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 October 3, 1999

                                     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  333-40933
                       -------------------------------
                             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
                   ----                       ----

This report is filed by the Company pursuant to Section 15(d) of the Securities
Exchange Act of 1934. The Company has 100 shares of common stock outstanding
held of record by Port Royal Holdings, Inc. as of November 3, 1999.






                          THE KRYSTAL COMPANY
                          -------------------
                             October 3, 1999
                             ---------------
                     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 October 3, 1999 and January 3, 1999, and (2) their change in shareholder's
equity for the nine months ending October 3, 1999 and (3) the results of their
operations and their cash flows for the nine months ended
October 3, 1999 and September 27, 1998 and (4) the results of their operations
for the three months ended October 3, 1999 and September 27, 1998 have been
included. The results of operations for the interim period ended October 3, 1999
are not necessarily indicative of the results for the full year.

Certain written and oral statements made by or on behalf of the Company may
constitute "forward-looking" statements as defined under the Private
Securities Litigation Reform Act of 1995. These statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from the Company's historical experience and its present expectations
or projections. These risks and uncertainties include, but are not limited to,
unanticipated economic changes, interest rate movements, changes in governmental
policies and the possible effects of the year 2000 problem on the Company,
including such problems at the Company's vendors, counterparties and customers
and the impact of competition. The Company cautions that such factors are not
exclusive. Caution should be taken not to place undue reliance on any such
forward-looking statements since such statements speak only as of the date of
the making of such statements and are based on certain expectations and
estimates of the Company which are subject to risks and changes in circumstances
that are not within the Company's control. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. The information provided herein
should be read in conjunction with information provided in the Company's Form
10-K for the fiscal year ended January 3, 1999.












         PART I. FINANCIAL INFORMATION
         -----------------------------

Item I.  Financial Statements

                 THE KRYSTAL COMPANY AND SUBSIDIARY
                 ----------------------------------
                    CONSOLIDATED BALANCE SHEETS
                    ---------------------------
                    (In thousands) (Unaudited)


                                            October 3,    January 3,
                                              1999           1999
                                            ---------     ----------


ASSETS
------
CURRENT ASSETS:
   Cash and temporary investments            $  4,796       $  9,012
   Receivables, net                             1,050          2,305
   Net investment in direct financing
     leases-current portion                        36             58
   Inventories                                  1,619          1,684
   Deferred income taxes                        2,817          2,817
   Prepayments and other                          964            720
                                             --------       --------
     Total current assets                      11,282         16,596
                                             --------       --------

PROPERTY, BUILDINGS, AND EQUIPMENT, net       109,588         99,694
                                             --------       --------
LEASED PROPERTIES, net                          5,884          2,595
                                             --------       --------
OTHER ASSETS:
   Prepaid pension asset                        7,810          8,329
   Deferred financing cost, net                 3,960          4,577
   Goodwill, net                               45,931         47,429
   Other                                          559            268
                                             --------       --------
     Total other assets                        58,260         60,603
                                             --------       --------
       TOTAL ASSETS                          $185,014       $179,488
                                             ========       ========

See accompanying notes to consolidated condensed financial statements.






                 THE KRYSTAL COMPANY AND SUBSIDIARY
                 ----------------------------------
               CONSOLIDATED BALANCE SHEETS (CONTINUED)
               ---------------------------------------
                    (In thousands) (Unaudited)

                                             October 3,   January 3,
                                               1999          1999
LIABILITIES AND SHAREHOLDER'S EQUITY        -----------   ----------
------------------------------------

CURRENT LIABILITIES:
   Accounts payable                          $  3,616       $  5,009
   Accrued liabilities                         19,841         22,253
   Current portion of long-term debt               63             53
   Current portion of capital
     lease obligations                            842            346
   Income taxes payable                           504             --
                                             --------       --------
     Total current liabilities                 24,866         27,661
                                             --------       --------

LONG-TERM DEBT, excluding current portion     104,269        100,136
                                             --------       --------
CAPITAL LEASE OBLIGATIONS, excluding
   current portion                              5,677          2,806
                                             --------       --------
DEFERRED INCOME TAXES                          11,674         11,735
                                             --------       --------
OTHER LONG-TERM LIABILITIES                     1,461          1,344
                                             --------       --------
SHAREHOLDER'S EQUITY:
   Common stock, without par value;
     100 shares authorized; issued
     and outstanding, at October 3, 1999,
     and at January 3, 1999                    35,000         35,000
   Retained earnings                            2,067            806
                                             --------       --------
     Total shareholder's equity                37,067         35,806
                                             --------       --------
       TOTAL LIABILITIES AND
         SHAREHOLDER'S EQUITY                $185,014       $179,488
                                             ========       ========

See accompanying notes to consolidated condensed financial statements.





                     THE KRYSTAL COMPANY AND SUBSIDIARY
                     ----------------------------------
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                    -------------------------------------
                          (In thousands)(Unaudited)

                                        For the Three         For the Nine
                                        Months Ended          Months Ended
                                      ------------------   ------------------
                                        Oct. 3, Sept. 27, Oct. 3,   Sept. 27,
                                         1999     1998      1999      1998
                                      -------   --------   -------   --------

REVENUES:
  Restaurant sales                    $64,938   $63,963   $192,933   $180,627
  Franchise fees                           83        47        193        284
  Royalties                             1,120       971      3,261      2,715
  Other revenue                         1,419     1,290      4,178      3,816
                                      -------   -------   --------   --------
                                       67,560    66,271    200,565    187,442
                                      -------   -------   --------   --------
COST AND OTHER EXPENSES:
  Cost of restaurant sales             53,956    53,183    158,064    149,800
  Depreciation and amortization
    expenses                            3,553     3,225      9,991      9,670
  General and administrative
    expenses                            5,818     6,839     19,177     18,716
  Other expenses, net                     897       810      2,523      2,433
                                      -------   -------   --------   --------
                                       64,224    64,057    189,755    180,619
                                      -------   -------   --------   --------
OPERATING INCOME                        3,336     2,214     10,810      6,823

GAIN ON SETTLEMENT OF DEFERRED
  COMPENSATION OBLIGATIONS                 --        --        --       1,805

INTEREST EXPENSE, net                 ( 2,546)   (2,394)   ( 7,697)   ( 8,001)
                                      -------   -------   --------   --------
INCOME (LOSS) BEFORE PROVISION
  FOR INCOME TAXES                        790    (  180)     3,113        627

PROVISION FOR INCOME TAXES            (   517)   (  107)   ( 1,852)   (   769)
                                      -------   -------   --------   --------
NET INCOME (LOSS)                     $   273   $(  287)  $  1,261   $(   142)
                                      =======   =======   ========   ========

  See accompanying notes to consolidated condensed financial statements.





             THE KRYSTAL COMPANY AND SUBSIDIARY
             ----------------------------------
       CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
       -----------------------------------------------
                  FOR THE NINE MONTHS ENDED
                  -------------------------
                      OCTOBER 3, 1999
                      ---------------
                       (In thousands)
                        (Unaudited)

                                     Common    Retained
                                      Stock    Earnings
                                    --------   --------

BALANCE, January 3, 1999             $35,000    $   806

  Net income                             -        1,261

                                     -------    -------
BALANCE, October 3, 1999             $35,000    $ 2,067
                                     =======    =======


See accompanying notes to consolidated condensed financial statements.










                   THE KRYSTAL COMPANY AND SUBSIDIARY
                   ----------------------------------
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                  -------------------------------------
                          (In thousands)
                            (Unaudited)

                            For The Nine Months Ended
                                              ---------------------------
                                                October 3,    September 27,
                                                   1999          1998
                                              ------------    -----------
OPERATING ACTIVITIES:
  Net income (loss)                              $ 1,261        $(  142)
  Adjustments to reconcile net income (loss)
   to net cash provided by operating
   activities-
    Depreciation and amortization                  9,991          9,670
    Change in deferred taxes                     (    61)       (     2)
  Changes in operating assets and liabilities:
    Receivables, net                               1,255             61
    Income tax receivable                             --          4,263
    Inventories                                       65             41
    Prepayments and other                        (   244)       (   174)
    Accounts payable                             ( 1,393)       (   638)
    Income taxes payable                             504            -
    Accrued liabilities                          ( 2,412)         4,978
    Other, net                                   (   356)         3,202
                                                 --------       --------
      Net cash provided by
        operating activities                       8,610         21,259
                                                 --------       --------
INVESTING ACTIVITIES:
    Additions to property, buildings,
      and equipment                              (20,032)       ( 7,566)
    Proceeds from sale of property,
      buildings, and equipment                     3,438          1,085
    Payments received on net investment in
      direct financing leases                         22            205
                                                 --------       --------
      Net cash used in investing activities      (16,572)       ( 6,276)
                                                 --------       --------
FINANCING ACTIVITIES:
    Proceeds from borrowing                        4,190            --
    Repayments of long-term debt                 (    49)       (11,154)
    Principal payments of
      capital lease obligations                  (   395)       (    85)
                                                 --------       --------
      Net cash provided by (used in)
        financing activities                       3,746        (11,239)
                                                 --------      --------
NET (DECREASE)INCREASE IN CASH AND
  TEMPORARY INVESTMENTS                          ( 4,216)         3,744

CASH AND TEMPORARY INVESTMENTS,
   beginning of period                             9,012          5,507
                                                 --------       --------
CASH AND TEMPORARY INVESTMENTS,
   end of period                                 $ 4,796        $ 9,251
                                                 =======        =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
   INFORMATION:
   Cash paid during the period for:
     Interest                                    $10,757        $ 5,888
                                                 =======        =======
     Income taxes                                $ 2,477        $   938
                                                 =======        =======

 See accompanying notes to consolidated condensed financial statements.









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

1.   NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business Activities --

The Krystal Company (a Tennessee corporation) ("Krystal") is engaged primarily
in the development, operation and franchising of quick-service restaurants in
the southeastern United States. Krystal's wholly-owned subsidiary, Krystal
Aviation Co. ("Aviation") operates a fixed base airport hangar operation in
Chattanooga, Tennessee. Aviation's revenues provide less than 3% of the
Company's total revenues.

Principles of Consolidation --

The accompanying consolidated financial statements include the accounts of
Krystal and Aviation (herein after referred to collectively as the "Company").
All significant intercompany balances and transactions have been eliminated.

Cash and temporary investments --

For purposes of the consolidated statements of cash flows, the Company considers
repurchase agreements and other temporary cash investments with a maturity of
three months or less to be temporary investments.

Inventories --

Inventories are stated at cost and consist primarily of food, paper products and
other supplies.

Property, Buildings, and Equipment --

Expenditures, which materially increase useful lives, are capitalized, whereas
ordinary maintenance and repairs are expensed as incurred. Depreciation of fixed
assets is computed using the straight-line method for financial reporting
purposes and accelerated methods for tax purposes over the estimated useful
lives of the related assets as follows:

                Buildings and improvements         10-39 years
                Equipment                           3-10 years
                Leaseholds                         Life of lease up to 20 years

Long-lived assets --

The Company periodically evaluates the carrying value of long-lived assets to be
held and used when events or changes in circumstances warrant such a review. The
carrying value of a long-lived asset is considered impaired when the projected
undiscounted future cash flow of such asset is less than its carrying value.

Intangibles --

The consolidated balance sheet includes the allocation of purchase accounting
goodwill of $49,910,000 and deferred financing costs of $5,604,000 at October 3,
1999. Intangibles are amortized on a straight-line basis over 10 to 25 years.
Amortization expense for goodwill and deferred financing costs for the three
months ended October 3, 1999 was $499,300 and $205,500, respectively and for the
three months ended September 27, 1998 was $490,000 and $206,000, respectively.
Amortization expense for goodwill and deferred financing costs for the nine
months ended October 3, 1999 was $1,498,000 and $617,000, respectively and for
the nine months ended September 27, 1998 was $1,476,000 and $617,000,
respectively. Accumulated amortization of goodwill at October 3, 1999 and
September 27, 1998 was $3,979,000 and $1,959,000, respectively. Accumulated
amortization of deferred financing costs at October 3, 1999 and September 27,
1998 was $1,644,000 and $822,000, respectively.

Franchise and License Agreements --

Franchise or license agreements are available for single and multi-unit
restaurants. The multi-unit agreement establishes the number of restaurants the
franchisee or licensee is to construct and open in the franchised area during
the term of the agreement. At October 3, 1999, there were 112 franchise
or licensed restaurants and at September 27, 1998, there were 109 franchised or
licensed restaurants.

Franchisees and licensees are required to pay the Company a franchise or license
fee and a weekly royalty and service fee of either 4.5% or 6.0%
of the restaurants' gross receipts depending on the duration and type of the
franchise agreement. Unit franchise and license fees are recorded as income as
related restaurants begin operations. Royalty and service fees, which are based
on restaurant sales of franchisees and licensees, are accrued as earned.
Franchise fees received prior to the opening of the restaurant are deferred and
included in accrued liabilities on the consolidated balance sheets.

Use of estimates --

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

2.  SETTLEMENT OF DEFERRED COMPENSATION OBLIGATIONS

During the first nine months of 1998, the Company agreed to settle its
obligations under certain deferred compensation plans by making lump sum cash
payments to two retired executives. The Company realized a gain of $925,000 from
this transaction. The cash payments were funded with the proceeds from redeeming
the cash surrender value of life insurance policies on the lives of the retired
executives. Also during the first nine months of 1998, the Company realized a
gain of $880,000 related to the receipt of life insurance proceeds in excess of
cash surrender value.

3.  SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS

The subsidiary guarantors are wholly owned and the guarantees are full,
unconditional, joint and several obligations of each of the subsidiary
guarantors. Summarized financial information for the subsidiary guarantors is
set forth below. Separate financial statements for the subsidiary guarantors of
the Company are not presented because the Company has determined that such
financial statements would not be material to investors. The subsidiary
guarantors comprise all of the direct and indirect subsidiaries of the Company,
other than the non-guarantor subsidiaries which individually, and in the
aggregate, are inconsequential. There are no restrictions on the ability of the
subsidiary guarantors to declare dividends, or make loans or advances to the
Company.


The following table presents summarized financial information for subsidiary
guarantors in connection with all of the Company's 10.25% senior Subordinated
Notes:


                                 October 3,            January 3,
                                   1999                  1999
                                ---------              ----------
                                         (in thousands)
Balance Sheet Data:
  Current assets                  $1,096                 $  879
  Noncurrent assets               $3,292                 $1,323
  Current liabilities             $  722                 $1,273
  Non current liabilities         $   70                 $   31



                                       For the Nine Months Ended
                                        October 3,    September 27,
                                           1999          1998
                                        ----------     ---------
                                              (in thousands)
Income Statement Data:
  Net sales                              $4,178          $3,816
  Gross profit                           $1,359          $1,204
  Income before provision for Federal
    and state income taxes               $1,036          $  888
  Net income                             $  642          $  552





Item 2.   Management's Discussion and Analysis of Financial
          -------------------------------------------------
                Condition and Results of Operations
                -----------------------------------


The following table reflects certain key operating statistics which impact the
Company's financial results:




                             KEY OPERATING STATISTICS
                    (Dollars in thousands except average check)

                                        For the Three          For the Nine
                                         Months Ended          Months Ended
                                     ------------------    --------------------
                                      Oct. 3,  Sept. 27,     Oct. 3,  Sept. 27,
                                       1999      1998         1999      1998
                                     --------  --------    ---------  ---------

SYSTEMWIDE RESTAURANT SALES           $87,770   $84,707     $258,528   $238,600
    Percent change                      3.62%                  8.35%

COMPANY RESTAURANT STATISTICS:

  Number of restaurants                   248       244          248        244

  Restaurant Sales                    $64,938   $63,963     $192,933   $180,627
    Percent change                      1.52%                  6.81%

  Same restaurant sales               $62,862   $63,153     $188,084   $177,450
    Percent change                    (0.46%)                  5.99%

  Transactions per day                    670       708          681        685
    Percent change                     (5.37%)                (0.58%)

  Average check                       $  4.34   $  4.06     $   4.27   $   3.93
    Percent change                      6.90%                  8.65%

Selected components are --
  Cost of restaurant sales            $53,956   $53,183     $158,064   $149,800
    As a percent of restaurant sales   83.08%    83.15%       81.92%     82.95%

  Food and paper cost                 $20,473   $19,893     $ 59,818   $ 55,544
    As a percent of restaurant sales   31.53%    31.10%       31.00%     30.75%

  Direct labor                        $15,690   $15,170     $ 45,266   $ 42,361
    As a percent of restaurant sales   24.16%    23.72%       23.46%     23.45%

  Other labor costs                   $ 4,109   $ 4,373     $ 12,645   $ 13,270
    As a percent of restaurant sales    6.32%     6.83%        6.55%      7.35%

FRANCHISE SYSTEM STATISTICS:

  Number of restaurants                   112       109          112        109

  Restaurant Sales                    $22,832   $20,744     $ 65,594   $ 57,974
    Percent change                     10.06%                 13.14%

  Same restaurant sales               $21,064  $20,211      $ 56,880   $ 52,085
    Percent change                      4.22%                  9.21%

  Transactions per day                    493      495           488        483
    Percent change                     (0.40%)                 1.04%

  Average check                       $  4.50  $  4.22      $   4.42   $   4.14
    Percent change                      6.64%                  6.76%








       Comparison of the Three Months Ended October 3, 1999
        --------------------------------------------------
            to the Three Months Ended September 27, 1998
            --------------------------------------------


                            CASH OPERATING PROFIT
                            ---------------------

Cash operating profit (net income before interest, taxes, depreciation and
amortization, and other non-operating gains, losses or expenses) is one of the
key standards used by the Company to measure operating performance. Cash
operating profit is used to supplement operating income as an indicator of
operating performance and cash flows from operating activities as a measure of
liquidity, and not as an alternative to measures defined and required by
generally accepted accounting principles.

Cash operating profit for the three months ended October 3, 1999 increased $1.5
million to $6.9 million (10.2% of revenues) compared to $5.4 million (8.2% of
revenues) for the three months ended September 27, 1998. The 26.7% increase in
cash operating profit was primarily attributable to an increase in restaurant
sales resulting from promotional menu items and price increases, and to a
reduction in the overall operating costs of the Company as a percentage of
sales.


                            RESULTS OF OPERATIONS
                            ---------------------

Total Krystal system (Company and Franchise combined) restaurant sales for the
three months ended October 3, 1999 increased 3.6% to $87.8 million compared to
$84.7 million for the three months ended September 27, 1998.

Total Company revenues increased 2.0% to $67.6 million in the three months ended
October 3, 1999 compared to $66.3 million in the three months ended September
27, 1998. Of the $1.3 million increase, $975,000 was attributable to an increase
in restaurant sales and $149,000 was attributable to a increase in royalty
revenue. The Company had 248 restaurants open at October 3, 1999 and 244
restaurants open at September 27, 1998. Company-owned same restaurant sales for
the three months ended October 3, 1999 were $62.9 million compared to $63.2
million for the three months ended September 27, 1998, a decrease of 0.46%. The
decrease in same restaurant sales resulted from a decrease in transaction counts
offset by an increase in the amount of the average customer check.

Transaction counts per restaurant day, which represent a count of orders taken
rather than actual customers served, decreased 5.4% to 670 in the three months
ended October 3, 1999 compared to 708 in the same period of 1998. The decline in
transaction counts resulted from increased sales of the Company's Sackful
offerings (sacks of eight and twelve Krystal hamburgers), which tend to feed
multiple customers through only one transaction, and increased transaction
counts achieved in the third quarter of 1998 due to the introduction of the
Company's Krystal Chik menu item, which was introduced on a system wide basis in
July of 1998 and was accompanied by heavy promotional efforts. During the
product introduction phase for the Krystal Chik, same restaurant sales increased
significantly, before stabilizing at slightly lower levels in subsequent fiscal
quarters.

The average customer check for Company-owned restaurants for the three months
ended October 3, 1999 was $4.34 compared to $4.06 for the three months ended
September 27, 1998, an increase of 6.9%. The increase in average customer check
was due primarily to increased food volume per transaction resulting from the
Sackful offering, offset by a decrease in food volume sold for the Krystal Chik
and Chik Combos, and to maintaining product price increases of approximately
2.1% implemented in the first quarter of 1999. During the three months ended
October 3, 1999, sales of Sackfuls accounted for $8.8 million or 13.6% of
restaurant sales compared to $3.9 million, or 6.1% of restaurant sales, for the
three months ended September 27, 1998. During the three months ended October 3,
1999, Krystal Chiks and Chik Combos accounted for $8.3 million, or 12.8% of
restaurant sales, compared to $10.9 million, or 17.0% of restaurant sales,
during the three months ended September 27, 1998.

The Company's franchisees opened one franchised restaurant in both the three
months ended October 3, 1999 and the three months ended September 27, 1998. The
franchise system operated 112 restaurants at October 3, 1999 compared to 109 at
September 27, 1998. Franchisee fee income increased 76.6% to $83,000 in the
three months ended October 3, 1999 from $47,000 in the three months ended
September 27, 1998. Royalty revenue increased 15.4% to $1.1 million in the three
months ended October 3, 1999 from $971,000 in the three months ended September
27, 1998. This increase was primarily due to a 4.2% increase in franchise same
restaurant sales and an increase in royalties from the sale of frozen Krystals
of $47,000. Royalties from the sale of frozen Krystals were negligible in the
three months ended September 27, 1998.

Other revenue, which is generated primarily from the Company's aviation
subsidiary, was $1.4 million for the three months ended October 3, 1999 compared
to $1.3 million for the three months ended September 27, 1998, a 10.0% increase.

Cost of restaurant sales was $54.0 million for the three months ended October 3,
1999 compared to $53.2 million for the three months ended September 27, 1998.
The increase in cost of restaurant sales resulted primarily from an increase in
the volume of food sold. Food and paper costs as a percent of restaurant sales
increased to 31.53% in the three months ended October 3, 1999 from 31.10% in the
three months ended September 27, 1998. The increase in food and paper costs as a
percent of restaurant sales resulted from increases in the price of beef, and to
a lesser extent, increases in the prices for bread and cheese products. Direct
labor costs as a percent of restaurant sales increased to 24.16% in the three
months ended October 3, 1999 from 23.72% in the three months ended September 27,
1998. The increase in direct labor costs as a percentage of restaurant sales
resulted from a 8.2% increase in the average pay rate of the Company's hourly
restaurant employees and lower same store restaurant sales, offset in part by
more efficient labor utilization. Other labor costs as a percent of restaurant
sales decreased to 6.32% in the three months ended October 3, 1999 from 6.83% in
the three months ended September 27, 1998. The decrease in other labor costs as
a percent of restaurant sales resulted from more efficient labor utilization.

Depreciation and amortization expenses increased $328,000, or 10.2%, to $3.6
million in the three months ended October 3, 1999 compared to the three months
ended September 27, 1998. The increase resulted primarily from capital
expenditures related to refurbishing restaurant buildings, upgrading restaurant
equipment and opening new restaurants.

General and administrative expenses decreased $1.0 million, or 14.9%, to $5.8
million in the three months ended October 3, 1999 compared to $6.8 million in
the three months ended September 27, 1998. The decrease in general and
administrative expenses resulted primarily from decreases in expenditures
related to corporate office activities, pension plan expense, and group
insurance expense, offset by an increase in advertising expense. The largest
contributor to the decrease in general and administrative expenses was pension
plan expense which decreased $315,000 in the three months ended October 3, 1999
compared to the three months ended September 27, 1998. Group insurance expense
decreased $230,000 in the three months ended October 3, 1999 compared to the
three months ended September 27, 1998. The decrease resulted from lower than
normal benefit claims.

Interest expense, net of interest income, increased $152,000 to $2.6 million in
the three months ended October 3, 1999 from $2.4 million in the three months
ended September 27, 1998. The increase resulted from an increase in interest
expense related to capitalized leases, higher costs related to corporate debt
maintenance, and a decrease in interest income.

The Company's provision for income taxes increased $410,000, or 383.2% to
$517,000 in the three months ended October 3, 1999 as compared to $107,000 for
the three months ended September 27, 1998. The effective income tax rate was
65.4% for the three months ended October 3, 1999 as compared to 159.0% for the
three months ended September 27, 1998. The effective tax rate exceeded the
statutory income tax rate primarily because of the non-deductible portion of
amortization expense associated with acquisition-related goodwill.





        Comparison of the Nine Months Ended October 3, 1999
        ---------------------------------------------------
            to the Nine Months Ended September 27, 1998
            -------------------------------------------


                            CASH OPERATING PROFIT
                            ---------------------

Cash operating profit (net income before interest, taxes, depreciation and
amortization, and other non-operating gains, losses or expenses) is one of the
key standards used by the Company to measure operating performance. Cash
operating profit is used to supplement operating income as an indicator of
operating performance and cash flows from operating activities as a measure of
liquidity, and not as an alternative to measures defined and required by
generally accepted accounting principles.

Cash operating profit for the nine months ended October 3, 1999 increased $4.3
million to $20.8 million (10.4% of revenues) compared to $16.5 million (8.8% of
revenues) for the nine months ended September 27, 1998. The 26.1% increase in
cash operating profit was primarily attributable to an increase in restaurant
sales generated by the introduction of new products and promotional menu items
in the restaurants and a reduction in overall operating costs of the Company as
a percentage of sales.


                            RESULTS OF OPERATIONS
                            ---------------------

Total Krystal system (Company and Franchise combined) restaurant sales for the
nine months ended October 3, 1999 increased 8.4% to $258.5 million compared to
$238.6 million for the nine months ended September 27, 1998.

Total Company revenues increased 7.0% to $200.6 million for the nine months
ended October 3, 1999 compared to $187.4 million for the nine months ended
September 27, 1998. Of the $13.1 million increase, $12.3 million was
attributable to an increase in restaurant sales and $546,000 was attributable to
an increase in royalty revenue. The Company had 248 restaurants open at October
3, 1999 and 244 restaurants open at September 27, 1998. Company-owned same
restaurant sales for the nine months ended October 3, 1999 were $188.1 million
compared to $177.5 million for the nine months ended September 27, 1998, an
increase of 6.0%. The increase in same restaurant sales resulted primarily from
increased food volume sold and an increase in the average customer check, offset
in part by a small decrease in transaction counts. Food volume sold increased
primarily as a result of the introduction of new products, new promotional
programs and continuing improvements in operations at the store level.

The average customer check for Company-owned restaurants for the nine months
ended October 3, 1999 was $4.27 compared to $3.93 for the nine months ended
September 27, 1998, an increase of 8.7%. The increase in average customer check
was due primarily to a movement in the mix of products sold toward higher priced
product offerings such as the Krystal Chik and Krystal Chik Combos and increased
food volume per transaction resulting from the Sackful offering (sacks of eight
and twelve Krystal hamburgers), and maintaining product price increases of
approximately 2.1% implemented in the first quarter of 1999. During the nine
months ended October 3, 1999, sales of Krystal Chiks and Chik Combos accounted
for $23.4 million, or 12.1% of restaurant sales compared to $13.0 million, or
7.2% of restaurant sales, for the nine months ended September 27, 1998. During
the nine months ended October 3, 1999, Sackfuls accounted for $24.1 million, or
12.5% of restaurant sales compared to $5.4 million, or 3.0% of restaurant sales,
for the nine months ended September 27, 1998. Transaction counts per restaurant
day, which represent a count of orders taken rather than actual customers
served, decreased to 681 in the nine months ended October 3, 1999 compared to
685 in the nine months ended September 27, 1998, a decrease of 0.58%. The
decline in transaction counts resulted from increased sales of the Company's
Sackful offerings, which tend to feed multiple customers through only one
transaction, and increased transaction counts achieved in the third quarter of
1998 during the introduction of the Company's Krystal Chik menu item, which was
introduced on a system wide basis in July of 1998 and was accompanied by heavy
promotional efforts. During the product introduction phase for the Krystal Chik,
customer counts increased significantly before stabilizing at slightly lower
levels in subsequent fiscal quarters.

The Company's franchisees opened four franchised restaurants in the nine months
ended October 3, 1999 compared to eleven opened in the nine months ended
September 27, 1998. The franchise system operated 112 restaurants at the end of
the nine months ended October 3, 1999 compared to 109 at the end of the nine
months ended September 27, 1998. Franchise fee income was $193,000 in the nine
months ended October 3, 1999 as compared to $284,000 in the nine months ended
September 27, 1998. Royalty revenue increased 20.1% to $3.3 million in the nine
months ended October 3, 1999 from $2.7 million in the nine months ended
September 27, 1998. This increase was primarily due to a 9.2% increase in
franchise same restaurant sales and an increase in royalties from the sale of
frozen Krystals of $174,000. Royalties from the sale of frozen Krystals were
negligible in the nine months ended September 27, 1998.

Other revenue, which is generated primarily from the Company's aviation
subsidiary, was $4.2 million in the nine months ended October 3, 1999 compared
to $3.8 million in the nine months ended September 27, 1998, a 9.5% increase.

Cost of restaurant sales was $158.1 million in the nine months ended October 3,
1999 compared to $149.8 million in the nine months ended September 27, 1998. The
increase in cost of restaurant sales resulted primarily from an increase in the
volume of food sold. Food and paper costs as a percent of restaurant sales
increased to 31.00% in the nine months ended October 3, 1999 from 30.75% in the
nine months ended September 27, 1998. The increase in food and paper costs as a
percent of restaurant sales resulted from increases in beef prices, the purchase
of higher quality pork items and from increased sales volume of the new Krystal
Chik, which has a higher percent of food costs relative to its sales price than
most of the Company's other menu items. Direct labor costs as a percent of
restaurant sales increased to 23.46% in the nine months ended October 3, 1999
from 23.45% in the nine months ended September 27, 1998. The increase in direct
labor costs as a percentage of restaurant sales resulted from a 8.8% increase in
the average pay rate of the Company's hourly restaurant employees, offset in
part by operating leverage achieved through higher same store sales volumes and
more efficient labor utilization. Other labor costs as a percent of restaurant
sales, decreased to 6.55% from in the nine months ended October 3, 1999 from
7.35% in the nine months ended September 27, 1998. The decrease in other labor
costs as a percent of restaurant sales resulted from higher same store
restaurant sales and more efficient labor utilization. Other labor, which
includes restaurant General Managers' and Assistant Managers' labor cost, is
affected primarily by the number of operating restaurants rather than sales
volumes, and therefore tends to drop as a percentage of restaurant sales when
same store revenues increase.

Depreciation and amortization expenses increased $321,000, or 3.3%, to $10.0
million in the nine months ended October 3, 1999 compared to the nine months
ended September 27, 1998. The increase resulted primarily from capital
expenditures related to refurbishing restaurant buildings, upgrading restaurant
equipment and opening new restaurants.


General and administrative expenses increased $461,000 or 2.5%, to $19.2
million in the nine months ended October 3, 1999 compared to $18.7 million in
the nine months ended September 27, 1998. The increase in general and
administrative expenses resulted primarily from increases in expenditures
related to corporate office activities, increased franchise sales activities and
increased sales, offset by a decrease in group insurance expense. The largest
contributor to the increase in general and administrative expenses was
advertising expense which increased $710,000, or 9.8%, to $8.0 million in the
nine months ended October 3, 1999 compared to $7.3 million in the nine months
ended September 27, 1998. Advertising expense as a percentage of restaurant
sales increased to 4.1% in the nine months ended October 3, 1999 compared to
4.0% during the nine months ended September 27, 1998. Group insurance expense
decreased $403,000 or 27.7%, to $1.1 million in the nine months ended October 3,
1999 compared to $1.5 million in the nine months ended September 27, 1998. The
decrease resulted from lower than normal benefit claims.

During the nine months ended September 27, 1998, the Company agreed to settle
its obligations under certain deferred compensation plans by making lump sum
cash payments to two retired executives. The Company realized a gain of $925,000
from this transaction. The cash payments were funded with the proceeds from
redeeming the cash surrender value of life insurance policies on the lives of
the retired executives. Also during the nine months ended September 27, 1998 the
Company realized a gain of $880,000 related to receipt of life insurance
proceeds in excess of cash surrender value. No such transactions occurred in the
nine months ended October 3, 1999.

Interest expense, net of interest income, decreased $304,000 to $7.7 million in
the nine months ended October 3, 1999 from $8.0 million in the nine months ended
September 27, 1998. The decrease resulted from a decrease in average debt
balances of approximately $1.7 million during the nine months ended October 3,
1999 as compared to the nine months ended September 27, 1998, offset in part by
an increase in interest expense related to capitalized leases and higher costs
related to corporate debt maintenance.

The Company's provision for income taxes increased $1.1 million, or 140.8% to
$1.9 million in the nine months ended October 3, 1999 as compared to $769,000
for the nine months ended September 27, 1998. The effective income tax rate was
59.5% for the nine months ended October 3, 1999 as compared to 122.6% for the
nine months ended September 27, 1998. The effective tax rate exceeded the
statutory income tax rate primarily because of the non-deductible portion of
amortization expense associated with acquisition-related goodwill.


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

The Company does not maintain significant inventory or accounts receivables
since substantially all of its restaurants' sales are for cash, however, the
Company closely monitors receivables from franchisees. The Company typically
receives several weeks of trade credit in purchasing food and supplies which is
standard in the restaurant business. The Company normally operates with working
capital deficits (current liabilities exceeding current assets) and had a
working capital deficit of $13.6 million at October 3, 1999, compared to a
working capital deficit of $11.1 million at January 3, 1999.

Capital expenditures totaled approximately $20.0 million in the nine months
ended October 3, 1999 as compared to $7.6 million in the nine months ended
September 27, 1998. Included in the 1999 capital expenditures is approximately
$1.1 million related to properties the Company expects to sell through sales and
leaseback transactions within the next six months. The Company opened eight new
restaurants during the nine months ended October 3, 1999 and opened two during
the nine months ended September 27, 1998. Management estimates that capital
expenditures will be approximately $4.7 million during the remainder of 1999.
Capital expenditures for the current year are expected to include the
construction and/or land acquisition for up to 15 additional restaurants to open
in 1999, the acquisition of land for restaurants to open in 2000, the
refurbishment of certain restaurants, ongoing capital improvements and the
conversion of restaurant computer systems. The Company expects the cost
associated with Year 2000 compliance will be approximately $7.3 million.

In December 1998, the Company obtained a sales and leaseback commitment with a
firm for up to $6.0 million of properties which are to be developed and
operated as Company-owned Krystal restaurants. In September, 1999, this
commitment was increased to $9.0 million. The primary term of leases under this
arrangement is 15 years, with two successive five year renewal options. In the
nine months ended October 3, 1999, the Company completed one sale and leaseback
transaction at a total sales price of approximately $984,000.

At October 3, 1999, the Company had available cash of approximately $4.8
million, receivables of $1.1 million, and $18.0 million available under the
Company's line of credit. In the opinion of management, these funds and funds
from operations will be sufficient to meet operating requirements, anticipated
capital expenditures and other obligations for the foreseeable future.


                               YEAR 2000
                               ---------

Much of the computer software and, in certain cases, hardware in use today is
not equipped to distinguish the year 2000 from the year 1900. Much of the
software used today was designed with only two digits available for indicating
the current year. This issue, at its fundamental level, threatens the integrity
of date sensitive financial and other information that is produced by an
organization's computer systems, and could undermine the organization's ability
to accurately report financial and other date sensitive information.

The Company has established a Year 2000 strategic plan which adopts a series
of initiatives necessary to upgrade the Company's computer systems and to
minimize the impact of failures of other computer systems to process date-
sensitive information after December 31, 1999. All mission critical systems are
currently in the validation phase of the Year 2000 plan. The Company expects all
critical systems to be Year 2000 compliant before December 31, l999.

A portion of the plan involves replacement of the Company's hardware and
software environment used to run application software, including the Company's
centralized financial systems. The cost of this replacement was approximately
$2.1 million, and was completed in 1998. For each Company restaurant location,
new restaurant reporting and management systems are scheduled for installation
by December 1999, including upgrading of software and selected hardware and
telecommunication systems to bring restaurant systems into Year 2000 compliance.
This cost is estimated to be approximately $7.3 million of which $3.7 million
was incurred through October 3, 1999, $1.0 million that is expected to be
incurred during the fourth quarter, and $2.6 million which will be expensed
through operating leases in subsequent periods.

With respect to vendor and third party associations, the plan includes a survey
of the systems and products provided by third parties, and includes contacting
vendors or third-parties to gain knowledge of the status of their Year 2000
compliance. Currently all items in this area are in the validation process.
Based on information received by the Company, these vendors and third
parties are at various stages of completion of their Year 2000 compliance plans,
and all major suppliers have reported that they expect to be in full compliance
by the end of 1999 calendar year.

Management believes its approach to the Year 2000 issue to be comprehensive,
and does not expect the Year 2000 issue to have a material adverse impact on
its results of operations or financial condition.  Accordingly, the Company
has not developed a contingency plan. However, the Company has partially
developed contingency plans that will be further developed in the event
management determines that Y2K issues could adversely impact the results of
operations or financial condition of the Company. Given the nature of the
problem and the number of factors outside the Company's direct control,
management is continuously evaluating the risks associated with the Year 2000
and cannot guarantee Year 2000 compliance. If for any reason, critical suppliers
are unable to resolve their Year 2000 issues in a timely manner, the Company's
business could be adversely affected. Specifically, the lack of Year 2000
readiness by suppliers could affect the availability and expected cost of food
products and other supplies used by the Company and, consequently, the Company's
restaurant operations.





PART II     OTHER INFORMATION

Item 1.    Legal Proceedings

The Company is party to 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.

(b)   Reports on Form 8-K-

      No Form 8-K was filed by the registrant during the first quarter of 1999.



             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: 11/3/99             /s/Larry D. Bentley
---------------          ------------------------
                         Larry D. Bentley
                        (Vice President and Chief Financial
                         and Accounting Officer)