                                                        
The condensed financial statements included herein have been prepared by 
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission.  Certain information and footnote 
disclosures normally included in financial statements prepared in 
accordance with generally accepted accounting principles have been 
condensed or omitted pursuant to such rules and regulations, although 
the Company believes that the disclosures are adequate to make the 
information presented not misleading.  These condensed financial 
statements should be read in conjunction with the Company's latest 
annual report on Form 10-K.  In the opinion of management of the 
Company, all adjustments necessary to present fairly (1) the financial 
position of The Krystal Company and Subsidiary as of June 29, 1997 
and December 29, 1996, and (2) the results of their operations, their 
changes in common shareholders' equity and their cash flows for the 
six months ended June 29, 1997 and June 30, 1996, and (3)the results 
of their operations for the three months ended June 29, 1997 and 
June 30, 1996 have been included.  The results of operations for the 
interim period ended June 29, 1997 are not necessarily indicative of 
the results for the full year. 
                                                                        
                                                                        
                                                                        
<TABLE>
                                                                       
        PART I. FINANCIAL INFORMATION                                  
        -----------------------------                                  
                                                                       
Item I.  Financial Statements                                          
                                                                       
                 THE KRYSTAL COMPANY AND SUBSIDIARY                    
                 ----------------------------------                    
                    CONSOLIDATED BALANCE SHEETS                        
                    ---------------------------                        
                           (In thousands)                              
<CAPTION>
                                             June 29,      December 29,
                                              1997            1996     
                                            --------       ---------   
                                           (Unaudited)     (Audited)   
<S>                                          <C>            <C>        
ASSETS                                                                 
-----------------                                                      
CURRENT ASSETS:                                                        
   Cash and temporary investments            $  4,829       $ 28,765   
   Receivables, net                             1,731          2,566   
   Net investment in direct financing                                  
     leases-current portion                       372            562   
   Inventories                                  1,970          2,156   
   Deferred tax asset                           8,327          8,327   
   Prepayments and other                        1,311          1,980   
                                              -------        -------   
     Total current assets                      18,540         44,356   
                                              -------        -------   
NET INVESTMENT IN DIRECT FINANCING                                     
   LEASES, excluding current portion              159            305   
                                              -------        -------   
PROPERTY, BUILDINGS, AND EQUIPMENT, net        89,786         91,173   
                                              -------        -------   
LEASED PROPERTIES, net                          1,555          1,653   
                                              -------        -------   
OTHER ASSETS:                                                          
   Cash surrender value of life insurance       5,854          5,638   
   Other                                        1,815            745   
                                              -------        -------   
     Total other assets                         7,669          6,383   
                                              -------        -------   
       TOTAL ASSETS                          $117,709       $143,870   
                                              =======        =======   
<FN>                                                                   
See accompanying notes to consolidated condensed financial statements. 
                                                                       
</TABLE>
                                                                       
<TABLE>
                 THE KRYSTAL COMPANY AND SUBSIDIARY                    
                 ----------------------------------                    
               CONSOLIDATED BALANCE SHEETS (CONTINUED)                 
               ---------------------------------------                 
                           (In thousands)                              
<CAPTION>
                                             June 29,     December 29,
                                               1997           1996     
LIABILITIES AND SHAREHOLDERS' EQUITY          -------       ---------  
------------------------------------        (Unaudited)     (Audited)  
<S>                                          <C>            <C>        
CURRENT LIABILITIES:                                                   
   Accounts payable                          $  5,398       $  4,535   
   Accrued liabilities                         15,209         17,986   
   Current portion of long-term debt            1,553            967   
   Current portion of capital                                          
     lease obligations                            326            454   
   Income taxes payable                           361            822   
                                              -------        -------   
     Total current liabilities                 22,847         24,764   
                                              -------        -------   
                                                                       
LIABILITIES SUBJECT TO COMPROMISE                -            58,317   
                                              -------        -------   
LONG-TERM DEBT, excluding current portion      35,907          3,090   
                                              -------        -------   
CAPITAL LEASE OBLIGATIONS, excluding                                   
   current portion                              2,135          2,278   
                                              -------        -------   
DEFERRED INCOME TAXES                           2,287          2,286   
                                              -------        -------   
OTHER LONG-TERM LIABILITIES                     8,903          8,447   
                                              -------        -------   
SHAREHOLDERS' EQUITY:                                                  
   Preferred stock, without par value;                                 
     5,000,000 shares authorized:                                      
     no shares issued and outstanding             -              -     
   Common stock, without par value;                                    
     15,000,000 shares authorized;                                     
     issued and outstanding, 7,479,288 shares                          
     at June 29, 1997, and 7,491,768 shares                           
     at December 29, 1996                      40,402         40,556   
   Retained earnings                            6,717          5,873   
   Deferred compensation                       (1,489)        (1,741)  
                                              -------        -------   
     Total shareholders' equity                45,630         44,688   
                                              -------        -------   
       TOTAL LIABILITIES AND                                           
         SHAREHOLDERS' EQUITY                $117,709       $143,870   
                                              =======        =======   
<FN>                                                                   
See accompanying notes to consolidated condensed financial statements. 
                                                                       
</TABLE>

<TABLE>
                     THE KRYSTAL COMPANY AND SUBSIDIARY                       
                     ----------------------------------                       
                    CONSOLIDATED STATEMENTS OF OPERATIONS                     
                    -------------------------------------                     
               (In thousands, except per share data)(Unaudited)               
<CAPTION>                                                                     
                                     For The Three          For The Six       
                                     Months Ended,          Months Ended,     
                                  ------------------     -------------------  
                                  June 29,   June 30,     June 29,   June 30, 
                                    1997       1996         1997       1996   
                                  --------   --------     --------   -------- 
<S>                               <C>        <C>          <C>        <C>      
REVENUES:                                                                     
  Restaurant sales                $ 61,220   $ 58,867     $118,484   $114,743 
  Franchise fees                       138         89          179        122 
  Royalties                            767        690        1,474      1,308 
  Other revenues                     1,200      1,257        2,351      2,397 
                                   -------    -------      -------    ------- 
                                    63,325     60,903      122,488    118,570 
                                   -------    -------      -------    ------- 
COST AND OTHER EXPENSES:                                                      
  Cost of restaurant sales          50,032     48,471       97,515     95,240 
  Depreciation and amortization                                               
    expenses                         2,673      2,800        5,295      5,602 
  General and administrative                                                  
    expenses                         7,114      6,549       13,831     12,989 
  Other expenses, net                  837        988        1,668      1,951 
                                   -------    -------      -------    ------- 
                                    60,656     58,808      118,309    115,782 
                                   -------    -------      -------    ------- 
OPERATING INCOME                     2,669      2,095        4,179      2,788 
REORGANIZATION ITEM:                                                          
   Professional fees and                                                      
     other expenses                (   343)    (  545)     ( 1,062)   ( 1,512)
                                                                              
INTEREST EXPENSE:                                                             
  Contractual rate interest        (   958)   ( 1,004)     ( 1,944)   ( 2,013)
  Interest related to certain                                                 
    pre-petition liabilities, net      278    (   146)          96    (   314)
                                                                              
INTEREST INCOME                        137        290          444        540 
                                   -------    -------      -------    ------- 
INCOME (LOSS) BEFORE PROVISION FOR                                            
  (BENEFIT FROM) INCOME TAXES AND                                             
  EXTRAORDINARY ITEM                 1,783        690        1,713    (   511)
PROVISION FOR (BENEFIT FROM)                                                  
  INCOME TAXES                         676        264          649    (   191)
                                   -------    -------      -------    ------- 
INCOME (LOSS) BEFORE EXTRAORDINARY                                            
  ITEM                               1,107        426        1,064    (   320)
EXTRAORDINARY ITEM:                                                           
  Loss on early extinguishment of                                             
   debt, net of applicable income                                             
   tax benefit of $134,000 in 1997     -          -         (  220)       -   
                                   -------    -------      -------    ------- 
NET INCOME (LOSS)                 $  1,107   $    426     $    844   $(   320)
                                   =======    =======      =======    ======= 
                                                                              
EARNINGS (LOSS) PER COMMON SHARE  $   0.15   $   0.06     $   0.11   $(  0.04)
                                   =======    =======      =======    ======= 
WEIGHTED AVERAGE NUMBER OF                                                    
  COMMON SHARES OUTSTANDING          7,479      7,492        7,482      7,507 
                                   =======    =======      =======    ======= 
<FN>                                                                          
  See accompanying notes to consolidated condensed financial statements.      
</TABLE>
                                                                              
<TABLE>
                  THE KRYSTAL COMPANY AND SUBSIDIARY                   
                  ----------------------------------                   
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY            
            -----------------------------------------------            
                       FOR THE SIX MONTHS ENDED                       
                      --------------------------                       
                   JUNE 29, 1997 AND JUNE 30, 1996                     
                   -------------------------------                     
                            (In thousands)                             
                             (Unaudited)                               
<CAPTION>                                                              
                                     Common    Retained     Deferred   
                                      Stock    Earnings   Compensation 
                                     ------    --------   ------------ 
<S>                                  <C>        <C>         <C>        
BALANCE, December 29, 1996           $40,556    $ 5,873     $(1,741)   
                                                                       
  Net income                             -          844         -      
                                                                       
  Issuance of 720 common shares to                                     
    management and non-employee                                        
    director under restricted                                          
    stock plan                             4        -        (    4)   
                                                                       
  Forfeiture of 13,200 restricted                                      
    shares                           (   158)       -           158    
                                                                       
  Amortization of deferred                                             
    compensation                         -          -            98    
                                      ------     ------      ------    
BALANCE, June 29, 1997               $40,402    $ 6,717     $(1,489)   
                                      ======     ======      ======    
                                                                       
                                                                       
BALANCE, December 31, 1995           $40,830    $ 8,195     $(2,378)   
                                                                       
  Net loss                               -      (   320)        -      
                                                                       
  Issuance of 960 common shares to                                     
    management and non-employee                                        
    director under restricted                                          
    stock plan                             4        -        (    4)   
                                                                       
  Forfeiture of 36,000 restricted                                      
    shares                           (   278)                   278    
                                                                       
  Amortization of deferred                                             
    compensation                         -          -           173    
                                      ------     ------      ------    
BALANCE, June 30, 1996               $40,556    $ 7,875     $(1,931)   
                                      ======     ======      ======    
<FN>                                                                   
See accompanying notes to consolidated condensed financial statements. 
</TABLE>
                                                                       
                                                                       
<TABLE>
                   THE KRYSTAL COMPANY AND SUBSIDIARY                    
                   ----------------------------------                    
                  CONSOLIDATED STATEMENTS OF CASH FLOWS                  
                  -------------------------------------                  
                          (In thousands)                                 
                            (Unaudited)                                  
<CAPTION>
                                              For The Six Months Ended,  
                                             --------------------------- 
                                                 June 29,      June 30,  
                                                  1997           1996    
                                              -----------   ------------ 
<S>                                              <C>            <C>      
OPERATING ACTIVITIES:                                                    
  Net income(loss)                               $   844        $(  320) 
  Adjustments to reconcile net income(loss)                              
   to net cash provided by operating                                     
   activities-                                                           
    Depreciation and amortization                  5,295          5,602  
    Increase in deferred taxes                         1            -    
    Loss on early extinguishment of debt             354            -    
    (Increase)decrease in receivables                835         (  244) 
    (Increase) in income tax receivable              -           (  279) 
    Decrease in inventories                          186            288  
    (Increase)decrease in prepayments and other      669         (  442) 
    Increase in accounts payable                     863          1,482  
    (Decrease) in income taxes payable           (   461)           -    
    Increase(decrease) in accrued liabilities    ( 2,777)         3,743  
    Other                                        ( 1,387)             1  
                                                 --------       -------- 
      Net cash provided by operating activities                          
        before reorganization activities           4,422          9,831  
    Changes in liabilities from reorganization                           
      activities:                                                        
      (Decrease) in accounts payable             ( 7,920)           -    
      (Decrease) in accrued liabilities          (14,397)        (2,543) 
                                                 --------       -------- 
      Net cash provided by operating activities  (17,895)         7,288  
                                                 --------       -------- 
INVESTING ACTIVITIES:                                                    
    Additions to property, buildings,                                    
      and equipment                              ( 3,902)        (2,211) 
    Proceeds from sale of property,                                      
      buildings, and equipment                       393          1,119  
    Payments received on net investment in                               
      direct financing leases                        336            421  
                                                 --------       -------- 
      Net cash used in investing activities      ( 3,173)        (  671) 
                                                 --------       -------- 
FINANCING ACTIVITIES:                                                    
    Decrease in debt from reorganization                                 
      activities                                 (36,000)           -    
    Proceeds from borrowing                       36,320            -    
    Repayments of long-term debt                 ( 2,917)        (   29) 
    Principal payments of capital                                        
      lease obligations                          (   271)        (  340) 
                                                 --------       -------- 
      Net cash used in financing activities      ( 2,868)        (  369) 
                                                 --------       -------- 
NET INCREASE(DECREASE) IN CASH AND                                       
  TEMPORARY INVESTMENTS                          (23,936)         6,248  
                                                                         
CASH AND TEMPORARY INVESTMENTS,                                          
   beginning of period                            28,765         13,713  
                                                 --------       -------- 
CASH AND TEMPORARY INVESTMENTS,                                          
   end of period                                 $ 4,829        $19,961  
                                                 ========       ======== 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW                                    
   INFORMATION:                                                          
   Cash paid during the period for:                                      
     Interest                                    $ 6,012        $   309  
     Income taxes                                  1,159            127  
     Reorganization item: professional fees                              
      and other expenses                             870            327  
                                                 ========        ======= 
<FN>
 See accompanying notes to consolidated condensed financial statements.  
                                                                         
</TABLE>


                   THE KRYSTAL COMPANY AND SUBSIDIARY                 
                   ----------------------------------                 
     NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 
     ---------------------------------------------------------------- 


BANKRUPTCY FILING 

On December 15, 1995, the Company filed a voluntary petition under Chapter 
11 of the United States Bankruptcy Code with the United States 
Bankruptcy Court for the Eastern District of Tennessee for the purpose 
of completely and finally resolving the various claims filed against the 
Company by current and former employees alleging violations of the Fair 
Labor Standards Act of 1938 (FLSA).  Four pending lawsuits filed against 
the Company under the FLSA were stayed by the bankruptcy filing.

Subsequent to December 29, 1996, the Company and the majority of the FLSA 
plaintiffs reached a settlement providing for the payment of approximately 
$13,000,000 for the FLSA claims and related legal costs.  A plan of 
reorganization, as amended (the "Plan") was formally filed on 
February 24, 1997.  On April 10, 1997, the Bankruptcy Court confirmed the 
Company's plan of reorganization and on April 23, 1997, the Plan became
effective. 


PENDING MERGER WITH PORT ROYAL HOLDINGS, INC.

As previously announced, on July 3, 1997 the Company agreed to be acquired 
by Port Royal Holdings, Inc. ("Port Royal"), a privately held company located 
in Atlanta, Georgia.  The acquisition will be completed by the merger of a
subsidiary of Port Royal into the Company.  Under the terms of the  
agreement and plan of merger, Port Royal will pay total cash consideration of 
approximately $108.5 million, or $14.50 per share, to the shareholders of
the Company.

The proposed merger, which is subject to approval by the shareholders of the
Company, is expected to be completed prior to the end of the third quarter 
of 1997.  In connection with the merger, holders of approximately 53 percent 
of the Company's outstanding shares have granted Port Royal an option to 
purchase their shares, and have further agreed to vote their shares in favor 
of the merger.



Item 2.   Management's Discussion and Analysis of Financial      
          -------------------------------------------------      
                Condition and Results of Operations              
                -----------------------------------              
          Comparison of the Three Months Ended June 29, 1997     
          --------------------------------------------------     
              to the Three Months Ended June 30, 1996             
              --------------------------------------             

Total revenues increased 4.0% to $63.3 million for the second quarter of 
1997 from $60.9 million for the same period of 1996. Increases in restaurant 
sales accounted for the entire $2.4 million increase. Company-owned average 
same restaurant sales for the second quarter of 1997 were $246,000 compared to
$234,000 for the same period in 1996, an increase of 5.1%.  The Company's
management believes the 1997 second quarter revenues increase can be 
attributed to several factors, including price increases, new advertising and 
promotional programs and continuing improvements in operations at the 
restaurant level.  The Company had 249 restaurants open at the end of the 
second quarter of 1997  compared to 251 at the end of the second quarter 
of 1996.

Franchise fees and royalties increased $126,000 to $905,000 in the second 
quarter of 1997 versus the same period in 1996.  The franchise system 
had 93 restaurants open at the end of the second quarter of 1997 
compared to 84 open at the end of the second quarter of 1996.  This 
increase in franchise fees and royalties is a result of the increase in 
franchised restaurants.
                                                                        
Other revenue, which comes from the Company's aviation subsidiary, was 
$1.2 million in the second quarter of 1997 compared to $1.3 million in 
the second quarter of 1996.  This decline in revenues was a result of 
discontinued maintenance service.
                                                                      
The average customer check for Company-owned full size restaurants in 
the second quarter of 1997 was $3.78 as compared to $3.52 in the same 
period of 1996, an increase of 7.4%.  The average customer check for 
Company-owned double drive-thru restaurants in the second quarter of 
1997 was $4.12 as compared to $3.82 in the same period of 1996, an 
increase of 7.9%.  The increases in average customer check are due to 
product prices increasing approximately 3.7% in the second quarter of 
1997 over the same period in 1996, and the introduction of new promotional 
products and menu combinations.  Customer counts per restaurant day decreased 
to 708 in the second quarter of 1997 compared to 721 in the same period of 
1996, a decrease of 1.8%.

Cost of restaurant sales increased $1.5 million, approximately 3.1%, to 
$50.0 million in the second quarter of 1996, from $48.5 million in the 
same period of 1996.  Cost of restaurant sales as a percentage of 
restaurant sales decreased to 81.7% in the second quarter of 1997 from 
82.3% in the same period of 1996.  These increases are primarily the result
of increases in food and paper costs and labor expenses that the Company was
able to pass through to customers with offsetting product price increases.
Total food and paper costs were $19.8 million in the second quarter of 1997
as compared to $18.3 million in the second quarter of 1996.  Food and paper
costs as a percentage of restaurant sales increased to 32.3% in the second 
quarter of 1997 as compared to 31.1% in the same period of 1996.  Direct labor
cost increased $209,000 in the second quarter of 1997, approximately 
1.6%, to 21.92% of restaurant sales in the second quarter of 1997 as compared
to 22.5% in the second quarter of 1996.  Assistant restaurant manager labor
cost increased $167,000, approximately 6.4%.  Assistant restaurant manager
labor cost as a percentage of restaurant sales increased to 4.5% in the second
quarter of 1997 from 4.4% in the same period of 1996.  In an effort to improve
restaurant performance, the number of assistant managers has been increased to
improve training and supervision with an offsetting decrease in direct labor.
Restaurant manager labor cost increased $50,000, approximately 2.7%, due to
average salary increases for the second quarter of 1997.                

Depreciation and amortization expenses decreased $127,000, approximately 
4.5%, to $2.7 million in the second quarter of 1997 as compared to $2.8 
million for the same period in 1996.  This decrease in the second 
quarter of 1997 is due to some assets being fully depreciated in late 
1996.

General and administrative expenses were approximately $7.1 million in 
the second quarter of 1997 as compared to $6.5 million for the same period
in 1996.  Advertising expense was approximately $2.6 million in the second
quarters of 1997 and 1996.  Advertising expense as a percentage of restaurant
sales was 4.2% in the second quarter of 1997 compared to 4.4% in the same
period of 1996.  Salaries increased $270,000, approximately 14.3%, to 
$2.2 million in the second quarter of 1997 from $1.9 million in the same 
period of 1996.  This increase in salaries was primarily the result of 
accruing $231,000 for profit incentive bonuses in 1997; none were accrued 
in 1996 as there was a year-to-date net loss.

In accordance with Statement of Position 90-7, Financial Reporting by 
Entities in Reorganization Under the Bankruptcy Code, issued by the 
American Institute of Certified Public Accountants, the Company is 
expensing Reorganization Items as incurred.  The total of professional fees
and expenses relating to the reorganization during the second quarter of 
1997 was $343,000 as compared to $545,000 for the same period in 1996. 

A reducing adjustment of $331,000 in interest related to certain pre-petition
liabilities, net, resulted in $278,000 in income during the second quarter of 
1997 compared to an expense of $146,000 in the same period of 1996.

Provision for income taxes increased to $676,000 in the second quarter 
of 1997 from $264,000 in the same period of 1996.  The effective tax 
rate of 38.0% is the approximate combined statutory federal and state 
income tax rates.



            Comparison of the Six Months Ended June 29, 1997     
            ------------------------------------------------     
                  to the Six Months Ended June 30, 1996           
                  ------------------------------------           

Total revenues increased 3.3% to $122.5 million for the first half of 
1997 from $118.6 million for the same period of 1996. Increases in restaurant 
sales accounted for $3.7 million of this $3.9 million increase. Company-owned
average same restaurant sales for the first half of 1997 were $478,000
compared to $456,000 for the same period in 1996, an increase of 4.8%.  The
Company's management believes the 1997 first half revenues increase can be
attributed to several factors, including price increases, new advertising and
promotional programs, continuing improvements in operations at the restaurant
level and the mild weather in the southeast in the first quarter 1997 as
compared to the same period in 1996.  The Company had 249 restaurants open
at the end of the first half of 1997 compared to 251 at the end of the first
half of 1996.

Franchise fees and royalties increased $223,000 to $1.7 million in the 
first half of 1997 versus the same period in 1996.  The franchise system 
had 93 restaurants open at the end of the first half of 1997 compared to 
84 open at the end of the same period in 1996.  This increase in 
franchise fees and royalties is a result of the increase in franchised 
restaurants.
                                                                    
Other revenue, which comes from the Company's aviation subsidiary, was 
$2.4 million in the first half of 1997 and 1996.
                                                                  
The average customer check for Company-owned full size restaurants in 
the first half of 1997 was $3.75 as compared to $3.49 in the same period 
of 1996, an increase of 7.4%.  The average customer check for 
Company-owned double drive-thru restaurants in the first half of 1997 
was $4.08 as compared to $3.81 in the same period of 1996, an increase 
of 7.1%.  The increases in average customer check are due to product 
prices increasing approximately 3.5% in the first half of 1997 over the 
same period in 1996, and the introduction of new promotional products and 
menu combinations.  Customer counts per restaurant day decreased to 691 in 
the first half of 1997 compared to 703 in the same period of 1996, a 
decrease of 1.7%.

Cost of restaurant sales increased $2.3 million, approximately 2.4%, to 
$97.5 million in the first half of 1997, from $95.2 million in the same 
period of 1996.  Cost of restaurant sales as a percentage of restaurant 
sales decreased to 82.3% in the first half of 1997 from 83.0% in the 
same period of 1996.  These increases are primarily the result of 
increases in food and paper costs and labor expenses that the Company 
was able to pass through to customers with offsetting product price increases.
Total food and paper costs were $38.1 million in the first half of 1997 as
compared to $36.1 million in the first half of 1996.  Food and paper costs as
a percentage of restaurant sales increased to 32.2% in the first half of 1997
as compared to 31.5% in the same period of 1996.  Direct labor cost 
increased $217,000 in the first half of 1997, approximately 0.8%, to 
22.2% of restaurant sales in the first half of 1997, versus 22.7% in the 
same period of 1996.  Assistant restaurant manager labor cost increased 
$416,000, approximately 8.0%.  Assistant restaurant manager labor cost 
as a percentage of restaurant sales increased to 4.8% in the first half 
of 1997 from 4.6% in the same period of 1996.  In a effort to improve 
restaurant performance, the number of assistant managers has been 
increased to improve training and supervision with an offsetting 
decrease in direct labor.  Restaurant manager labor cost increased 
$33,000, approximately 0.9%, due to average salary increases for the 
first half of 1997.                                                 

Depreciation and amortization expenses decreased $307,000, approximately 
5.5%, to $5.3 million in the first half of 1997 as compared to $5.6 
million for the same period in 1996.  This decrease in the first half of 
1997 is due to some assets being fully depreciated in late 1996.

General and administrative expenses increased by $842,000, approximately 
6.5%, to $13.8 million in the first half of 1997 versus $13.0 million in 
the same period of 1996.  Advertising expense was approximately $5.0 
million in the first half of 1997 and 1996.  Advertising expense as a
percentage of restaurant sales was 4.2% in the first half of 1997 compared
to 4.4% in the same period of 1996.  Salaries increased $258,000 approximately
6.8%, to $4.1 million in the first half of 1997 from $3.8 million in the same
period of 1996.  This increase in salaries was primarily the result of 
accruing $231,000 for profit incentive bonuses in 1997; none were accrued 
in 1996 as there was a year-to-date net loss.

In accordance with Statement of Position 90-7, Financial Reporting by 
Entities in Reorganization Under the Bankruptcy Code, issued by the 
American Institute of Certified Public Accountants, the Company is 
expensing Reorganization Items as incurred.  The total of professional fees 
and expenses relating to the reorganization during the first half of 1997 
was $1.1 million as compared to $1.5 million in the same period of 1996.

A reducing adjustment of $331,000 in interest related to certain pre-petition
liabilities, net, resulted in $96,000 in income during the first half of 1997
compared to an expense of $314,000 in the same period of 1996.

Provision for income taxes increased to $649,000 in the first half of 1997 
as compared to an income tax benefit of $191,000 for the same period in 1996,
when the Company recorded a net loss for the period.  The effective tax rate
of 38.0% is the approximate combined statutory federal and state income 
tax rates.

Unamortized financing costs in conjunction with extinguishment of debt in the
amount of $354,000 pre-tax and $220,000 after-tax was recorded in the first
half of 1997.



                  LIQUIDITY AND CAPITAL RESOURCES                      
                  -------------------------------                      

The terms and provisions of the Company's reorganization plan were approved by
the Bankruptcy Court on April 10, 1997 and became effective April 23, 1997.
The confirmed plan provided for the following:

--term loans of $10.0 million and $20.0 million and a revolving loan of 
$23.0 million effective April 23, 1997, and maturing April 23, 2002;

--the payment of senior debt and secured debt totaling approximately $38.6 
million along with all past due interest and additional interest at 1.3% 
per annum; 

--the settlement of approximately 6,000 FLSA claims totaling about $12.6 
million with pro se claims settled for approximately $100,000; and 

--the payment of holders of approximately $7.6 million of trade claims of 
100% of their claims with interest at 8.5% per annum for the period 
December 15, 1995 - April 23, 1997.

The Company does not maintain significant inventory or accounts 
receivables since substantially all of its restaurants' sales are for 
cash.  Like many restaurant businesses, the Company receives several weeks
of trade credit in purchasing food and supplies.  The Company's receivables
from franchisees are closely monitored and collected weekly. The Company
normally operates with working capital deficits (current liabilities exceeding
current assets), and had a working capital deficit of $4.3 million at 
June 29, 1997 compared to a working capital surplus of $14.8 million at 
June 30, 1996.  At June 30, 1996, approximately $26.9 million of liabilities
classified as Liabilities Subject to Compromise during Chapter 11 status, would
otherwise have been classified as Current Liabilities.

Capital expenditures totaled approximately $3.9 million in the first 
half of 1997 compared to $2.2 million for the same period in 1996.  The 
Company opened no new restaurants during the first half of 1997 or the first
half of 1996.  Approximately $7.6 million is budgeted for capital expenditures
in 1997 for refurbishing of certain restaurants and ongoing capital 
improvements.  The Company owns 53.8% of its restaurant sites and leases the 
remainder.

After payment of substantially all the Chapter 11 claims during the second
quarter of 1997 and refinancing its long-term debt, the Company had available
cash of approximately $4.8 million and a revolving loan facility of $23.0
million of which approximately $4.0 million was used for letters of credit and 
the balance was available for borrowing.  The term loans are payable in
installments through April, 2002, and the revolving loan availability decreases
to $20.0 million June 30, 1998, and is due April, 2002.  The term loans and the
revolving loan are floating rate loans.  Management believes funds from
operations, existing cash and the available credit facility will be
sufficient to meet its operating requirements, anticipated capital
expenditures and other obligations for the foreseeable future.




PART II       OTHER INFORMATION


Item l.    Legal proceedings

On December 15, 1995, the Company filed a voluntary petition under 
Chapter 11 of the United States Bankruptcy Code with the United States 
Bankruptcy Court for the Eastern District of Tennessee, for the purpose 
of completely and finally resolving the various claims filed against the 
Company by current and former employees alleging violations of the Fair 
Labor Standards Act of 1938 (FLSA).  

In early 1997, the Company and a majority of the FLSA plaintiffs reached a 
settlement providing for the payment of approximately $13,000,000 for FLSA 
claims and related legal costs.  A plan for reorganization was filed on 
February 24, 1997.  On April 23, 1997, after confirmation by the Bankruptcy 
Court, the plan of reorganization became final resulting in the satisfaction 
of the FLSA claims.

The Company is party to other various legal proceedings incidental to its 
business.  The ultimate disposition of these matters is not presently 
determinable but will not, in the opinion of management, have a material 
adverse effect on the Company's financial condition or results of operations.


Item 6.    Exhibits and Reports on Form 8-K

(a)   Exhibits-

      Exhibit-27 Financial Data Schedule is filed with this 10-Q.
      Computation of per share earnings is shown on the Registrant's
      Consolidated Statements of Operations.

(b)   Reports on Form 8-K-

      A Form 8-K was filed on April 23, 1997  by the Registrant regarding
      the confirmation of the Company's reorganization plan in the Chapter 11
      proceedings which plan incorporated the settlement of the outstanding 
      FSLA claims.  Subsequent to the end of the second quarter, a Form 8-K 
      was filed on July 14, 1997 by the registrant regarding the entering of 
      the Agreement and Plan of Merger with Port Royal Holdings, Inc. and 
      TKC Acquisition Corp.



                                                             
             THE KRYSTAL COMPANY AND SUBSIDIARY              
             ----------------------------------              
                        SIGNATURES                           
                        ----------                           
Pursuant to the requirements of the Securities Exchange Act 
of 1934, the registrant has duly caused this report to be 
signed on its behalf by the undersigned thereunto duly 
authorized.                                                
                                                           
                                                           
                                                           
                                                           
                         THE KRYSTAL COMPANY               
                         (Registrant)                      
                                                           
Dated: 7/25/97            /s/Camden B Scearce                
--------------           ------------------------          
                         Camden B. Scearce                 
                        (Vice President and Chief Financial
                         and Accounting Officer)