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 March 30, 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                             
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            (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                      
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     (Address of principal executive offices, including zip code)        
                                                                      
                         (423) 757-1550                                   
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          (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 May 7, 1997, 7,478,568 shares of the Registrant's Common Stock were   
issued and outstanding.                                    
                                                                      
                                                                      

                                                                        
                                                                        
                           THE KRYSTAL COMPANY                          
                           -------------------                          
                              March 30, 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 March 30, 1997 
and December 29, 1996, and (2) the results of their operations, their 
changes in common shareholders' equity and their cash flows for the 
three months ended March 30, 1997 and March 31, 1996, have been included.  
The results of operations for the interim period ended March 30, 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                                                               
                                             March 30,      December 29,
                                              1997            1996     
                                            --------       ---------   
                                           (Unaudited)     (Audited)   
<S>                                          <C>            <C>        
ASSETS                                                                 
-----------------                                                      
CURRENT ASSETS:                                                        
   Cash and temporary investments            $ 32,952       $ 28,765   
   Receivables, net                             1,712          2,566   
   Income tax receivable                          306             -    
   Net investment in direct financing                                  
     leases-current portion                       451            562   
   Inventories                                  1,822          2,156   
   Deferred tax asset                           8,327          8,327   
   Prepayments and other                          577          1,980   
                                              -------        -------   
     Total current assets                      46,147         44,356   
                                              -------        -------   
NET INVESTMENT IN DIRECT FINANCING                                     
   LEASES, excluding current portion              227            305   
                                              -------        -------   
PROPERTY, BUILDINGS, AND EQUIPMENT, net        90,204         91,173   
                                              -------        -------   
LEASED PROPERTIES, net                          1,601          1,653   
                                              -------        -------   
OTHER ASSETS:                                                          
   Cash surrender value of life insurance       5,746          5,638   
   Other                                          786            745   
                                              -------        -------   
     Total other assets                         6,532          6,383   
                                              -------        -------   
       TOTAL ASSETS                          $144,711       $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>                                                              
                                             March 30,     December 29,
                                               1997           1996     
LIABILITIES AND SHAREHOLDERS' EQUITY          -------       ---------  
------------------------------------        (Unaudited)     (Audited)  
<S>                                          <C>            <C>        
CURRENT LIABILITIES:                                                   
   Accounts payable                          $  3,756       $  4,535   
   Accrued liabilities                         20,844         17,986   
   Current portion of liabilities subject                              
     to compromise                             23,817            -     
   Current portion of long-term debt               58            967   
   Current portion of capital                                          
     lease obligations                            376            454   
   Income taxes payable                           -              822   
                                              -------        -------   
     Total current liabilities                 48,851         24,764   
                                              -------        -------   
LIABILITIES SUBJECT TO COMPROMISE,                                     
   excluding current portion                   34,500         58,317   
                                              -------        -------   
LONG-TERM DEBT, excluding current portion       3,654          3,090   
                                              -------        -------   
CAPITAL LEASE OBLIGATIONS, excluding                                   
   current portion                              2,203          2,278   
                                              -------        -------   
DEFERRED INCOME TAXES                           2,287          2,286   
                                              -------        -------   
OTHER LONG-TERM LIABILITIES                     8,743          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, 7,478,568 shares                          
     at March 30, 1997, and 7,491,768 shares                           
     at December 29, 1996                      40,398         40,556   
   Retained earnings                            5,610          5,873   
   Deferred compensation                       (1,535)        (1,741)  
                                              -------        -------   
     Total shareholders' equity                44,473         44,688   
                                              -------        -------   
       TOTAL LIABILITIES AND                                           
         SHAREHOLDERS' EQUITY                $144,711       $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 Months Ended   
                                               --------------------------   
                                                 March 30,     March 31,    
                                                   1997          1996       
                                                 --------      --------     
<S>                                             <C>            <C>          
REVENUES:                                                                   
  Restaurant sales                              $ 57,264       $ 55,876     
  Franchise fees                                      41             33     
  Royalties                                          707            618     
  Other revenues                                   1,151          1,140     
                                                 -------        -------     
                                                  59,163         57,667     
                                                 -------        -------     
COST AND EXPENSES:                                                          
  Cost of restaurant sales                        47,483         46,769     
  Depreciation and amortization expense            2,622          2,802     
  General and administrative expenses              6,717          6,440     
  Other expenses, net                                831            963     
                                                 -------        -------     
                                                  57,653         56,974     
                                                 -------        -------     
OPERATING INCOME                                   1,510            693     
                                                                            
REORGANIZATION ITEM:                                                        
   Professional fees and other expenses          (   719)       (   967)    
                                                                            
INTEREST EXPENSE:                                                           
   Contractual rate interest                     (   986)       ( 1,009)    
   Interest related to certain                                              
     pre-petition liabilities, net               (   182)       (   168)    
                                                                            
INTEREST INCOME                                      307            250     
                                                 -------        -------     
LOSS BEFORE BENEFIT FROM INCOME                                             
   TAXES AND EXTRAORDINARY ITEM                  (    70)       ( 1,201)    
                                                                            
BENEFIT FROM INCOME TAXES                        (    27)       (   455)    
                                                 -------        -------     
LOSS BEFORE EXTRAORDINARY ITEM                   (    43)       (   746)    
                                                                            
EXTRAORDINARY ITEM:                                                         
   Loss on early extinguishment of debt,                                    
     net of applicable income tax benefit                                   
     of $134,000 in 1997                         (   220)           -       
                                                 -------        -------     
NET LOSS                                        $(   263)     $(    746)    
                                                 =======        =======     
                                                                            
LOSS PER COMMON SHARE:                                                      
  Before loss on early extinguishment of debt   $(  0.01)     $(   0.10)    
  Loss on early extinguishment of debt           (  0.03)            -      
                                                 -------        -------     
  Loss per common share                         $(  0.04)     $(   0.10)    
                                                 =======        =======     
WEIGHTED AVERAGE NUMBER OF                                                  
  COMMON SHARES OUTSTANDING                        7,484          7,522     
                                                 =======        =======     
<FN>                                                                        
  See accompanying notes to consolidated condensed financial statements.    
                                                                            
</TABLE>                                                                    
                                                                       
<TABLE>                                                                 
                  THE KRYSTAL COMPANY AND SUBSIDIARY                   
                  ----------------------------------                   
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY            
            -----------------------------------------------            
                      FOR THE THREE MONTHS ENDED                       
                      --------------------------                       
                   MARCH 30, 1997 AND MARCH 31, 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 loss                               -      (   263)        -      
                                                                       
  Forfeiture of 13,200 restricted                                      
    shares                           (   158)       -           158    
                                                                       
  Amortization of deferred                                             
    compensation                         -          -            48    
                                      ------     ------      ------    
BALANCE, March 30, 1997              $40,398    $ 5,610     $(1,535)   
                                      ======     ======      ======    
                                                                       
                                                                       
BALANCE, December 31, 1995           $40,830    $ 8,195     $(2,378)   
                                                                       
  Net loss                               -      (   746)        -      
                                                                       
  Forfeiture of 12,000 restricted                                      
    shares                           (    92)                    92    
                                                                       
  Amortization of deferred                                             
    compensation                         -          -            91    
                                      ------     ------      ------    
BALANCE, March 31, 1996              $40,738    $ 7,449     $(2,195)   
                                      ======     ======      ======    
<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 Three Months Ended, 
                                             --------------------------- 
                                                March 30,      March 31, 
                                                  1997           1996    
                                              -----------   ------------ 
<S>                                              <C>            <C>      
OPERATING ACTIVITIES:                                                    
  Net loss                                       $(  263)       $(  746) 
  Adjustments to reconcile net loss                                      
   to net cash provided by operating                                     
   activities-                                                           
    Depreciation and amortization                  2,622          2,802  
    Increase in deferred taxes                         1            -    
    Loss on early extinguishment of debt             354            -    
    Decrease in receivables                          854            196  
    (Increase) in income tax receivable           (  306)        (  497) 
    Decrease in inventories                          334            399  
    Decrease in prepayments and other              1,403            223  
    Increase (decrease)in accounts payable        (  779)         1,788  
    (Decrease) in income taxes payable            (  822)           -    
    Increase in accrued liabilities                2,858          1,998  
    Other                                         (  255)            40  
                                                 --------       -------- 
      Net cash provided by operating activities                          
        before reorganization activities           6,001          6,203  
    Changes in liabilities from reorganization                           
      activities:                                                        
      (Decrease) in accounts payable                 -           (   60) 
      (Decrease) in accrued liabilities              -           (2,530) 
                                                 --------       -------- 
      Net cash provided by operating activities    6,001          3,613  
                                                 --------       -------- 
INVESTING ACTIVITIES:                                                    
    Additions to property, buildings,                                    
      and equipment                               (1,837)        (  548) 
    Proceeds from sale of property,                                      
      buildings, and equipment                       332            214  
    Payments received on net investment in                               
      direct financing leases                        189            207  
                                                 --------       -------- 
      Net cash used in investing activities       (1,316)        (  127) 
                                                 --------       -------- 
FINANCING ACTIVITIES:                                                    
    Repayments of long-term debt                  (  345)        (   17) 
    Principal payments of capital                                        
      lease obligations                           (  153)        (  169) 
                                                 --------       -------- 
      Net cash used in financing activities       (  498)        (  186) 
                                                 --------       -------- 
NET INCREASE(DECREASE) IN CASH AND                                       
  TEMPORARY INVESTMENTS                            4,187          3,300  
                                                                         
CASH AND TEMPORARY INVESTMENTS,                                          
   beginning of period                            28,765         13,713  
                                                 --------       -------- 
CASH AND TEMPORARY INVESTMENTS,                                          
   end of period                                 $32,952        $17,013  
                                                 ========       ======== 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW                                    
   INFORMATION:                                                          
   Cash paid during the period for:                                      
     Interest                                    $   146        $   176  
     Income taxes                                    999             38  
     Reorganization item: professional fees                              
      and other expenses                             729            196  
                                                 ========        ======= 
<FN>                                                                     
 See accompanying notes to consolidated condensed financial statements.  
                                                                         
</TABLE>                                                                 


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

In July 1994, Krystal was named a defendant in a suit filed in the 
United States District Court for the Middle District of Tennessee, in 
which 41 plaintiffs who were current and former employees of Krystal, 
alleged violations of the Fair Labor Standards Act of 1938 ("FLSA") and 
sought back wages, liquidated damages, costs and attorney's fees.  The 
suit alleged that the plaintiffs were uncompensated for time which they 
worked on Krystal's behalf.  In February 1995, ten additional 
plaintiffs, also current and former employees of Krystal, filed a 
separate suit in the same court containing essentially the same 
allegations.  As a result, Krystal established a reserve of $2,000,000 
to cover the claims of the plaintiffs in the two suits, the costs 
associated therewith, and the claims of any other employees and the 
costs associated therewith.  Since the February 1995 action was 
filed, approximately 300 additional plaintiffs joined that suit.

On April 18, 1995, Krystal settled the July 1994 case by agreeing to pay 
$840,000 to the plaintiffs and their counsel.  By order dated 
August 28, 1995, the Court in the February 1995 case provisionally 
granted the plaintiffs' motion for court-supervised notice of the 
pendency of that action to prospective class members from among current 
and former employees of Krystal for the past three years.

In the third quarter of 1995, a total of 17 additional current and 
former employees of Krystal filed three additional suits in the United 
States District Courts for the Northern District of Georgia, the 
Northern District of Alabama and the Middle District of Florida, 
containing essentially the same allegations as set forth in the July 
1994 and February 1995 suits.

In light of the three new suits filed against Krystal during the third 
quarter of 1995 and the order entered in the February 1995 suit 
provisionally granting the plaintiffs' motion for court-supervised 
notice of the pendency of that action, Krystal established an additional 
$10,000,000 reserve to cover an estimate of the exposure resulting from 
(i) the claims of the plaintiffs in the four pending suits, (ii) the 
potential for additional claims of other current and former employees, 
(iii) related claims, and (iv) the costs associated therewith.

On December 15, 1995, Krystal 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 FLSA. 
The four pending lawsuits filed against Krystal under the FLSA were 
stayed by the bankruptcy filing.

Krystal's wholly-owned subsidiary, Aviation, did not file a petition for 
relief under Chapter 11 with the Court.  Separate condensed financial 
statements of Krystal have not been presented as the operations of Krystal 
represent substantially all of the operations of the Company.

At December 29, 1996, the Company established an additional $4,000,000 reserve
related to the FLSA claims.  Subsequent to December 29, 1996, Krystal 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.  The confirmed plan provided for the following:

  Refinancing - The Company has arranged term loans of (A) $10.0 million 
and (B) $20.0 million and a revolving loan of $23.0 million effective 
April 23, 1997, and maturing April 23, 2002.  The term loans are payable in 
quarterly installments beginning August 1, 1997 and beginning May 1, 1999 
respectively.  The credit available under the revolving loan is reduced to 
$20.0 million June 29, 1998, otherwise funds may be borrowed and repaid any 
time until the April 23, 2002, maturity date.  Interest on the loans is at a 
specified margin over base rates of certain money center banks or over the 
Eurodollar rate.  The Company's interest in all of its real and personal 
properties including leasehold interests, life insurance policies, accounts 
receivable and excess cash is pledged as collateral for the new debt.

  Senior Debt and Secured Debt - Senior debt and secured debt totaling 
approximately $38.6 million along with all past due interest and additional 
interest at 1.3% per annum were paid on April 23, 1997.

  FLSA Claims - FLSA claims represented by class action suits and totaling 
about $12.6 million were paid April 23, 1997.  Pro se claims were settled for
approximately $100,000 and were paid on May 2, 1997.

  Trade Claims - The holders of approximately $7.0 million of trade claims 
were paid 100% of their claims on April 23, 1997 with interest at 8.5% per 
annum for the period December 15, 1995 - April 23, 1997.

Since all non-contested claims have been paid or will be paid in full with 
interest, the reorganization value of all assets and liabilities is book 
value at April 23, 1997.



Item 2.   Management's Discussion and Analysis of Financial      
          -------------------------------------------------      
                Condition and Results of Operations              
                -----------------------------------              
        Comparison of the Three Months Ended March 30, 1997     
        ---------------------------------------------------     
             to the Three Months Ended March 31, 1996             
             ----------------------------------------             

Total revenues increased 2.6% to $59.2 million for the first quarter of 
1997 compared to $57.7 million for the same period of 1996.  Restaurant 
sales accounted for $1.4 million of this $1.5 million increase with 
restaurant sales increasing to $57.3 million in the first quarter of 1997 
from $55.9 million in the same period of 1996.  Company-owned same restaurant
sales for the first quarter of 1997 were $231,000 compared to $221,000 for 
the same period in 1996, an increase of 4.4%.  The Company's positive results 
in the first quarter reflect price increases, the implementation of new 
advertising and promotional programs, continuing improvement in operations 
execution at the restaurant level, and the mild winter weather in the 
southeast in 1997 compared to 1996.  The Company had 249 restaurants open 
at the end of the first quarter of 1997 compared to 254 at the end of the 
first quarter of 1996.

Franchise fees and royalties increased $97,000 to $748,000 in the first 
quarter of 1997 versus the same period in 1996.  The franchise system 
had 90 restaurants open at the end of the first quarter of 1997 compared
to 80 open at the end of the first 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 first quarter of 1997 compared to $1.1 million in 
the first quarter of 1996.  This increase was a result of increased 
fuel sales and hangar rental for the first quarter of 1997 compared
to the first quarter of 1996.
                                                                      
The average customer check for Company-owned full size restaurants in 
the first quarter of 1997 was $3.71 as compared to $3.46 in the same 
period of 1996, an increase of 7.2%.  The average customer check for 
Company-owned double drive-thru restaurants in the first quarter of 
1997 was $4.04 as compared to $3.79 in the same period of 1996, an 
increase of 6.6%.  These increases in average customer check are due to 
product prices increasing approximately 3.3% in the first quarter of 
1997 over the same period in 1996, and introducing promotional products 
and menu combinations which increased the average customer check.  
Customer counts per restaurant day decreased to 674 in the first 
quarter of 1997 compared to 686 in the same period of 1996, a decrease 
of 1.7%.  The customer count decline is partly attributable to a new cash
register being installed throughout the system which counts a customer with 
each sale registered rather than each time the cash drawer is opened as the
prior register system did.  Conversion was completed in 162 restaurants at 
March 30, 1997, and management believes this change has reduced customer 
counts approximately 1.5%, but produces a more accurate customer count.

Cost of restaurant sales increased $714,000, approximately 1.5%, to 
$47.5 million in the first quarter of 1997, from $46.8 million in the 
same period of 1996.  Cost of restaurant sales as a percentage of 
restaurant sales decreased to 82.9% in the first quarter of 1997 from 
83.7% in the same period of 1996.  Total food and paper costs were $18.3 
million in the first quarter of 1997 as compared to $17.8 million in the 
first quarter of 1996.  Food and paper costs as a percentage of restaurant 
sales increased to 32.0% in the first quarter of 1997 as compared to 31.8% 
in the same period of 1996.  Direct labor cost in the first quarter of 1997 
was approximately the same in the first quarter of 1997 as in the same period
for 1996.  Direct labor as a percent restaurant sales was 22.4% in the first 
quarter of 1997 compared to 23.0% for the first quarter of 1996.  Assistant 
restaurant manager labor cost increased $249,000, approximately 9.6%.  
Assistant restaurant manager labor cost as a percentage of restaurant sales 
increased to 5.0% in the first quarter of 1997 from 4.7% in the same 
period of 1996.  As part of a plan 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 decreased $17,000, approximately 1.0%, due to the 
closing of certain restaurants during 1996.

Depreciation and amortization expenses decreased $180,000, approximately 
6.4%, to $2.6 million in the first quarter of 1997 as compared to $2.8 
million for the same period in 1996.  This decrease in the first 
quarter of 1997 is due to some assets being fully depreciated in late 
1996 and the closing of certain restaurants in 1996.

General and administrative expenses increased by $277,000, approximately
4.3%, to $6.7 million in the first quarter of 1997 compared to $6.4 million
in the same period for 1996.  Advertising expense was approximately $2.4
million in the first quarter of 1997 and the first quarter of 1996.
Advertising expense as a percentage of restaurant sales was 4.2% in 
first quarter of 1997 and 4.3% in the first quarter of 1996.  Salaries
were $1.9 million for the first quarter of 1997 and for the first quarter
of 1996.

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 such professional fees and 
expenses incurred during the first quarter of 1997 was $719,000 compared to 
$967,000 for the first quarter of 1996. 

Due to the loss for the first quarter of 1997, an income tax benefit of 
$27,000 was recorded for the quarter compared to the income tax benefit
of $455,000 for the first quarter of 1996.  The effective tax rate of 38%
is the approximate combined statutory federal and state income tax rates.

The Company recorded a loss of $220,000, net of tax benefit, in the first
quarter of 1997 related to the early extinguishment of debt.


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

The filing of the voluntary petition for reorganization under 
Chapter 11 of the Federal Bankruptcy Code on December 15, 1995 had a 
significant impact on the Company's liquidity.  The filing stayed 
payment of pre-petition outstanding obligations as of December 15, 1995,
resulting in a one-time cash benefit of approximately $7.0 million to 
the Company.  The Bankruptcy Court approved the payment of pre-petition 
sales taxes and real and personal property taxes on owned property 
totaling approximately $2.8 million, of which approximately $2.6 million 
was paid during the first quarter of 1996; the remainder was paid as 
due.  While the Company was reorganizing under Chapter 11, it was 
prohibited from paying interest or principal on pre-petition obligations 
without the approval of the Bankruptcy Court.  To the extent cash 
generated from operations exceeded capital expenditures, working capital 
requirements, payments approved by the Bankruptcy Court and 
administrative expenses of the reorganization, the Company continued 
to accumulate cash.

The terms and provisions of the reorganization plan were approved by the 
Bankruptcy Court on April 10, 1997 and became effective April 23, 1997.  As 
discussed more fully in the Notes above, 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 about $38.6 million 
along with all past due interest and additional interest at 1.3% per annum; 

--the settlement of FLSA claims represented by class action suits and 
totaling about $12.6 million with pro se claims settled for approximately 
$100,000; 

--the payment of holders of approximately $7.0 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 
receivable since substantially all of its restaurants' sales are for 
cash.  The Company's receivables from franchisees are closely monitored 
and collected weekly.  Approximately $23.8 million of Liabilities Subject 
to Compromise is classified as Current Liabilities at March 30, 1997 due 
to the approved reorganization plan.  The Company normally operates with 
working capital deficits (current liabilities exceeding current assets), 
and, as a result of the classification of certain Liabilities Subject to 
Compromise as current liabilities, the Company had a working capital 
deficit of $2.7 million at March 30, 1997 compared to a working capital 
surplus of $12.4 million at March 31, 1996. 

Capital expenditures totaled approximately $1.8 million in the first 
quarter of 1997 compared to $548,000 for the same period in 1996.  The 
Company opened no new restaurants during the first quarter of 1997 
or the first quarter 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 approximately 53.5% 
of its restaurant sites and leases the remainder.




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).  

Subsequent to December 29, 1996, Krystal 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 dismissal 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 10-Credit Agreement dated as of April 22, 1997 between the 
      Company and TransAmerica Business Credit Corporation.
      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 January 17, 1997  by the Registrant announcing 
      the agreement for the settlement of outstanding FLSA Claims.
      Subsequent to the end of the first quarter, a Form 8-K was filed on 
      April 24, 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 FLSA claims.
                                                             
                                                             
                                                             
             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: 5/7/97            /s/Camden B Scearce                
--------------           ------------------------          
                         Camden B. Scearce                 
                        (Vice President and Chief Financial
                         and Accounting Officer)