SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                For the quarterly period ended September 27, 1998

                                       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 No. 0-23226


                              GRILL CONCEPTS, INC.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


         Delaware                                          13-3319172
-------------------------------                ---------------------------------
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)


        11661 San Vicente Blvd., Suite 404, Los Angeles, California 90049
       -------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)


                                 (310) 820-5559
                           ---------------------------
                           (Issuer's telephone number)


                -------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X   No
                                                                      ---    ---

     As of November  10, 1998,  16,015,553  shares of Common Stock of the issuer
were outstanding.


<PAGE>

                              GRILL CONCEPTS, INC.

                                      INDEX


                                                                          Page
                                                                          Number
                                                                         -------
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Condensed Balance Sheets - September 27, 1998
         and December 28, 1997............................................     1

         Consolidated Condensed Statements of Operations - For the three
         and nine months ended September 27, 1998 and September 28, 1997..     3

         Consolidated Condensed Statements of Cash Flows - For the nine
         months ended September 27, 1998 and September 28, 1997 ..........     4

         Notes to Consolidated Condensed Financial Statements.............     5

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results  of Operations.......................................     9

PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K.................................    13

SIGNATURES................................................................    14


<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS


                      GRILL CONCEPTS, INC. AND SUBSIDIARIES

                      CONSOLIDATED CONDENSED BALANCE SHEETS


                                     ASSETS


                                        September 27, 1998     December 28, 1997
                                        ------------------     -----------------
Current assets:
       Cash and cash equivalents              $448,011             $272,567
       Inventories                             356,744              302,631
       Receivables                             454,811              375,117
       Prepaid expenses                      1,220,582              955,329
                                            ----------           ----------
          Total current assets               2,480,148            1,905,644
                                            ----------           ----------
Property and equipment, at cost             13,393,863           10,340,678
       Less:  accumulated depreciation      (5,042,734)          (4,277,546)
                                            ----------           ----------
       Property and equipment, net           8,351,129            6,063,132
                                            ----------           ----------
Goodwill                                       231,632              237,636

Liquor licenses                                613,686              613,686

Other assets                                   257,539              190,757
                                            ----------           ----------
       Total assets                        $11,934,134           $9,010,855
                                            ==========           ==========

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


                                       1
<PAGE>


                      GRILL CONCEPTS, INC. AND SUBSIDIARIES

                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                   (Continued)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>

                                                              September 27, 1998        December 28, 1997
                                                              ------------------        -----------------
<S>                                                            <C>                       <C>  
Current liabilities:                                   
       Bank line of credit                                           $600,000                $480,000
       Accounts payable                                             1,741,786               1,359,529
       Accrued expenses                                             1,374,422                 858,050
       Current portion of long term debt                              358,400                 346,208
       Note payable - related party                                    84,500                  84,500
                                                                   ----------               ---------
          Total current liabilities                                 4,159,108               3,128,287

Long-term debt, net of current                                      2,221,646                 699,364
                                                                   ----------               ---------
       Total liabilities                                            6,380,754               3,827,651
                                                                   ----------               ---------
Minority interest                                                     268,266                      --

Stockholders' equity:
     Series B, Convertible Preferred Stock, $.001 par value,
       authorized 1,000,000 shares; shares issued and
       outstanding: 0 in 1998, 32 in 1997.                                 --                       1
     Series I, Convertible Preferred Stock,$.001 par value,
       authorized 1,000,000 shares, shares issued and
       outstanding: 1000 shares in 1998 and 1997                            1                       1
     Series II, Convertible Preferred Stock, $.001 par value,
       authorized 1,000,000 shares, shares issued and
       outstanding: 500 shares in 1998 and 1997                             1                       1
     Common stock, $.00001 par value: 30,000,000 shares
       authorized shares issued and outstanding:
       16,015,553 in 1998 and 15,672,481 in 1997                          160                     157

     Additional paid-in capital                                    11,053,913              11,053,913

     Accumulated deficit                                           (5,768,961)             (5,870,869)
                                                                   ----------               ---------
       Stockholders' equity                                         5,553,380               5,183,204
                                                                   ----------               ---------
       Total liabilities and stockholders' equity                 $11,934,134              $9,010,855
                                                                   ==========               =========

</TABLE>


  The accompanying notes are an integral part of these consolidated condensed
                              financial statements


                                       2
<PAGE>

                      GRILL CONCEPTS, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

<TABLE>

                                                    Three Months Ended              Nine Months Ended        
                                               -----------------------------   -----------------------------
                                               September 27,   September 28,   September 27,   September 28,
                                                   1998              1997          1998            1997     
                                               -------------   -------------   -------------   -------------
<S>                                            <C>             <C>            <C>              <C>    
Revenues:
       Sales                                    $8,354,440     $7,066,991      $25,094,244     $21,514,492
       Management and license fees                 287,000              -          358,715               -
                                                ----------      ---------       ----------      ----------
           Total Revenues                        8,641,440      7,066,991       25,452,959      21,514,492

Cost of sales                                    2,424,390      1,949,128        6,950,367       5,892,371
                                                ----------      ---------       ----------      ----------
Gross Profit                                     6,217,050      5,117,863       18,502,592      15,622,121
                                                ----------      ---------       ----------      ----------
Costs and expenses:
       Restaurant operating expenses             5,302,029      4,412,527       15,515,032      13,289,238
       General and administrative                  654,037        543,904        1,896,636       1,607,024
       Depreciation and amortization               272,545        220,378          793,185         645,038
       Amortization of preopening expenses          58,500         90,400          135,600         226,000
                                                ----------      ---------       ----------      ----------
          Total operating expenses               6,287,111      5,267,209       18,340,453      15,767,300
                                                ----------      ---------       ----------      ----------
Income (loss) from operations                      (70,061)      (149,346)         162,139       (145,179)
Non-recurring credit                                     -              -                -         93,000
Interest expense, net                              (53,255)       (22,070)        (138,015)       (95,684)
                                                ----------      ---------       ----------      ----------
Income (loss) before taxes on income
    and minority interest                         (123,316)      (171,416)          24,124       (147,863)

Provision for taxes on income                       (1,200)            --           (3,600)          (800)
Minority interest                                   49,381             --           81,384             --
                                                ----------      ---------       ----------      ----------
Net income (loss)                                 ($75,135)     ($171,416)        $101,908      ($148,663)
                                                ----------      ---------       ----------      ----------
Preferred stock:
   Dividends accrued                                     -       (12,639)          (34,550)       (13,056)
   Accounting deemed dividends                           -       (42,133)          (82,877)      (168,522)
                                                ----------      ---------       ----------      ----------
                                                         -       (54,772)         (117,427)      (181,578)
                                                ----------      ---------       ----------      ----------
Net income (loss) applicable to
   common stock                                   ($75,135)    ($226,188)         ($15,519)     ($330,241)
                                                ==========      =========       ==========      ==========
Net income (loss) per share                                       ($0.01)
   Basic net income (loss)                               -             -             $0.01         ($0.01)
                                                ----------      ---------       ----------      ----------
   Preferred Stock
       Dividends                                         -        ($0.00)           ($0.00)        ($0.00)
       Accounting deemed dividends                       -        ($0.00)           ($0.01)        ($0.01)
                                                ----------      ---------       ----------      ----------
                                                         -        ($0.00)           ($0.01)        ($0.02)
                                                ----------      ---------       ----------      ----------
Net loss applicable to common stocks                 $0.00        ($0.01)            $0.00         ($0.02)
                                                ==========      =========       ==========      ==========
Average weighted shares outstanding             16,015,553    15,672,481        15,840,956     14,901,494
                                                ==========    ===========       ==========     ===========
</TABLE>

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

                                       3
<PAGE>

                      GRILL CONCEPTS, INC. AND SUBSIDIARIES

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS


 
<TABLE>
                                                              Nine Months Ended
                                                    ---------------------------------------
                                                    September 27, 1998   September 28, 1997
                                                    ------------------   ------------------
<S>                                                    <C>                 <C>    
Cash flows from operating activities:
   Net income (loss)                                       $101,908           ($148,663)
   Adjustments to reconcile net income to net cash
       provided by operating activities:
       Depreciation and amortization                        928,785             871,038
       Changes in operating assets and liabilities
         Inventories                                        (54,113)            (12,331)
         Receivables                                        (79,694)
         Prepaid expenses                                  (265,253)             (8,868)
         Other assets                                        19,158              22,332
         Accounts payable                                   382,257            (162,163)
         Accrued liabilities                                541,107            (419,169)
                                                          ---------            ---------
   Net cash provided by operating activities              1,574,155             142,176
                                                          ---------            ---------
Cash flows from investing activities;
   Additions to furniture, equipment and improvements    (3,053,185)         (1,667,088)
                                                          ---------            ---------
   Net cash used in investing activities                 (3,053,185)         (1,667,088)
                                                          ---------            ---------
Cash flows from financing activities:
   Proceeds from note payable                               800,000
   Proceeds from investment in L.L.C.                       349,650
   Proceeds from issue of Common and Preferred Stock              -           1,456,630
   Proceeds from line of credit                             120,000             400,000
   Increase in bank term loan                               580,000
   Payments on long-term debt                              (195,176)           (262,622)
                                                          ---------            ---------  
   Net cash provided by financial activities              1,654,474           1,594,008
                                                          ---------            ---------
Net increase (decrease) in cash and cash equivalents        175,444             (69,096)
 
Cash and cash equivalents, beginning of period              272,567             372,317
                                                          ---------            ---------
Cash and cash equivalents, end of period                   $448,011            $303,221
                                                          =========            =========
Supplemental cash flow information:
   Cash paid during the period for:
       Interest                                            $117,039             $80,265
       Income taxes                                          $5,800              $2,650

</TABLE>

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


                                       4
<PAGE>


                     GRILL CONCEPTS, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS



1.   INTERIM FINANCIAL PRESENTATION

     The interim consolidated  financial statements are prepared pursuant to the
     requirements for reporting on Form 10-QSB.  These financial statements have
     not been audited by independent accountants.  The December 28, 1997 balance
     sheet data was  derived  from  audited  financial  statements  but does not
     include  all  disclosures   required  by  generally   accepted   accounting
     principles.  The interim  financial  statements and notes thereto should be
     read in conjunction with the financial statements and notes included in the
     Company's   Form  10-KSB  dated  December  28,  1997.  In  the  opinion  of
     management, these interim financial statements reflect all adjustments of a
     normal  recurring  nature necessary for a fair statement of the results for
     the interim periods presented. The current period results of operations are
     not necessarily indicative of results which ultimately will be reported for
     the full year ending December 27, 1998.


2.   STOCKHOLDERS' EQUITY

     During the nine months  ended  September  27,  1998,  22 shares of Series B
     Convertible  Preferred Stock were converted resulting in the issuance of an
     aggregate of 225,425 shares of common stock including 24,512 shares paid in
     lieu of dividends at an average price of $.80 per share.

3.   DEEMED DIVIDEND

     In accordance  with the position of the Securities and Exchange  Commission
     regarding accounting for Preferred Stock which is convertible at a discount
     from market price for common stock, the Company has reflected an accounting
     "deemed  dividend." This accounting  deemed dividend,  which relates to the
     issuance of the Preferred  Stock, is a non-cash,  non-recurring  accounting
     entry for determining  income (loss)  applicable to common stock and income
     (loss) per share and has been fully amortized as of June 28, 1998.

4.   MINORITY INTEREST

     In  connection  with the building of a new  restaurant,  in January 1998, a
     limited  liability  company  was formed for the  operation  of "The  Grill"
     restaurant  in San Jose,  California,  of which the  Company  owns  50.05%.
     Construction  of the restaurant  has been funded by a capital  contribution
     from the Company of $350,350 and by a capital  contribution of $349,650 and
     a $800,000  loan from the other  minority  interest  member of the  limited
     liability company. The consolidated  condensed financial statements include
     the accounts of the limited liability company.

5.   NET INCOME PER SHARE

     Statement of Financial  Accounting  Standards (SFAS) No. 128, "Earnings Per
     Share",  was  adopted in the  fourth  quarter  of 1997 and  supersedes  the
     Company's  previous  standards  for  computing  net income per share  under
     Accounting  Principles  Board  No.  15.  The  new  standard  requires  dual
     presentation  of net  income  per  common  share and net  income per common
     share, assuming dilution,  on the face of the income statement.  Net income
     per  share  data has been  restated  for  1997 in  accordance  with the new
     standard.  Dilutive net income (loss) per share is not presented  since all
     of the dilutive shares are antidilutive for the periods presented.

                                       5
<PAGE>

6.   COMPREHENSIVE INCOME

     SFAS No. 130,  "Reporting  Comprehensive  Income",  was adopted  during the
     first  quarter  of  1998.  The  standard  establishes  guidelines  for  the
     reporting  and  display  of  comprehensive  income  and its  components  in
     financial statements.  Companies are required to report total comprehensive
     income for interim periods  beginning first quarter of 1998.  Disclosure of
     comprehensive  income and its components will be required  beginning fiscal
     year end 1998.  The  adoption of the new standard did not have an impact on
     the Company's  financial  statements since the Company had no comprehensive
     income components as defined in SFAS No. 130 for the periods presented.

7.   FUTURE ACCOUNTING REQUIREMENTS

     In June 1997, the FASB issued SFAS No. 131,  "Disclosures About Segments of
     an Enterprise and Related Information". The standard establishes guidelines
     for  reporting  information  on  operating  segments  in interim and annual
     financial  statements.  The new  standard  will be  effective  for the 1998
     fiscal year.  Abbreviated  quarterly  disclosure will be required beginning
     first quarter of 1999, and will include both 1999 and 1998 information. The
     Company does not believe that the new standard will have a material  impact
     on the reporting of its segments.

     Consistent  with practices in the restaurant  industry,  the Company defers
     its  restaurant  preopening  costs and  amortizes  them over a twelve month
     period following the opening of the respective  restaurant.  In April 1998,
     The American  Institute of Certified  Public  Accountants  ("AICPA") issued
     Statement  of Position  ("SOP")  98-5  "Reporting  on the Costs of Start-Up
     Activities." The SOP requires  entities to expense as incurred all start-up
     and  preopening  costs that are not otherwise  capitalizable  as long-lived
     assets.  The SOP is effective for the fiscal years beginning after December
     15, 1998,  with earlier  adoption  encouraged.  Restatement  of  previously
     issued  financial  statements is not permitted by the SOP, and entities are
     not required to report the pro forma effects of the retroactive application
     of the new accounting standard.  The Company's adoption of the required new
     accounting principle at January 1, 1999 will involve the recognition of the
     cumulative effect of the change in accounting principle required by the SOP
     as a  one-time  charge  against  earnings,  net of any  related  income tax
     effect,  retroactive  to that  date.  Net  deferred  preopening  costs were
     approximately $131,660 at September 27, 1998.

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
     Instruments  and Hedging  Activities".  This  Statement  requires  that all
     derivative  instruments  be  recorded  on the  balance  sheet at their fair
     value.  Changes  in the fair value of  derivatives  will be  recorded  each
     period in current  earnings or other  comprehensive  income,  depending  on
     whether a derivative is designated as part of a hedge  transaction  and, if
     it is, the type of hedge  transaction.  The new rules will be effective the
     first  quarter of 2000.  The Company does not believe that the new standard
     will have a material impact on the Company's financial statements.

8.   BANK BORROWING

     In July,  1998 the  Company  renewed  its  credit  facilities  with a bank,
     increasing  its term loan to  $1,500,000,  payable in sixty  equal  monthly
     installments  of $25,000  beginning  September 1, 1998.  Interest at Bank's
     Reference Rate plus 0.25% (8.75% at September 27, 1998) is payable monthly.

     The previous  $1,000,000  revolving  line of credit was reduced to $600,000
     with interest at the same rate as noted above.


                                       6
<PAGE>

9.   AIRPORT GRILL L.L.C.-SALE AND LICENSE AGREEMENT

     Since January 1997, the Company,  as a 51% owner of Airport Grill,  L.L.C.,
     has owned and  operated  a Daily  Grill  restaurant  located  in the Thomas
     Bradley International Airport in Los Angeles.

     Effective  April 1, 1998,  the company  sold and  assigned  its interest in
     Airport Grill,  L.L.C. to Air Terminal  Services,  Inc., an affiliate of CA
     One Services,  Inc.,  which owns the remaining  interest in Airport  Grill,
     L.L.C.  Pursuant to the terms of the sale of such  interest,  Air  Terminal
     Services,  Inc. agreed to pay to the Company $309,955.71,  payable in three
     equal  installments of $103,318.57 with the first  installment being due at
     closing and subsequent installments being due on April 1, 1999 and April 1,
     2000. As a result the Company's ownership interest in Airport Grill, L.L.C.
     has terminated.

     Simultaneous  with the sale of its interest in Airport Grill,  L.L.C.,  the
     Company and Airport Grill, L.L.C. entered into a License Agreement pursuant
     to which Airport Grill,  L.L.C.  will continue to have the right to utilize
     the Daily Grill" name, logos,  recipes and other rights associated with the
     operation of the Daily Grill  restaurant  at Thomas  Bradley  International
     Airport.  Pursuant  to the terms of the License  Agreement,  the Company is
     entitled to receive  royalties  in an amount  equal to 2.5% of the first $5
     million of annual revenues from the restaurant and 4% of annual revenues in
     excess of $5 million.

     As a result of the sale and  licensing  arrangement  discussed  above,  the
     Company  recognized  $236,000  of  income  during  the  nine  months  ended
     September 27, 1998.

10.  HOTEL RESTAURANT AGREEMENTS

     Commencing  in 1998,  the Company has  expanded its  operating  strategy to
     include the  operation  of Daily Grill and The Grill  restaurants  in Hotel
     properties.

     a.   Agreement-Hotel Restaurant Properties, Inc.
          -------------------------------------------

     In order to facilitate the Company's efforts to open restaurants on a large
     scale basis in Hotel  properties,  the  Company,  in August of 1998 entered
     into an Agreement with Hotel Restaurant  Properties,  Inc. ("HRP") pursuant
     to which HRP has agreed to assist the  Company in locating  suitable  hotel
     locations for the opening of the Company's restaurants.  HRP is responsible
     for  identifying  suitable hotel  locations in which a Grill or Daily Grill
     can be operated  ("Managed  Outlets")  and  negotiating  and entering  into
     leases or management agreements for those properties.  The Company will, in
     turn,  enter into management  agreements  with HRP or the hotel owners,  as
     appropriate. The Company will advance certain pre-opening costs and certain
     required  advances  ("Manager Loans") and will manage and supervise the day
     to day operations of each Managed  Outlet.  The Company will be entitled to
     receive from HRP a base  overhead fee equal to $4,167 per month per Managed
     Outlet.  Net income after  repayments  required on Manager  Loans from each
     Managed  Outlet will be  allocated  75% to the Company and 25% to HRP.  The
     Agreement  also  provides  that both HRP and the Company  will have certain
     rights to cause the Company to acquire HRP commencing in May of 2004.

     b.   Management Agreement-The City Bar & Grill in the San Jose Hilton Hotel
          ----------------------------------------------------------------------

     In  February of 1998,  the  Company  entered  into a  Management  Agreement
     pursuant to which the Company assumed management  responsibilities  for all
     food and beverage  services,  including room service but excluding  banquet
     sales, of the City Bar & Grill located in the Hilton Hotel in San Jose. The
     Company is entitled to a management  fee equal to 8% of the gross  receipts
     of the City Bar & Grill. Additionally,  the Company will receive 50% of the
     annual profits of the City Bar & Grill in excess of the profits of the City
     Bar & Grill during 1997,  with certain defined  modifications.  The Company
     began management of the City Bar & Grill in May of 1998.

                                       7
<PAGE>

     c.   Restaurant Lease and Concession-The Hilton Hotel of Salt Lake City
          ------------------------------------------------------------------

     In July of  1998,  HRP  entered  into a  Restaurant  Lease  and  Concession
     Agreement with Sunstone Hotel Properties, Inc. pursuant to which HRP leased
     7,000 square feet of  restaurant  and bar space in the Hilton Hotel of Salt
     Lake City. It is presently  anticipated  that a Daily Grill restaurant will
     begin  operations at the site beginning in February of 1999. The restaurant
     will be operated in accordance with the terms of the Agreement  between the
     Company and HRP.

     d.   Daily Grill Restaurant Management Agreement-Georgetown Inn
          ----------------------------------------------------------

     In July of 1998,  HRP and the Company  entered into a Management  Agreement
     with CapStar Georgetown Company,  L.L.C. pursuant to which HRP will operate
     a Daily Grill in a 5,000 square foot restaurant  facility in the Georgetown
     Inn in  Washington,  D.C. It is  presently  anticipated  that a Daily Grill
     restaurant  will begin  operations at the site  beginning in March of 1999.
     The  restaurant  will be  operated  in  accordance  with  the  terms of the
     Agreement between the Company and HRP.




                                       8
<PAGE>

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

The following  discussion and analysis  should be read in  conjunction  with the
Company's financial statements and notes thereto included elsewhere in this Form
10-QSB.  Except for the historical  information contained herein, the discussion
in this Form 10-QSB contains  certain  forward  looking  statements that involve
risks and uncertainties,  such as statements of the Company's plans, objectives,
expectations, intentions and Year 2000 issues. The cautionary statements made in
this Form  10-QSB  should be read as being  applicable  to all  related  forward
statements  wherever  they  appear in this Form  10-QSB.  The  Company's  actual
results could differ  materially  from those discussed here. For a discussion of
certain  factors that could cause  actual  results to be  materially  different,
refer to the Company's  Annual Report on Form 10-KSB for the year ended December
28, 1997.

Material  Changes in Results of Operations  for the Nine Months Ended  September
27, 1998 as Compared to the Nine Months Ended September 28, 1997.

The  results of  operations  for the 39 week  period  ended  September  27, 1998
include the  operations  of eight Daily Grill  restaurants;  three  Pizzeria Uno
units;  The Grill  restaurant  and twenty weeks  operation of the San Jose Grill
restaurant. The first nine months of 1997 includes seven Daily Grill restaurants
for the full period plus the Washington, D.C. Daily Grill for twenty nine weeks,
three Pizzeria Uno stores and The Grill.

The  Company's  total  revenues  for the nine month  period  increased  18.3% to
$25,453,000  from  $21,514,000  for the  same  period  in 1997.  Total  revenues
included  $25,094,000 of sales revenues and $359,000 of management and licensing
fees in 1998 as compared to  $21,514,000 of sales revenues and no management and
licensing  fees in 1997.  The  increase  of $3.6  million,  or  16.6%,  in sales
revenues  is  primarily  a result of (1) $1.0  million  of added  sales from the
inclusion of the  Washington,  D.C.  Daily Grill for the full nine month period,
(2) $1.4  million of sales from the San Jose Grill which  opened in May of 1998,
and (3) a 5.5%  ($1.1  million)  increase  in same  store  sales as a result  of
increased customer count. Management and licensing fees during 1998 consisted of
(1) $123,000 of fees from a hotel restaurant  management service  implemented in
the second quarter of 1998, and (2) $236,000 of gain and licensing fees from the
LAX Daily Grill  pursuant to a sale of the  Company's  interest in the LAX Daily
Grill and a license arrangement entered into effective April 1, 1998.

While  revenues  increased by 18.3% in the 1998 nine month period when  compared
with the similar period in 1997,  cost of sales increased 18.0% and decreased as
a percentage of revenues from 27.4% to 27.3%.  This decrease in cost of sales as
a percentage of revenues during the 1998 period is attributable principally to a
new buying program begun in late 1997 which has reduced net food costs.
 
As a result,  gross profit increased 18.4% from $15,622,000  (72.6% of revenues)
in 1997 to $18,503,000 (72.7% of revenues) in 1998.

Restaurant operating expenses increased 16.7% to $15,515,000 (61.0% of revenues)
in 1998 from  $13,289,000  (61.8% of revenues) in 1997.  The dollar  increase in
restaurant operating expenses was primarily attributable to the operation of the
new Washington,  D.C.  restaurant for a full nine months, and the opening of the
new San Jose Grill restaurant during the 1998 period.

General  and  administrative  expenses  increased  18.0%  to  represent  7.5% of
revenues in the 1998 nine months  while  amounting to a similar 7.5% of revenues
in the 1997 period.  The dollar  increase in this  corporate  overhead  category
amounted to $289,000  and resulted  primarily  from added  corporate  personnel,
merit increases and related payroll costs.

Depreciation and  amortization  expense,  excluding  amortization of pre-opening
expenses, increased by $148,000 during the 1998 nine month period reflecting the
operation of the  Washington,  D.C. and San Jose  restaurants.  Amortization  of
preopening  expenses for these new restaurants  totaled $136,000 during the 1998
period.  The Company had amortization of preopening  expenses of $226,000 during
the similar period in 1997. 


                                       9
<PAGE>

The quarter and nine month operations also reflect a minority  interest from the
inclusion of the results of the San Jose Grill L.L.C.

In  accordance  with the  position of the  Securities  and  Exchange  Commission
relating to accounting  for  Preferred  Stock which is  convertible  into common
stock at a discount  from the  market  price of the common  stock,  the  Company
reported a "deemed  dividend" of  approximately  $83,000 during the current nine
month period.  Additionally,  the Company  reported accrued or paid dividends on
preferred  stock of $35,000 during the similar  period.  The "deemed  dividend,"
which relates to the issuance of convertible  preferred  stock during 1997, is a
non-cash, non-recurring accounting entry which, along with the accrued dividends
on preferred stock, is a deduction from net income in calculating  income (loss)
applicable to common stock.  The deemed  dividend had been fully amortized as of
June 28, 1998.

Material Changes in Financial Condition, Liquidity and Capital Resources.

At September 27, 1998 the Company had negative  working  capital of $1.7 million
and a cash balance of $0.4million  compared to negative  working capital of $1.2
million and a cash balance of $0.3  million at December 28, 1997.  The change in
working  capital and cash was primarily  attributable to the added borrowing for
investment  in the San Jose  Grill and the new  Daily  Grill  opened in  Tyson's
Corner, Virginia in October 1998.

The  Company's  need  for  capital  resources  has  resulted  from,  and for the
foreseeable  future is  expected to relate  primarily  to, the  construction  of
restaurants.  Historically,  the  Company has funded its  day-to-day  operations
through its operating  cash flow,  while funding growth through a combination of
bank borrowing,  loans from  stockholders/officers,  the sale of Debentures, the
sale of  Preferred  Stock,  the  issuance  of  warrants,  and loans  and  tenant
allowances from certain of its landlords.  At September 27 1998, the Company had
existing  bank  borrowing of $2.1  million,  a loan from a San Jose Grill L.L.C.
member   of  $0.8   million,   an  SBA  loan  of  $0.1   million,   loans   from
stockholders/officers  of $0.1  million and  loans/advances  from a landlord and
others of $0.1 million.

In July,  1998 the  Company  increased  its bank credit  availability  from $1.6
million  to $2.1  million  consisting  of a  $600,000  line of credit and a $1.5
million  term loan  payable in 60 equal  monthly  installments  of $25,000  plus
interest.

Construction  of The Grill at the San Jose Fairmont  Hotel was completed and the
restaurant  opened on May 13, 1998. A Daily Grill  restaurant in Tyson's Corner,
Virginia was  completed and opened on October 19, 1998.  This  restaurant is the
second Washington, D.C. area Daily Grill restaurant.

The Grill at the San Jose Fairmont  Hotel was built and is owned and operated by
a limited  liability  company of which the Company owns 50.05%.  Construction of
the restaurant was funded by a capital contribution from the Company of $350,350
and by a capital  contribution  of $349,650  and a $800,000  loan from the other
member of the limited liability company.  Substantially all operating cash flows
from the limited  liability  company will be used to pay down the $800,000  loan
prior to the  distribution of funds to the members.  The Company will,  however,
receive a management fee of 5% of sales.

The cost to build new Daily Grill  restaurants  is  anticipated to range from $1
million to $2 million per site depending upon the location and available  tenant
allowances.  The Company budgeted $1.2 million to build the Tyson's Corner Daily
Grill.  Construction and opening of the Tyson's Corner Daily Grill was funded by
a combination of operating cash flow and bank  borrowing.  The Company  recently
increased the amount  available  under its lines of credit with a portion of the
increased bank line used to fund part of the Tyson's Corner Daily Grill opening.

Other than for the  opening of new  restaurants,  management  believes  that the
Company  has  adequate  resources  on hand  and  through  cash  flow to  sustain
operations for at least the following 12 months.


                                       10
<PAGE>

Future Accounting Requirements

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  About Segments of an
Enterprise and Related  Information".  The standard  establishes  guidelines for
reporting  information  on  operating  segments in interim and annual  financial
statements.  The new  standard  will be  effective  for the  1998  fiscal  year.
Abbreviated  quarterly  disclosure  will be required  beginning first quarter of
1999,  and will  include  both 1999 and 1998  information.  The Company does not
believe that the new standard  will have a material  impact on the  reporting of
its segments.

Consistent  with  practices in the restaurant  industry,  the Company defers its
restaurant  preopening  costs  and  amortizes  them over a twelve  month  period
following the opening of the respective restaurant.  In April 1998, The American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 98-5 "Reporting on the Costs of Start-Up  Activities."  The SOP requires
entities to expense as incurred all start-up and  preopening  costs that are not
otherwise  capitalizable  as  long-lived  assets.  The SOP is effective  for the
fiscal  years  beginning   after  December  15,  1998,  with  earlier   adoption
encouraged.  Restatement  of  previously  issued  financial  statements  is  not
permitted  by the SOP,  and  entities  are not  required to report the pro forma
effects of the  retroactive  application  of the new  accounting  standard.  The
Company's  adoption of the required new accounting  principle at January 1, 1999
will  involve  the  recognition  of  the  cumulative  effect  of the  change  in
accounting  principle required by the SOP as a one-time charge against earnings,
net of any related  income tax effect,  retroactive  to that date.  Net deferred
preopening costs were approximately $131,660 at September 27, 1998.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities". This Statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of  derivatives  will be recorded each period in current  earnings or
other comprehensive  income,  depending on whether a derivative is designated as
part of a hedge  transaction and, if it is, the type of hedge  transaction.  The
new rules will be  effective  the first  quarter of 2000.  The Company  does not
believe  that the new  standard  will have a  material  impact on the  Company's
financial statements.

Year 2000 Issue

The Company recognizes the need to ensure that its operations,  as well as those
of third parties with whom the Company conducts business,  will not be adversely
impacted by Year 2000  software  failures.  Software  failures due to processing
errors  potentially  arising  from  calculations  using the year 2000 date are a
known  risk.  The  Company  is  addressing  this  risk to the  availability  and
integrity  of  financial  systems and the  reliability  of  operational  systems
through  a  combination  of  actions  including  the  implementation  of  a  new
financial,  payroll,  human  resources  software  packages  that are  Year  2000
compliant and new hardware in both its corporate headquarters and restaurants.

The corporate  network of the Company's  headquarters has been replaced with new
hardware  with a Windows NT software  package.  The Company plans to order a new
accounting,  payroll and accounts  payable  software  package which is Year 2000
compliant. Installation is anticipated for January of 1999.

Each new restaurant has had new year 2000 compliant  software installed with the
new in-restaurant point of sale and back office computer systems.

The Company is evaluating the software  currently  being utilized in its 6 older
restaurants.  While we have received assurance from the software's supplier that
such software is year 2000 compliant,  we are  investigating  new more efficient
software to replace the older  software and expect a decision  before the end of
1998.

The Company has incurred  approximately  $40,000 for the new corporate  hardware
and anticipates a cost of $60,000 for new corporate software.

New  restaurant  computer  systems and software cost  approximately  $60,000 per
restaurant. This is, however, a part of the initial capital contribution for new
restaurants.  Regarding the Year 2000 issue, the greatest risk to the Company is
that the systems placed in service by the Company itself and/or its vendors will
not be fully  operational by the end of calendar year 1999. This could adversely
impact the day to day  operations of the Company.  However,  it is the Company's
belief that all of its systems  will be in full  operation  in adequate  time to
ensure the Company is fully operational by mid 1999.  Beginning in calendar year
1999,  if any current  vendors  are not Year 2000  compliant,  the Company  will
identify alternative vendors who are Year 2000 compliant. Should any part of the
implementation  by the Company or its vendors not function as  anticipated,  the
Company believes that it has ample time to develop  contingency  plans to ensure
Company operations will not be materially affected.

                                       11
<PAGE>

Certain Factors Affecting Future Operating Results

In addition to the opening of new restaurants  during 1998, as described  above,
and the various factors  described in the Company's Annual Report on Form 10-KSB
for the year ended  December 28, 1997,  the  following  developments  during the
first half of this year may impact future operating results.

Since January 1997, the Company,  as a 51% owner of Airport Grill,  L.L.C.,  has
owned and  operated a Daily  Grill  restaurant  located  in the  Thomas  Bradley
International Airport in Los Angeles.

Effective  April 1, 1998,  the company sold and assigned its interest in Airport
Grill,  L.L.C. to Air Terminal Services,  Inc., an affiliate of CA One Services,
Inc., which owns the remaining interest in Airport Grill, L.L.C. Pursuant to the
terms of the sale of such interest, Air Terminal Services, Inc. agreed to pay to
the Company $309,955.71, payable in three equal installments of $103,318.57 with
the first installment being due at closing and subsequent installments being due
on April 1, 1999 and April 1, 2000. As a result the Company's ownership interest
in Airport Grill, L.L.C. has terminated.

Simultaneous with the sale of its interest in Airport Grill, L.L.C., the Company
and Airport Grill,  L.L.C.  entered into a License  Agreement  pursuant to which
Airport  Grill,  L.L.C.  will  continue  to have the right to utilize  the Daily
Grill" name,  logos,  recipes and other rights  associated with the operation of
the Daily Grill restaurant at Thomas Bradley International Airport.  Pursuant to
the terms of the License Agreement, the Company is entitled to receive royalties
in an amount equal to 2.5% of the first $5 million of annual  revenues  from the
restaurant and 4% of annual revenues in excess of $5 million.

As a result of the sale and licensing  arrangement  discussed above, the Company
recognized  $236,000 of income  during the nine months ended  September 27, 1998
and will recognize ongoing licensing revenues.

Commencing  with the  Company's  management  of the  City  Grill in the San Jose
Hilton, in May, 1998, the Company has expanded its operating strategy to include
the operation of Daily Grill and The Grill restaurants in Hotel properties.  The
Company provides management services for the City Bar & Grill and is entitled to
a management  fee equal to 8% of gross  receipts of the City Bar & Grill and 50%
of  annual  profits  of the City Bar & Grill in  excess  of  certain  historical
profits.

In order to facilitate  the  Company's  efforts to open  restaurants  on a large
scale basis in Hotel properties,  the Company, in August of 1998 entered into an
Agreement with Hotel Restaurant  Properties,  Inc. ("HRP") pursuant to which HRP
has agreed to assist the Company in locating  suitable  hotel  locations for the
opening  of the  Company's  restaurants.  HRP  is  responsible  for  identifying
suitable  hotel  locations  in  which a Grill  or Daily  Grill  can be  operated
("Managed  Outlets")  and  negotiating  and entering  into leases or  management
agreements  for  those  properties.  The  Company  will,  in  turn,  enter  into
management agreements with HRP or the hotel owners, as appropriate.  The Company
will  advance   certain   pre-opening   costs  and  certain   required   capital
contributions  ("Manager  Loans") and will manage and  supervise  the day to day
operations of each Managed Outlet.  The Company will be entitled to receive from
HRP a base overhead fee equal to $4,167 per month per Managed Outlet. Net income
after  repayments  required on Manager  Loans from each  Managed  Outlet will be
allocated  75% to the Company and 25% to HRP. The  Agreement  also provides that
both HRP and the  Company  will have  certain  rights to cause  the  Company  to
acquire HRP  commencing  in May of 2004.  

                                       12
<PAGE>

In July of 1998, HRP entered into a Restaurant  Lease and  Concession  Agreement
with Sunstone Hotel  Properties,  Inc. pursuant to which HRP leased 7,000 square
feet of  restaurant  and bar space in the Hilton Hotel of Salt Lake City.  It is
presently anticipated that a Daily Grill restaurant will begin operations at the
site  beginning  in  February  of  1999.  The  restaurant  will be  operated  in
accordance with the terms of the Agreement between the Company and HRP.

In July of 1998,  HRP and the Company  entered into a Management  Agreement with
CapStar Georgetown  Company,  L.L.C.  pursuant to which HRP will operate a Daily
Grill in a 5,000  square  foot  restaurant  facility  in the  Georgetown  Inn in
Washington,  D.C. It is presently anticipated that a Daily Grill restaurant will
begin  operations at the site beginning in March of 1999. The restaurant will be
operated in accordance  with the terms of the Agreement  between the Company and
HRP.

The Company  expects that the opening of  restaurants  pursuant to the agreement
with HRP,  including  restaurants  at the Hilton Hotel of Salt Lake City and the
Georgetown Inn, will require  minimal capital  commitment on the Company's part,
other than for routine opening costs.

The Company continues in its efforts to sell its Pizza Restaurants.

There can be no  assurance  that the Company will be  successful  in opening new
restaurants in accordance with its anticipated opening schedule; that sufficient
capital  resources will be available to fund scheduled  restaurant  openings and
start-up  costs;  that new restaurants  can be operated  profitably;  that hotel
restaurant management services will produce satisfactory cash flow and operating
results to support such operations;  that additional hotels will elect to retain
the Company's hotel restaurant  management services;  that the Pizza Restaurants
can be sold on terms  satisfactory to the Company;  that proceeds,  if any, from
the sale of the Pizza  Restaurants  can be deployed in a manner so as to replace
the cash flows, revenues and operating profits from the Pizza Restaurants.

                           PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits

Exhibit No.                              Description
-----------                             -------------

 10.1     Blanket  Conveyance,   Bill  of  Sale  and  Assignment  between  Grill
          Concepts, Inc. and Air Terminal Services, Inc.

 10.2     License  Agreement  between Grill  Concepts,  Inc. and Airport  Grill,
          L.L.C.

 10.3     Agreement,  dated August 27, 1998,  between Grill  Concepts,  Inc. and
          Hotel Restaurant Properties, Inc.

 10.4     Management  Agreement  for the City Bar & Grill in the San Jose Hilton
          Hotel

 10.5     Restaurant  Management  Agreement between Grill Concepts,  Inc., Hotel
          Restaurant Properties, Inc. and CapStar Georgetown Company, L.L.C. for
          the Georgetown Inn

 27.1     Financial Data Schedule

     (b)  Reports on Form 8-K

          None


                                       13
<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                             GRILL CONCEPTS, INC.


Dated:  November 10, 1998                    By: /s/ ROBERT SPIVAK
                                                -------------------------------
                                             Robert Spivak, President and C.E.O


Dated:  November 10, 1998                    By: /s/ BEN SUMNER
                                                -------------------------------
                                             Ben Sumner, Chief Financial Officer
                                             and Accounting Officer