UNITED STATES
               SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C.  20549

                            FORM 10-K
Mark One

 X   Annual report pursuant to  Section 13 or 15(d)  of the Securities  Exchange
     Act of 1934 for the fiscal year ended January 2, 2000
     Transition report  pursuant  to  Section 13  or  15(d)  of  the  Securities
     Exchange Act of 1934

                 Commission File Number 0-20716

                        TACO CABANA, INC.
     (Exact name of registrant as specified in its charter)

     Delaware                                       74-2201241
(State or other jurisdiction            (IRS employer identification no.)
 of incorporation or organization)

     8918 Tesoro Drive, Suite 200, San Antonio, Texas  78217
  (Address of principal executive offices, including ZIP Code)

                         (210) 804-0990
      (Registrant's telephone number, including area code)

   Securities Registered Pursuant to Section 12(b) of the Act:

     Title of Each Class                Name of Exchange on Which Registered
          None                               None

   Securities Registered Pursuant to Section 12(g) of the Act:

                       Title of Each Class
                  Common Stock, $0.01 par value

     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  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
     Indicate by check mark if disclosure of delinquent filers pursuant to  Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge, in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    X
     As of February  28, 2000, the  aggregate market value  of the voting  stock
held by non-affiliates of the  Registrant, based on the  last sale price of  the
Common Stock  of the  Registrant as  quoted on  the NASDAQ  National Market  was
$63,170,586 (for purposes of calculating this amount, only directors,  officers,
and beneficial owners of 5% or more of the capital stock of the Registrant  have
been deemed affiliates).
     The number of shares of the  Common Stock of the Registrant outstanding  as
of February 28, 2000 was 11,586,375.

                     DOCUMENTS INCORPORATED BY REFERENCE

     Part III of this report incorporates by reference certain portions of the
definitive proxy statement which the Registrant will file with the Securities
and Exchange Commission in connection with the Company's annual meeting of
stockholders following the fiscal year ended January 2, 2000.




FORM 10-K INDEX

                             PART I


ITEM 1.   BUSINESS............................................  3

ITEM 2.   PROPERTIES.......................................... 10

ITEM 3.   LEGAL PROCEEDINGS................................... 10

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 10

          EXECUTIVE OFFICERS OF THE COMPANY................... 11

                             PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
          STOCKHOLDER MATTERS................................. 12

ITEM 6.   SELECTED FINANCIAL DATA............................. 13

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS................. 15

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
          MARKET RISK......................................... 24

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......... 24

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE................. 24

                            PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.. 25

ITEM 11.  EXECUTIVE COMPENSATION.............................. 25

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT.......................................... 25

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 25

                             PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
          ON FORM 8-K......................................... 26




PART I


ITEM 1.   BUSINESS

General

     Taco Cabana, Inc., a Delaware corporation  (the "Company" ), pioneered  the
Mexican patio cafe concept with its first restaurant in 1978 and, as of  January
2, 2000, operates and  franchises a total of  119 such restaurants  system-wide.
Of these,  the  Company  owns  and operates  109  Taco  Cabana  restaurants  and
franchisees of  the  Company  own  and operate  the  remaining  10  Taco  Cabana
restaurants.   The  Company's  restaurants (including  franchises)  are  located
primarily in Texas, and  are also located in  Georgia, Indiana, New Mexico,  and
Oklahoma.

     Taco Cabana restaurants feature generous portions of fresh, premium quality
Tex-Mex and  traditional  Mexican style  food  at  an exceptional  value.    The
restaurants provide  interior,  semi-enclosed  and patio  dining  areas  with  a
festive Mexican  theme.   Menu  items  include flame-grilled  beef  and  chicken
fajitas served on sizzling  iron skillets, " Chicken Flameante" TM (a  marinated
rotisserie chicken), quesadillas, traditional  Mexican and American  breakfasts,
other Tex-Mex  dishes  and fresh,  hot  flour tortillas.    Unlike many  of  its
competitors, the  Company makes  most menu  items  fresh daily  in each  of  its
restaurants.

Taco Cabana Food and Pricing Philosophy

     The Company is committed  to selling premium food  which it believes to  be
among the highest quality of any chain in the restaurant industry.  This process
begins with the selection of the freshest available ingredients.  The  Company's
menu items are prepared  strictly in accordance  with authentic and  well-tested
recipes.  Taco  Cabana restaurants  also offer  a variety  of beverage  choices,
including margaritas and beer.  Alcoholic  beverages currently account for  less
than 4% of gross sales.

     The  Ingredients.    The  Company  has  implemented  a  purchasing  program
structured to ensure that all of the ingredients used in the preparation of  the
Taco Cabana  menu  items are  of  the  highest quality.  The  Company  regularly
inspects its vendors to ensure both  that the products purchased by the  Company
conform to its standards, and that the prices offered are competitive.  The meat
used in making fajitas as well as most other principal ingredients are purchased
through supply contracts to ensure availability and minimize the risks of  price
fluctuation.

     The Preparation.  The menu items offered at any Taco Cabana restaurant  are
prepared at that restaurant from fresh meat and produce ingredients delivered by
suppliers to most restaurants three times  each week.  The Company is  committed
to differentiating  itself from  other quick  service competitors  by  utilizing
fresh, high quality ingredients as well as the preparation of most  items  "from
scratch".    In order  to  simplify operations  and  provide a  more  consistent
product, the Company  has recently  implemented the usage  of a  number of  pre-
prepared items.

     Pricing Philosophy.   The Company offers  value by pricing  its menu  items
below the  price  of comparable  menu  items in  sit-down  Mexican  restaurants.
Although Taco  Cabana's food  costs (as  a percentage  of sales)  are  generally
higher than  quick  service  chains  as  a result  of  the  premium  quality  of
ingredients used,  the  Company  believes that  this  point  of  differentiation
contributes to the achievement of average  unit volumes in excess of most  quick
service restaurants.


Taco Cabana Restaurants

     Restaurant Layout.   Taco  Cabana restaurants  average approximately  3,200
square feet (exclusive  of the  exterior dining  area) and  provide seating  for
approximately 80 customers, with additional  patio seating for approximately  50
customers.

     Taco Cabana restaurants are typically distinctive in appearance,  conveying
a Mexican  theme  and  permitting  easy  identification  by  passing  motorists.
Inside, exposed elements of the kitchen  display the freshness of Taco  Cabana's
food and the authenticity of its  preparation.  Taco Cabana's restaurant  design
enables customers  to observe  fresh  fajitas cooking  on  a charcoal  grill,  a
machine making fresh, hot flour tortillas, Chicken FlameanteTM rotating on spits
and the preparation of  other food items.   Upon entry,  the customer places  an
order selected from  an overhead  menu board, proceeds  down a  service line  to
where the order is picked up, and then passes a Salsa Bar en route to the dining
area.  The distinctive Salsa Bar offers Taco Cabana customers freshly  prepared,
authentic Tex-Mex ingredients such as Salsa de Fuego (made with charred  peppers
and tomatoes), pico de gallo and salsa (all "made  from scratch" throughout  the
day at  each  restaurant),  cilantro, pickled  jalapeno  slices,  crisp  chopped
onions, and  fresh sliced  limes.   According to  the season,  time of  day  and
personal preference, the customer may choose to dine either in the  restaurant's
brightly colored  and  festive interior  dining  area or  the  semi-enclosed  or
outdoor patio areas.  The addition of traditional and contemporary Latin  music,
tropical landscaping,  and  authentic  decorative artifacts  create  an  overall
dining environment which the  Company believes is  both attractive and  festive.
Most Taco Cabana restaurants also offer drive-thru service.

     The Company began constructing  its new prototype  restaurant in 1996  with
further improvements  made  to the  design  in  1998 and  1999.  The  prototypes
incorporate several new  and different features  that set them  apart from  Taco
Cabana restaurants  previously  constructed.   The  prototypes  feature  rounded
fronts, as well as Southwest accents such as a clay tile roof, heavy wood  beams
and a trellis  that shades  the patio area,  and add  the use  of bright  colors
outside and  inside,  including  colored tiles,  doors,  windows,  and  awnings.
Corrugated metal wall panels, aged wood finishes, and distressed stainless steel
counter tops are featured inside, all of which are intended to replicate an  old
Mexican cafe.  Backlit  signage on the exterior  of the building broadcasts  the
unique menu items served  at Taco Cabana.   Favorite features retained from  the
original Taco Cabana restaurants include display cooking where the guest can see
the food being prepared, liberal use of the Taco Cabana's signature pink  color,
and the self-serve  fresh Salsa  Bar.  The  prototypes were  designed to  reduce
overall construction  costs, improve  functional  efficiency, allow  for  better
guest service, and enhance Taco Cabana's unique patio cafe image. Since November
1996, the Company has opened 25 restaurants under this new design.

     During  1997,  the  Company  initiated  a  re-image  program  for  existing
restaurants which incorporates many of the features of the new prototype design.
As of January 2,  2000, 69 restaurants  were re-imaged or  converted to the  new
prototype design, bringing a  system-wide total of 94  restaurants with the  new
design. The Company expects to re-image the remaining restaurants during 2000.




     Restaurant Locations.    The  following table  sets  forth  the  number  of
restaurants as of January  2, 2000  by area of dominant  influence ( "ADI")  for
television and radio advertising:




ADI*                 Company-Owned  Franchised(1)   Total

     San Antonio             33           0            33
     Houston                 31(2)        0            31
     Austin                  15           0            15
     Dallas/Fort Worth       20           0            20
     El Paso                  6           0             6
     Oklahoma City, Oklahoma  3           0             3
     Bryan/College Station    0           2             2
     Albuquerque, New Mexico  0           2             2
     Amarillo                 0           2             2
     Atlanta, Georgia         0           1             1
     Tulsa, Oklahoma          1           0             1
     Waco                     0           1             1
     Corpus Christi           0           1             1
     Ft. Wayne, Indiana       0           1             1
                            ---          --           ---
        Total               109          10           119
                            ===          ==           ===



___________________________________________________________________

*  All of the ADIs are located in Texas except as otherwise indicated.

(1)      Represents franchised Taco Cabana restaurants.
(2)      Includes three mall-unit Taco Cabana restaurants.




Customer Convenience

     The Company  operates its  restaurants to  enable customers  to dine-in  or
take-out, as  they choose.   In  most cases,  the restaurants  also provide  the
convenience  of  drive-thru  windows  which,  in  the  aggregate,  account   for
approximately 40% of  the Company's sales.   A majority  of the restaurants  are
open 24  hours a  day.   This  strategy is  continually evaluated  for  economic
viability on a restaurant by restaurant basis.

Customer Service

     The Company is committed to consistently providing personal, attentive  and
efficient service in order  to attract repeat customers.   Restaurant and  shift
managers are encouraged to follow a " front of the house"  style of  management,
which requires that the managers spend most of their time attending to customers
at the register, drive-thru windows or in the dining areas.

Marketing

     The Company utilizes  an integrated, multi-level  marketing approach  which
includes periodic  company-wide promotions,  direct mail,  in-store  promotions,
local store  marketing,  and  other  strategies,  including  the  use  of  radio
advertising in its  major markets.   The Company  expects to  execute this  plan
utilizing a marketing budget of approximately 3.65% of sales.

Expansion

     The Company's  near-term  strategy is  to  achieve a  dominant  or  leading
position among quick service  Mexican food restaurants in  each of its  targeted
principal markets in order to obtain marketing and operating efficiencies.   The
Company seeks to implement  this strategy by  selectively adding restaurants  in
existing and new markets.  The Company's 2000 objective is to continue expanding
into new markets.  The Company plans to open fifteen freestanding restaurants in
2000, approximately twelve of  which will be  outside the State  of Texas.   The
Company will continue its development of the Oklahoma City and Tulsa markets and
will begin development of the Phoenix  market.  In conjunction with the  opening
of the Company's new restaurants in the  Tulsa market, an existing unit will  be
closed.

     The Company  believes  the site  selection  process is  very  important  in
determining  the  potential  success  of  a  particular  restaurant  and  senior
management devotes substantial time and resources to analyzing each  prospective
site.  The Company focuses on selecting locations which clear stringent  hurdles
with regards  to the  projected return  on  initial investment.   A  variety  of
factors are considered  in the site  selection process,  including local  market
demographics, site visibility and accessibility (including drive-by traffic  and
ease of  drive-thru accessibility),  proximity  to competitive  operations,  and
proximity to generators of potential customers, such as major retailers,  retail
centers, medical or hospital facilities, office complexes, hotel concentrations,
and stadiums, arenas, theaters or other entertainment centers.


Restaurant Operations and Management

     The Company seeks  to maintain quality  and consistency  in its  restaurant
operations by  carefully training  and  supervising personnel  and  establishing
exacting standards  relating  to  food  quality,  friendliness  of  service  and
cleanliness of the restaurant facility.  A Mystery Shop program requires  random
visits with the purpose of scoring each restaurant on its food quality, friendly
service and cleanliness.   The Company has also  established an 800 hotline  for
customer comments.   It is  the Company's policy  to ensure  that customers  are
served quickly and that customers receive orders correctly filled and  delivered
in a courteous manner.

     The Company maintains  financial and accounting  controls for  each of  its
restaurants through  use of  centralized accounting  and management  information
systems.   The  Company  has  installed  throughout  all  of  its  company-owned
restaurants an in-store computer-based management support system that allows for
daily polling  of  sales  and  labor  information.    Additionally,  a  separate
management  information  system  has  been  developed  and  implemented  in  all
company-owned restaurants which provides for daily polling of food costs.   This
system records the receipt  of inventory through the  scanning of bar-codes  and
integrates with the point of sale system thus providing immediate cost of  sales
data and  inventory  records.   The  system is  designed  to improve  food  cost
management, provide corporate  management quicker access  to financial data  and
reduce  the  time   devoted  by  its   restaurant  managers  to   administrative
responsibilities.

     Operations are  managed  by restaurant  general  managers who  complete  an
intensive training program during which they are instructed in all areas of Taco
Cabana's  restaurant  operations.     Such  areas   of  training  include   food
preparation,   customer   service,   cost   controls,   facility    maintenance,
communications skills and employee relations.   Restaurant general managers  are
overseen by division leaders (individuals with responsibility for the  operation
of multiple restaurants  within a  market) and  by regional  Vice Presidents  of
Operations.  An incentive plan has been established in which all restaurant  and
division leaders participate.  Awards under  the incentive plan are tied to  the
achievement of specified sales, profitability and qualitative performance goals.
In addition to  the incentive  plan, general  managers and  corporate staff  are
periodically granted stock options which vest over five years.


Franchising Program

     At January 2, 2000, the Company  had five franchisees operating a total  of
10 Taco Cabana restaurants.   The Company did not  enter into any new  franchise
agreements during 1999 and does not currently anticipate new franchisee signings
during 2000.

Competition

     Taco Cabana's restaurants compete both with  fast food operations and  with
traditional  sit-down  Mexican  restaurants.    Management  believes  that   the
Company's combination  of  freshly  prepared  food,  distinctive  ambiance,  and
superior service  help to  distinguish Taco  Cabana restaurants  from fast  food
operations, while  Taco  Cabana's price-value  relationship  differentiates  its
restaurants from more expensive sit-down or casual dining restaurants.
The food service industry is intensely  competitive with respect to  price,
service,  location  and  food  quality,  and  there  are  many  well-established
national, regional and locally-owned competitors in the Company's market  areas,
some of which have greater financial and other resources than the Company.  Some
of such competitors have also been in existence longer than the Company and  are
better established  in areas  where Taco  Cabana's restaurants  are or  will  be
located.   The restaurant  business is  often affected  by changes  in  consumer
tastes, economic  conditions,  population,  traffic  patterns,  availability  of
employees and cost increases.

Employees

     At January 2, 2000,  the Company employed  approximately 3,500 persons,  of
whom approximately  3,400  were  operations employees  and  the  remainder  were
corporate personnel.    Most employees,  other  than restaurant  management  and
corporate personnel, are paid on an hourly basis.  The Company believes that  it
provides working conditions and  wages that are comparable  with those of  other
companies in  the  restaurant  industry  operating in  its  market  area.    The
Company's employees are not covered by a collective bargaining agreement.

     The Company  does  not subscribe  to  any workers'  compensation  insurance
program in the  State of Texas,  where the great  majority of its  company-owned
restaurants are currently located.  As such, it is subject to negligence actions
by its employees and is not  able to assert contributory negligence and  certain
other defenses. In addition, employees might be able to recover certain types of
damages that would  not be  available to  them if  the Company  subscribed to  a
workers' compensation insurance program.  The Company self-insures a portion  of
such risk, and carries excess liability  coverage that it believes is  adequate.
This practice  has  not had  any  material  adverse effect  upon  the  Company's
operations or financial position since it was adopted in 1988.

Trademarks, Service Marks and Trade Dress

     The Company regards its trademarks, service marks and trade dress as having
significant value and as being important to its marketing efforts.  The  Company
has registered its principal Taco Cabana logo and design with the United  States
Patent and Trademark Office on the Principal Register as a service mark for  its
restaurant  services,  has  secured  or  has  applied  for  state  and   federal
registrations of  several  other  advertising or  promotional  marks,  including
variations of its principal mark, and  has applied for registrations in  foreign
countries of its principal mark and  several other marks.  The Company's  policy
is to pursue registration of its  principal marks and to oppose strenuously  any
infringement of its marks or trade dress.

Government Regulation

     Each company-owned and  franchised restaurant is  subject to regulation  by
federal agencies and  to licensing  and regulation  by state  and local  health,
sanitation, safety, fire and other departments  relating to the development  and
operation of restaurants, including  regulations relating to alcoholic  beverage
sales, environmental, building and zoning requirements, preparation and sale  of
food,  and  laws  governing  the  Company's  relationship  with  its  employees,
including  minimum   wage  requirements,   overtime,  working   conditions   and
citizenship requirements.   Difficulties or failures  in obtaining the  required
licenses or approvals could delay or  prevent the opening of new restaurants  or
the continued operation of existing restaurants.

     The Company is subject to Federal Trade Commission ( "FTC") regulation  and
state laws which regulate the  offer and sales of  franchises.  The Company  may
also become subject  to state  laws which  regulate substantive  aspects of  the
franchisor-franchisee relationship.  The FTC requires the Company to furnish  to
prospective franchisees  a  franchise offering  circular  containing  prescribed
information.  A number of states in which the Company might consider franchising
also regulate the offer and sale  of franchises and require registration of  the
franchise  offering  with  state  authorities.  State  laws  that  regulate  the
franchisor-franchisee relationship presently  exist in a  substantial number  of
states and bills have been introduced in Congress and other states from time  to
time  which   would  provide   for  regulation   of  the   franchisor-franchisee
relationship in  certain  respects.    Certain  of  such  laws  may  restrict  a
franchisor  in  the  termination  of  a  franchise  agreement,  although   these
provisions have not had a significant effect on the Company's operations.

     The Company is subject  to the Fair Labor  Standards Act and various  state
laws governing such  matters as minimum  wage requirements,  overtime and  other
working conditions and citizenship  requirements.  A  significant number of  the
Company's food  service personnel  are  paid at  rates  related to  the  federal
minimum wage and increases in the minimum wage will increase the Company's labor
costs. The Company is subject to the Texas "dram-shop"  laws and may be  subject
to the " dram-shop"  laws of  certain other states.   Dram-shop  laws provide  a
person injured by  an intoxicated person  the right to  recover damages from  an
establishment that  wrongfully served  alcoholic  beverages to  the  intoxicated
person.  The Company is also subject  to the Americans with Disabilities Act  of
1990, which, among other things, may  require certain minor further  renovations
to existing restaurants to meet federally mandated access and use  requirements.
The cost of these renovations is not expected to be material to the Company.

     The Company must also comply with the Family Medical Leave Act (the "Family
Leave Act"), which covers  employers of 50 or  more persons at locations  within
any 75-mile radius.  The Family Leave  Act requires covered  employers to  grant
eligible employees up to 12 weeks of unpaid leave for family and medical reasons
and to reinstate the employee to the same  or an equivalent position at the  end
of the leave. An employee may take leave for the birth, adoption, or foster care
of a child;  for any serious  health condition of  a spouse,  sibling, child  or
parent; or for an employee's own serious health condition.

     The Company believes that  it is operating  in substantial compliance  with
applicable laws and regulations governing its operations.

Geographic Concentration

     During fiscal  1999, approximately  98% of  the  Company's net  sales  were
derived from  restaurants located  in the  State of  Texas.   As a  result,  the
Company's results of operations may be materially affected by weather,  economic
or business conditions within these markets.  Also, given the Company's  present
geographic concentration, adverse publicity relating to Taco Cabana  restaurants
could have a more pronounced adverse effect on the Company's overall sales  than
might be the case if the Company's restaurants were more broadly dispersed.




ITEM 2.   PROPERTIES

     The Company  currently  owns  37  of  its  restaurant  sites  and  owns  an
additional thirteen  buildings on  properties with  ground leases.  The  Company
leases its remaining restaurant locations.  The Company may purchase a number of
its current and future restaurant locations where it is cost effective to do so.
Substantially all of Taco Cabana's restaurants are free-standing buildings.  The
Company has typically needed 120 days after the signing of a lease and obtaining
required permits to complete construction and open a new restaurant.  Additional
time is sometimes needed  to obtain certain  government approvals and  licenses,
such as liquor licenses.

     Properties leased by the  Company are typically leased  under "triple net"
leases that  require the  Company to  pay real  estate taxes  and utilities  and
maintain insurance  with respect  to the  premises and,  in many  cases, to  pay
contingent rentals based on  sales in excess of  specified amounts.  The  leases
have initial  terms of  10 to  20 years  with options  to renew  for  additional
periods which range  from 5 to  15 years.   Approximately 90%  of the  Company's
current leases have remaining terms or renewal options extending more than  five
years from January 2, 2000.




ITEM 3.   LEGAL PROCEEDINGS

     The  Company  is  a  party  to  routine  negligence  or  employment-related
litigation in the  ordinary course of  its business.   No such pending  matters,
individually or in the aggregate,  are deemed to be  material to the results  of
operations or financial condition of the Company.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company did  not submit  any matter during  the fourth  quarter of  the
Company's fiscal  year  ended  January  2,  2000 to  a  vote  of  the  Company's
stockholders, through the solicitation of proxies or otherwise.




     EXECUTIVE OFFICERS OF THE COMPANY

     The executive officers  of the  Company and  their respective  ages are  as
follows:

     Name                      Age      Position

     Stephen V. Clark          46       Chief Executive Officer, President and
                                        Director
     Douglas Gammon            53       Senior Vice President - Human  Resources
                                        and People Development
     Dennis Greenia            50       Senior Vice President Marketing
     David G. Lloyd            36       Senior Vice President - Finance, Chief
                                        Financial Officer, Secretary
                                        and Treasurer

     Mr. Clark  has  served  as the  Company's  Chief  Executive  Officer  since
November 1996, and as the President, Chief Operating Officer, and as a  Director
since April  1995.   Prior to  that,  Mr. Clark  was  with Church's  Chicken,  a
division of America's Favorite Chicken, for seventeen years with his final title
having been Senior Vice President and  Concept General Manager.  He also  served
on the executive committee of America's Favorite Chicken and was on the Board of
Directors of Church's Operators Purchasing Association.   In his final  position
with America's Favorite  Chicken, Mr. Clark  was primarily  responsible for  the
day-to-day operations  of over  1,100 company-owned  and franchised  units  with
aggregate sales volume in excess of $600 million.

     Mr. Gammon joined the Company in March 1997 as Senior Vice President, Human
Resources and People Development.  From December 1989 to March 1997, Mr.  Gammon
served as Vice President of Human Resources at Marriott International which  has
over 15,000 employees in 50 states.  Mr. Gammon has over 18 years of  experience
in the human resources field as well as over six years experience in  restaurant
operations.  He was the past President  for the Council of Hotel and  Restaurant
Trainers.

     Mr. Greenia joined  the Company  in July 1998  as Senior  Vice President  -
Marketing. From January 1989  to July 1998, Mr.  Greenia served as President  of
the Merrill Group, a  marketing consulting firm in  Atlanta, GA., whose  clients
included the  Coca-Cola  Company,  Dominos  Pizza,  Bally's  Total  Fitness  and
Hardee's Foods. Mr.  Greenia has over  19 years experience  both nationally  and
internationally in the food service industry, holding positions with Burger King
Corporation, J. Walter Thompson  Advertising and Coca Cola  USA. Mr. Greenia  is
also a majority partner in Mobile Media Network of Atlanta, Inc.

     Mr. Lloyd joined the Company in  October 1994 as Vice President -  Finance,
Chief Financial Officer, Secretary and Treasurer and was promoted to Senior Vice
President in May 1996.  From  August 1985 to October  1994, Mr. Lloyd served  in
various capacities with Deloitte & Touche (the Company's independent  auditors),
with his last position  being Senior Audit  Manager.  Mr.  Lloyd is a  certified
public accountant.




PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     The Common Stock, $.01 par  value, of the Company  ("Common  Stock")  began
trading on the NASDAQ National Market on October 16, 1992, the effective date of
the Company's initial public offering. Prior  to October 16, 1992, there was  no
public market for the Common Stock.

     The table below sets  forth, for the periods  indicated, the reported  high
and low last  sale prices  of the  Company's Common  Stock, as  reported on  the
NASDAQ National Market:

                                                  High                Low
     Fiscal Year Ended January 2, 2000
          Quarter Ended January 2, 2000      $      9   9/16     $    7   7/16
          Quarter Ended October 3, 1999            10   3/4           7   7/8
          Quarter Ended July 4, 1999               10   3/4           8   5/16
          Quarter Ended April 4, 1999               9   7/16          8

     Fiscal Year Ended January 3, 1999
          Quarter Ended January 3, 1999      $      7   3/4      $    4   7/8
          Quarter Ended September 27, 1998          6   5/8           4   7/8
          Quarter Ended June 28, 1998               7   1/8           5   3/4
          Quarter Ended March 29, 1998              7   1/16          4   7/16


     As of February 28, 2000, the last  reported sale price of the Common  Stock
on the NASDAQ National Market System was $6 per share.  As of February 28, 2000,
there were approximately 900 record holders of Common Stock.

     The Company has never declared or  paid cash dividends on the Common  Stock
or any of its  other securities.   The Company presently  intends to retain  all
earnings for  the  operation  and  development of  its  business  and  does  not
anticipate paying any  cash dividends  on the  Common Stock  in the  foreseeable
future.   Any future  determination as  to the  payment of  cash dividends  will
depend on a number of factors, including future earnings, capital  requirements,
the financial condition and  prospects of the  Company and present  restrictions
under credit facilities, as well as such other factors as the Board of Directors
may deem relevant.   There can  be no assurance  that the Company  will pay  any
dividends in the future.




ITEM 6.   SELECTED FINANCIAL DATA

     The following selected  financial data, which  set forth certain  financial
information with respect to  the Company, have been  derived from the  financial
statements of the Company.  The financial statements of the Company for each  of
the fiscal years in the five-year period ended January 2, 2000 have been audited
by Deloitte  &  Touche  LLP, independent  certified  public  accountants.    The
following selected  financial  data  should be  read  in  conjunction  with  the
Consolidated Financial Statements  and the notes  thereto included elsewhere  in
this report.


                    December 31,December 29,December 28,January 3,January 2,
                       1995       1996        1997        1999       2000
                     52 Weeks   52 Weeks    52 Weeks    53 Weeks   52 Weeks
                    ----------- ----------- ----------- ---------- ---------
                           (in thousands, except per share data)

Income Statement Data:
REVENUES:
Restaurant sales    $ 137,191  $ 131,680    $131,857    $142,592  $ 159,241
Franchise fees and
 royalty income         1,342        516         346         358        359
                    ---------  ---------    --------    --------  ---------
  Total revenues      138,533    132,196     132,203     142,950    159,600

COSTS AND EXPENSES:
Restaurant cost of sales and
 operating costs      115,195    107,703     110,440     114,111    126,571
General and
 administrative         6,068      6,445       6,964       7,829      7,907
Depreciation, amortization
 and restaurant opening
 costs                 10,301      9,245       9,659       7,990      9,581
Special charges
 (reversal) (1)         8,100      2,497      78,738      (2,665)         -
Litigation
 settlement (2)             -      3,400           -           -          -
Reserve for notes and
 other receivables (3)  3,500          -           -           -          -
                    ---------  ---------    ---------  ---------  ---------
Total costs and
 expenses             143,164    129,290      205,801    127,265    144,059
                    ---------  ---------    ---------  ---------  ---------
INCOME (LOSS) FROM
 OPERATIONS            (4,631)     2,906      (73,598)    15,685     15,541

NON-OPERATING
 INCOME (EXPENSE)      (1,397)    (1,348)      (1,137)    (1,951)    (2,424)
                    ---------  ---------    ---------  ---------  ---------
INCOME  (LOSS) BEFORE
 INCOME TAXES          (6,028)     1,558      (74,735)    13,734     13,117

(PROVISION) BENEFIT FOR
 INCOME TAXES           2,230       (854)       1,537          -          -
                    ---------  ---------    ---------  ---------  ---------
NET INCOME (LOSS)    $ (3,798)  $    704    $ (73,198)  $ 13,734   $ 13,117
                    =========  =========    =========  =========  =========
BASIC EARNINGS (LOSS)
 PER SHARE (4)       $  (0.24)  $   0.04    $   (4.78)  $   0.96   $   0.99
                    =========  =========    =========  =========  =========
DILUTED EARNINGS (LOSS)
 PER SHARE (4)       $  (0.24)  $   0.04    $   (4.78)  $   0.95   $   0.97
                    =========  =========    =========  =========  =========

Balance Sheet Data:
TOTAL ASSETS         $148,578   $142,706   $   76,260   $ 90,202   $101,005
LINE OF CREDIT,LONG-TERM
 DEBT AND CAPITAL
 LEASES, INCLUDING
 CURRENT MATURITIES    19,290     13,668       19,323     30,324     39,908
STOCKHOLDERS' EQUITY  112,327    113,172       36,413     40,777     42,998
DIVIDENDS PER
 COMMON SHARE               -          -            -          -          -


(1)  Includes the charge related to the 1995 operations review of $8.1  million,
     the 1996 write-down of the Company's investment in a joint venture and  the
     accrual of related  exit costs  of $2.5 million,  the 1997  charge for  the
     write-down of impaired assets and the closure of seventeen restaurants  and
     the reversal of  special charges in  1998 as described  in Note 2   to  the
     Consolidated Financial Statements.
(2)  Includes the 1996 litigation settlement for $3.4 million pre-tax.
(3)  Reserve resulted from the 1995 operations review.
(4)  The earnings per share amounts prior to 1997 have been restated as required
     to comply  with Statement  of Financial  Standards  No. 128,  Earnings  Per
     Share. For  further discussion  of earnings  per share  and the  impact  of
     Statement No.  128,  see Notes  1  and  11 to  the  Consolidated  Financial
     Statements.




ITEM 7.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS


Introduction

     The Company commenced operations in 1978 with the opening of its first Taco
Cabana restaurant in San Antonio.   As of January 2,  2000, the Company had  109
company-owned  restaurants,  and  10  franchised  restaurants.    The  Company's
revenues are derived  primarily from  sales by  company-owned restaurants,  with
franchise fees and royalty  income contributing less than  1% of total  revenues
for the 1999 fiscal year.

     During the  fiscal year  ended  January 2,  2000,  the Company  opened  ten
restaurants and closed three restaurants.




Results of Operations

     The following  table  sets  forth  the  percentage  relationship  to  total
revenues, unless otherwise  indicated, of certain  income statement  data.   The
table also sets forth certain restaurant data for the periods indicated.

                                      Fiscal Year Ended
                              ----------------------------------
                              December 28, January 3,  January 2,
                                 1997        1999         2000
Income Statement Data:
REVENUES:
Restaurant sales                 99.7%       99.7%        99.8%
Franchise fees and
 royalty income                   0.3         0.3          0.2
                                -----       -----        -----
Total revenues                  100.0       100.0        100.0
                                =====       =====        =====
COSTS AND EXPENSES:
Restaurant cost of sales (1)     30.8        30.4         30.0
Labor (1)                        27.4        26.8         27.5
Occupancy (1)                     6.2         5.5          5.2
Other restaurant
 operating costs (1)             19.3        17.3         16.8
General and
 administrative costs             5.3         5.5          5.0
Depreciation, amortization
 and restaurant opening costs     7.3         5.6          6.0
Special charge (reversal)        59.6        (1.9)           -
                                -----       -----        -----
INCOME  (LOSS) FROM OPERATIONS  (55.7)       11.0          9.7

INTEREST EXPENSE, NET            (0.9)       (1.4)        (1.5)
                                -----       -----        -----
INCOME (LOSS) BEFORE
 INCOME TAXES                   (56.5)        9.6          8.2

INCOME TAXES                      1.2           -            -
                                -----       -----        -----
NET INCOME (LOSS)               (55.4)%       9.6%         8.2%
                                =====       =====        =====

Restaurant Data:

COMPANY-OWNED RESTAURANTS:
Beginning of period             104          98          102
Opened                            7           9           10
Acquired                          1           -            -
Closed                          (14)         (5)          (3)
                               ----        ----         ----
End of period                    98         102          109

FRANCHISED RESTAURANTS:          11          10           10
                               ----        ----         ----
TOTAL RESTAURANTS:              109         112          119
                               ====        ====         ====
______________
     (1) As a percentage of restaurant sales.



Fiscal 1999 Compared to Fiscal 1998

     Restaurant Sales.  Restaurant sales increased  $16.6 million, or 11.7%,  to
$159.2 million  for  fiscal 1999  from  $142.6 million  for  fiscal 1998.    The
increase in sales is due to an increase in sales at existing restaurants and the
opening of  new restaurants  during 1999,  offset by  a decrease  in sales  from
restaurant closures.  Comparable store sales, defined as Taco Cabana restaurants
that have  been  open 18  months  or more  at  the beginning  of  each  quarter,
increased 5.5% during 1999.   Management attributes  the increase in  comparable
store sales to several factors including a more consistent marketing program,  a
commitment to  increased  staffing  levels  at  existing  restaurants,  a  price
increase in the last  quarter of 1998  and early 1999,  and the ongoing  reimage
program.  Sales from restaurants opened  after January 3, 1999 accounted for  an
increase of $9.3 million. This increase was offset by restaurants closed  during
1998 which accounted for  sales of $1.3 million  during 1998.   Due to the  fact
that the Company's  fiscal year is  a 52 -  53 week year  ending on the  closest
Sunday to December 31, fiscal year 1999 contained 52 weeks and fiscal year  1998
contained 53 weeks.   The additional  week in 1998  accounted for  approximately
$2.6 million in sales.

     Franchise Fees and  Royalty Income.   Franchise and  royalty fees  remained
relatively constant for fiscal 1999 compared  to fiscal 1998. There were no  new
franchisee openings or closures during 1999.

     Restaurant Cost  of Sales.    Restaurant cost  of  sales, calculated  as  a
percentage of restaurant sales, decreased to  30.0% in 1999 from 30.4% in  1998.
The decrease was primarily  due to menu price  increases of 2.6% implemented  in
the last  quarter  of  1998  and  early  1999,  continued  improvements  in  the
management of  food  costs through  utilizing  increased controls  and  improved
purchasing programs, including the continued negotiation of favorable  commodity
pricing.   Management expects  this amount,  as  a percentage  of sales,  to  be
slightly lower or remain constant in 2000.

     Labor.   Labor  costs, calculated  as  a percentage  of  restaurant  sales,
increased to 27.5% for the year ended January 2, 2000 compared to 26.8% in 1998.
The increase  in labor  costs is  due to  management's continued  commitment  to
increased staffing levels at  the restaurants in order  to provide a  consistent
guest experience as well as higher than normal labor costs at newer restaurants.
New restaurants generally have  higher than normal costs  for the first four  to
six months of  operations. Management  expects labor  costs as  a percentage  of
sales to be slightly higher in  2000 as the Company  moves into new markets  and
continues to invest in the guest experience.

     Occupancy.  Occupancy costs increased by  $462,000 during 1999 compared  to
1998.  As a percentage of restaurant sales, occupancy costs decreased to 5.2% in
the year ended January 2, 2000 compared to 5.5% in 1998. The decrease is due  to
an increase  in  average unit  sales  volumes during  1999,  which was  in  turn
attributable to the opening of new restaurants with higher volumes and increased
sales at existing restaurants.  Management expects the dollar amount to increase
due to new restaurant openings but continue to decrease as a percentage of sales
in 2000.

    Other Restaurant Operating Costs. Other restaurant operating costs increased
by $2.1 million to $26.8 million for the year ended January 2, 2000 compared  to
$24.7 million in the same period of 1998.  As a percentage of restaurant  sales,
other restaurant operating costs decreased to  16.8% for the year ended  January
2, 2000  compared to  17.3% in  the same  period of  1998.   The decrease  as  a
percentage of sales is primarily due to leverage from higher than average  sales
along with a relatively flat dollar  amount per store open.  Management  expects
this amount, as a percentage of sales, to be flat or slightly lower in 2000.

     General and Administrative.  General and administrative expenses  decreased
as a percentage of  total revenues to 5.0%  for the year  ended January 2,  2000
from 5.5%  for  the comparable  period  in  1998. This  decrease  was  primarily
attributable to an increase in sales at existing restaurants and the opening  of
new restaurants.   Management  expects  this amount  to  remain constant,  as  a
percentage of sales, in 2000.

     Depreciation, Amortization  and Restaurant  Opening Costs.    Depreciation,
amortization and restaurant opening expenses consisted of the following:

                                                  Year Ended
                                          ------------------------
                                          January 3,     January 2,
                                             1999           2000

    Depreciation of property and
    equipment .........................  $ 6,816,000    $ 8,175,000
    Amortization of  intangible
    assets ............................      569,000        586,000
    Restaurant opening costs ..........      605,000        820,000

     Depreciation expense  increased by  approximately $1.4  million for  fiscal
1999 compared to fiscal 1998.  The increase was due primarily to the addition of
new  restaurants  as  well  as   continued  capital  improvements  to   existing
restaurants.   Restaurants  opened after  January  1, 1998  accounted  for  $1.1
million of the increase.   Restaurant opening  costs increased by  approximately
$215,000 during  fiscal 1999  compared  to fiscal  1998,  due primarily  to  the
opening of three restaurants  outside of existing  markets.  Management  expects
these amounts to increase during 2000 due to the opening of new restaurants, the
opening of restaurants in new markets and the ongoing reimage program.

    Interest Expense,  net.    Interest expense,  net  of  interest  income  and
interest capitalized on construction costs, increased to $2.4 million in  fiscal
1999 from  $2.0 million  in fiscal  1998, primarily  as a  result of  additional
borrowings under  the  Company's debt  facilities.   In  addition,  the  Company
capitalized $151,000 of interest during 1999 compared to $117,000 during 1998.

     Income Taxes.  Income  tax expense was zero  for 1998 and  1999 due to  the
utilization of net operating loss carryforwards  relating to the special  charge
of 1997. Management anticipates  paying alternative minimum taxes  in 2000 at  a
rate of approximately 20%.

     Net Income and Net Income  Per Share.  The  Company recorded net income  of
$13.1 million for 1999 compared to $13.7 million for 1998.  Diluted earnings per
share was $0.97 for 1999 compared to $0.95 in 1998.  The decrease in net  income
is primarily due to fiscal year 1999 containing 52 weeks compared to 53 weeks in
fiscal year  1998  and net  income  recorded in  1998  included a  $2.7  million
reversal of a portion of the special charges recorded during 1996 and 1997.  Net
income recorded in 1999 and 1998 does not include any income tax expense due  to
the utilization  of previously  unrecognized  net operating  loss  carryforwards
relating to the special charge recorded  in 1997.  Including a pro-forma  income
tax expense utilizing  the same rate  as the prior  year, excluding the  special
charge reversal in  1998 and excluding  the estimated impact  of the  additional
week in 1998, the Company would  have reported net income of approximately  $8.3
million, or  $0.61  per  share (diluted)  in  1999  compared to  net  income  of
approximately $6.6 million, or  $0.45 per share (diluted)  in 1998.   Management
attributes the increase in net income  and diluted earnings per share to  higher
average weekly sales at existing restaurants, continued strong cost controls  at
the restaurant level and fewer shares outstanding.

Fiscal 1998 Compared to Fiscal 1997

     Restaurant Sales.  Restaurant  sales increased $10.7  million, or 8.1%,  to
$142.6 million  for  fiscal 1998  from  $131.9 million  for  fiscal 1997.    The
increase in sales was due  to an increase in  sales at existing restaurants,  an
additional week  of sales  in 1998  compared  to 1997  and  the opening  of  new
restaurants during 1998, offset by a decrease in sales from restaurant closures.
Comparable store sales, defined as Taco  Cabana restaurants that have been  open
18 months or more at the beginning of each quarter, increased 4.7% during  1998.
Management attributes the increase in comparable store sales to several  factors
including a more consistent marketing program featuring a value meal message,  a
commitment to increased staffing levels at existing restaurants and the  ongoing
reimage program.  The additional week of sales in  1998 was due to the fact  the
Company's fiscal year is  a 52 - 53  week year ending on  the closest Sunday  to
December 31. Fiscal year 1998 contained 53 weeks and fiscal year 1997  contained
52 weeks.  The  additional week  accounted  for approximately  $2.6  million  in
additional sales for 1998 compared to 1997. Sales from restaurants opened  after
December 29, 1997 accounted for an  increase of $8.3 million. This increase  was
offset by  restaurants closed  during 1997  which accounted  for sales  of  $7.1
million during 1997.

     Franchise Fees and  Royalty Income.   Franchise and  royalty fees  remained
relatively constant for fiscal 1998 compared  to fiscal 1997. There were no  new
franchisee openings and one franchisee closing during 1998.

     Restaurant Cost  of Sales.    Restaurant cost  of  sales, calculated  as  a
percentage of restaurant sales, decreased to  30.4% in 1998 from 30.8% in  1997.
The decrease was due primarily to a price increase taken in the first quarter of
1998 and  continued  improvements  in  the  management  of  food  costs  through
utilizing increased  controls and  improved purchasing  programs, including  the
continued negotiation of favorable commodity pricing.

     Labor.  Labor  costs, calculated  as a  percentage of  sales, decreased  to
26.8% for the year ended January 3, 1999  compared to 27.4% in 1997.   Adjusting
for restaurants  closed  during  1997,  comparable  labor  as  a  percentage  of
restaurant sales during 1997 was 26.5%.  The increase in comparable labor  costs
is due to an  increase in the  minimum wage in  September 1997 and  management's
commitment to increased staffing levels at the restaurant in order to provide  a
consistent guest experience as well as  higher than normal labor costs at  newer
restaurants. New restaurants  generally have higher  than normal  costs for  the
first four to six months of operations.

     Occupancy.  Occupancy costs decreased by  $345,000 during 1998 compared  to
1997.   The  decrease  was  primarily due  to  the  closure  of  underperforming
restaurants during 1997. As  a percentage of  restaurant sales, occupancy  costs
decreased to 5.5% in the year  ended January 3, 1999  compared to 6.2% in  1997.
The decrease was due to an increase  in average unit sales volumes during  1998,
which was in turn  attributable to the  closure of underperforming  restaurants,
the opening  of new  restaurants  with higher  volumes  and increased  sales  at
existing restaurants.

    Other Restaurant Operating Costs. Other restaurant operating costs decreased
by $679,000 to  $24.7 million for  the year ended  January 3,  1999 compared  to
$25.4 million in the same period of 1997.  As a percentage of restaurant  sales,
other restaurant operating costs decreased to  17.3% for the year ended  January
3, 1999 compared to 19.3% in the same period of  1997.  The decrease was due  to
decreased marketing and promotional activities and  an increase in average  unit
sales volumes.  The decrease in marketing and promotional costs is attributed to
management's decision to  exit the underperforming  Colorado market in  December
1997, as well as the decision to move to a radio only media strategy in 1998.

     General and Administrative.  General and administrative expenses  increased
to $7.8  million from  $7.0 million,  and  increased as  a percentage  of  total
revenues to 5.5% for the year ended January 3, 1999 from 5.3% for the comparable
period in 1997. This increase was  primarily attributable to an increased  level
of expenditures to  support the  Company's operations,  and an  increase in  the
bonus accrual during 1998.

     Depreciation, Amortization  and Restaurant  Opening Costs.    Depreciation,
amortization and restaurant opening expenses consisted of the following:

                                                     Year Ended
                                            --------------------------
                                            December 28,     January 3,
                                                1997            1999

    Depreciation of property and
    equipment .........................     $ 7,942,000     $ 6,816,000
    Amortization of  intangible assets        1,313,000         569,000
    Restaurant opening costs ..........         404,000         605,000

     Depreciation expense  decreased by  approximately $1.1  million for  fiscal
1998 compared to fiscal 1997.  The decrease was due primarily to the closure  of
restaurants and  write-down of  assets in  conjunction with  the special  charge
recorded in the fourth quarter of  1997, offset by new restaurants opened  after
December 28,  1997,  as  well as  continued  capital  improvements  to  existing
restaurants.  Amortization  of  intangible  assets  decreased  by  approximately
$744,000 primarily due to the write-down of goodwill and other intangible assets
during the  fourth quarter  of  1997.   Restaurant  opening costs  increased  by
approximately $201,000 during fiscal  1998 compared to fiscal  1997, due to  the
increase in the number of restaurants opened during 1998 compared to 1997.

     Special Charge Reversal.   As part of the  special charges recorded in  the
fourth quarter  of 1996  and 1997,  the Company  reduced the  carrying value  of
assets and established reserves for  the estimated lease liabilities  associated
with restaurants  that  were closed.    During 1998,  the  Company  successfully
completed sales of several  of these properties to  third parties or  negotiated
favorable lease  terminations. The  amount  of the  proceeds  in excess  of  the
carrying  value  of  the  assets  and   the  remaining  lease  liabilities   was
approximately $2.7  million.  This  amount was  recorded  as  a  special  charge
reversal during the fourth quarter of 1998.

    Interest Expense,  net.    Interest expense,  net  of  interest  income  and
interest capitalized on construction costs, increased to $2.0 million in  fiscal
1998 from  $1.1 million  in fiscal  1997, primarily  as a  result of  additional
borrowings under  the  Company's debt  facilities.   In  addition,  the  Company
capitalized $117,000 of interest during 1998 compared to $147,000 during 1997.

     Net Income (Loss) and  Net Income (Loss) Per  Share.  The Company  recorded
net income of $13.7 million for 1998 compared to a net loss of $73.2 million for
1997.  Diluted  earnings per share  was $0.95 for  1998 compared to  a loss  per
share of $4.78 in 1997.  The net  income recorded in 1998 includes the  reversal
of a portion of the special charges recorded during 1996 and 1997 totaling  $2.7
million. Also,  net income  recorded in  1998 does  not include  any income  tax
expense due to  the utilization of  previously unrecognized  net operating  loss
carryforwards relating to the special charge recorded in 1997.  Including a pro-
forma income  tax  expense  utilizing the  same  rate  as the  prior  year,  and
excluding the special charge reversal in  1998, the Company would have  reported
net income of  approximately $7.0 million,  or $0.48 per  share (diluted).   The
loss recorded in  1997 includes special  charges totaling  $78.7 million  pretax
($75.7 million after-tax,  or $4.94 per  share).  Excluding  these charges,  the
Company would have reported net income of $2.5 million equal to $0.16 per  share
in fiscal 1997.  In summary, the increase in net income and diluted earnings per
share in 1998 is attributable to several factors including an increase in  sales
at  existing  restaurants,  continued  strong  cost  controls,  the  closing  of
underperforming restaurants and an extra week of operations in 1998 compared  to
1997.

Year 2000

     The Year 2000 ( "Y2K" ) issue  is the result  of computer programs  written
using two digits  (rather than  four) to define  the applicable  year.   Without
corrective actions, programs with  date-sensitive logic may recognize  "00"   as
1900 rather  than 2000.   This  problem  could result  in  a system  failure  or
miscalculations  causing  disruptions  of  operations,  including,  among  other
things, a  temporary inability  to process  transactions  or engage  in  similar
normal business activities.

     The Company relies to  a large extent on  computer technology to carry  out
its day-to-day operations.  For this reason, the Company implemented a Year 2000
project so that the  Company's computer systems would  function properly in  the
year 2000 and thereafter.  The  Company's Year 2000 project involved the  review
of a number  of internal and  third party systems.   The  Company completed  its
system review  and  made certain  modifications  to its  existing  software  and
systems and/or conversions to new software.  The Company assessed the Year  2000
readiness of its third party business  partners and developed contingency  plans
for those that appeared to have substantial Year 2000 operational risks.   There
were no major internal or third party systems issues reported over the year 2000
transition.

     The total cost of the Year 2000 project was approximately $600,000 and  was
funded through operating cash flows and borrowings from the Company's  available
credit facilities.

Liquidity and Capital Resources

     Historically, the Company has financed business and expansion activities by
using funds generated  from operating activities,  build-to-suit leases,  equity
financing, short and long-term debt and  capital leases.  The Company  currently
maintains credit  facilities  totaling  $50  million,  including  a  $5  million
unsecured revolving line  of credit.   As of  February 28,  2000, the  aggregate
outstanding balance under these commitments was $41.8 million.

    Net cash  provided  by operating  activities  was $20.3  million  for  1999,
compared to $15.7 million for 1998.   Net cash used in investing activities  was
$18.4 million  for 1999,  representing the  construction  of ten  Company  owned
restaurants, the reimaging of  twenty-nine restaurants and capital  expenditures
for  improvements  to  existing  restaurants,  offset  by  the  sale  of  assets
generating $1.3 million in proceeds. This compared to $16.9 million of net  cash
used in investing activities for  1998, representing primarily the  construction
of nine Company owned restaurants and the reimaging of twenty-seven restaurants,
offset by the sale of assets generating $4.3 million in proceeds.

    Net cash used by financing activities was $1.3 million for 1999 representing
the purchase of $11.4 million of the Company's stock, which is held as  treasury
stock, offset in  part by  $9.8 million in  net borrowings  under the  Company's
credit facilities.  This compared to  net cash provided by financing  activities
of $1.6  million  in  1998, representing  primarily  net  borrowings  under  the
Company's credit facilities, offset in part by the purchase of $10.3 million  in
treasury stock.

    The Company's Board of Directors previously approved plans to repurchase  up
to a total of 4,500,000 shares  of the Company's Common  Stock.  As of  February
28, 2000, the  Company had repurchased  4,450,000 shares at  an average cost  of
$6.50 per  share.   The Company  has funded  the repurchases  primarily  through
available bank credit  facilities.  The  timing, price, quantity  and manner  of
future purchases will be  made at the discretion  of management and will  depend
upon  market  conditions.    The  Company  intends  to  fund  additional   share
repurchases, if any, through available credit  under its bank credit  facilities
and current cash flows from operations.

    The special charges  recorded in 1997  and 1995  included accruals  totaling
approximately $10.2 million to record the estimated monthly lease payments,  net
of expected sublease  receipts, associated with  certain restaurants which  have
been closed.   Cash requirements for  this accrual  were approximately  $754,000
during year ended January 2, 2000.  During  the year ended January 2, 2000,  the
Company sold  properties  relating to  the  special charges  which  resulted  in
proceeds of $1.3 million,  which approximated the carrying  value of the  assets
sold. The Company currently has two closed restaurant properties for sale  which
were covered by the special charges.  Although there can be no assurance of  the
particular price at which such properties  will be sold, the Company expects  to
receive funds  equal to  or in  excess of  the carrying  value upon  the  actual
disposition of these properties.  In  addition, certain acquisition and  accrued
liabilities  related  to  a  prior  acquisition  were  reduced  by  payments  of
approximately $236,000 during the year ended January 2, 2000.

     The Company  believes  that existing  cash  balances, funds  generated from
operations, its ability to borrow, and the possible use of lease financing  will
be sufficient to meet the Company's capital requirements through 2000, including
the planned  opening  of  fifteen restaurants  and  the  reimaging  of  fourteen
restaurants.    Total  capital  expenditures  related  to  new  restaurants  are
estimated  to  be  $19.0  to  $22.0  million.    The  total  for  other  capital
expenditures, including the cost of the  reimagings, is estimated to be $4.0  to
$6.0 million.  Total capital expenditures  for 2000 are expected to  approximate
$23.0 to $28.0 million.

Impact of Inflation

     Although increases in labor, food or other operating costs could  adversely
affect the Company's operations, management does not believe that inflation  has
had a material adverse effect on the Company's operations to date.


Seasonality and Quarterly Results

     The Company's  sales fluctuate  seasonally.   Historically,  the  Company's
highest sales and earnings occur in the second and third quarters.  In addition,
quarterly results are affected by the timing  of the opening of new stores,  and
the Company's growth may offset the  impact of seasonal influences.   Therefore,
quarterly results are not indicative of results for the entire year.

Forward-Looking Statements

     Statements in  this annual  report concerning  Taco  Cabana which  are  (a)
projections of revenues,  costs, including trends  in cost  of sales,  operating
costs, labor and general and administrative costs or other financial items,  (b)
statements  of  plans  and   objectives  for  future  operations,   specifically
statements regarding  planned restaurant openings, closings and reimages as well
as property sales,  share repurchases and cash flows, (c) statements  of  future
economic performance,  (d) statements of projected tax rates or  the utilization
of net operating loss  tax carryforwards, or  (e)  statements of  assumptions or
estimates underlying or supporting the foregoing  are forward-looking statements
within the meaning  of Section 27A of  the Securities Act  of  1933 and  Section
21E  of the  Securities Exchange Act of 1934.   The ultimate accuracy of forward
-looking  statements  is subject to a  wide range  of risks, uncertainties  and
other factors which may cause actual results and  outcomes   to  differ,   often
materially,   from  expectations.  Any  number of important  factors could cause
actual results to differ materially from those in the forward-looking statements
herein, including the following:  the timing and extent of changes  in prices of
commodities  and supplies that the Company utilizes; cost  and availability  of
labor; actions of our customers and  competitors; changes  in  state and federal
environmental, economic, safety and other policies and regulations and any legal
or regulatory delays or other factors  beyond the  Company's  control; execution
of planned capital projects; weather conditions affecting the Company's
operations; natural disasters affecting operations; and  adverse rulings,
judgments, or  settlements in litigation or other  legal matters.  The  Company
disclaims any intention  or obligation to update or revise any such forward-
looking statements, whether as a result of new information, future events or
otherwise.




ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is  exposed to market  risk from changes  in interest rates  on
debt and changes in commodity prices.

     The Company's  exposure to  interest rate  risk currently  consists of  its
notes payable and outstanding line of credit.  The Company has notes payable and
a line of credit which bear interest at the lesser of the London Interbank Offer
Rate plus 2.25% or  the prime rate, adjusted  quarterly.  The aggregate  balance
outstanding of these notes and the  line of credit as  of February 28, 2000  was
$41.8 million.  The Company also has a note payable which bears interest at  the
prime rate.  The outstanding balance  of this note as  of February 28, 2000  was
$886,000. The  impact on  the Company's  results of  operations of  a  one-point
interest rate change  on the outstanding  balances under the  notes payable  and
line of credit as of February 28, 2000 would be approximately $430,000.

     The Company purchases  certain commodities  such as  beef, chicken,  flour,
produce and dairy  products.  These  commodities are  generally purchased  based
upon market prices established  with vendors.   These purchase arrangements  may
contain contractual features  that limit the  price paid  by establishing  price
floors or  caps.   The  Company  does not  use  financial instruments  to  hedge
commodity prices because these purchase  arrangements help control the  ultimate
cost and any commodity price aberrations are generally short term in nature.

     This market risk  discussion contains forward-looking  statements.   Actual
results may differ  materially from this  discussion based  upon general  market
conditions and changes in financial markets.




ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial  statements and  supplementary data  are  set forth  in  this
annual report on Form 10-K commencing on page F-1.


ITEM 9.   CHANGES IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

     None.




PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The response to  this Item  required by Item  401 of  Regulation S-K,  with
respect to directors, is incorporated by reference to the information under  the
caption  "Directors and Executive  Officers"  in Taco  Cabana's Proxy  Statement
for the 2000 annual meeting of stockholders to be filed with the Securities  and
Exchange Commission  on or  before May  1, 2000  and with  respect to  executive
officers, is contained in Part I, hereof under the caption  "Executive  Officers
of the Company".   The response to this Item required by Item 405 of  Regulation
S-K  is  incorporated  by  reference  to  the  information  under  the   caption
"Compliance with Section 16(a) of the Securities Exchange Act  of 1934" of  Taco
Cabana's Proxy Statement for the 2000 annual meeting of stockholders to be filed
with the Securities and Exchange Commission on or before May 1, 2000.

ITEM 11.  EXECUTIVE COMPENSATION

     The response to this Item is  incorporated by reference to the  information
under the captions   "Executive Compensation" ,  "Summary Compensation  Table" ,
"Stock  Option Plans and  Director's Options" ,  "Option Grants  in Last  Fiscal
Year", and  "Aggregated  Option Exercises in Last  Fiscal Year and Fiscal  Year-
End Option Values" of Taco Cabana's Proxy Statement for the 2000 annual  meeting
of stockholders to be  filed with the Securities  and Exchange Commission on  or
before May 1, 2000.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The response to this Item is  incorporated by reference to the  information
under the caption  "Principal  Stockholders"  of Taco  Cabana's Proxy  Statement
for the 2000 annual meeting of stockholders to be filed with the Securities  and
Exchange Commission on or before  May 1, 2000.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.




PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  The following documents are filed as part of this report:

Financial Statements

Independent Auditors' Report
Consolidated Balance Sheets at January 3, 1999 and January 2, 2000
Consolidated Statements of  Operations for the  years ended  December 28,  1997,
  January 3, 1999 and January 2, 2000
Consolidated Statements of Stockholders' Equity for the years ended December 28,
  1997, January 3, 1999 and January 2, 2000
Consolidated Statements of  Cash Flows for  the years ended  December 28,  1997,
  January 3, 1999 and January 2, 2000
Notes to Consolidated Financial Statements

Financial Statement Schedules

No financial statement  schedules are submitted  because of the  absence of  the
conditions under which they are required or because the required information  is
included in the Consolidated Financial Statements or notes thereto.

Exhibits

3.1       Restated Certificate  of Incorporation,  filed on  December 29,  1993.
          (b)

3.2       Bylaws of Registrant.  (a)

4.1       Form of Common Stock Certificate.  (a)

4.2       Rights Agreement dated as of June  9, 1995, between Taco Cabana,  Inc.
          and Society National Bank, as Rights Agent.   (c)

10.5      Sample Franchise Agreement.  (a)

10.6      Sample Franchise Development Agreement.  (a)

10.7      Sample Beverage Sublease Agreement.  (a)

10.8      Sample Concessionaire Management Agreement.  (a)

10.9*     Amended and Restated Stock Option Plan.  (a)

10.14*    1994 Stock Option Plan.  (b)

10.20     Fifth Amended Loan Agreement with International Bank of Commerce  (d)

21.       Subsidiaries of the Registrant.  (d)

23.       Consent of Deloitte & Touche LLP.  (d)

24.       Powers of attorney to  sign amendments to this  report.  Reference  is
          made to the signature page of this report.

27.       Financial Data Schedule. (d)
________________________

*         Executive compensation plan or arrangement.

(a)       Filed as an exhibit to Form  S-1 Registration Statement No.  33-51430,
          effective October 16, 1992.
(b)       Filed as an exhibit to Form 10-K for the fiscal year ended January  1,
          1995.
(c)       Filed as an exhibit  to Form 8-A  Registration Statement No.  0-20716,
          effective June 9,1995.
(d)       Filed herewith.

     (b)  Reports on Form 8-K
          None.




SIGNATURES

     Pursuant to  the requirements  of Section  13 or  15(d) of  the  Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report  to
be signed on its behalf by the undersigned, thereunto duly authorized.

                       TACO CABANA, INC.



                       By:  STEPHEN V. CLARK

                          Stephen V. Clark
                          Chief  Executive Officer and President


     Date:  March 29, 2000

     Each person whose signature appears below  authorizes Stephen V. Clark  and
David G. Lloyd or either of  them, each of whom may  act without joinder of  the
other, to execute  in the name  of each such  person who is  then an officer  or
director of the Registrant and to file  any amendments to this annual report  on
Form 10-K necessary  or advisable to  enable the Registrant  to comply with  the
Securities Exchange Act  of 1934,  as amended,  and any  rules, regulations  and
requirements of the Securities and Exchange Commission in respect thereof, which
amendments may make  such changes in  such report as  such attorney-in-fact  may
deem appropriate.

     Pursuant to the  requirements of the  Securities Exchange Act  of 1934,  as
amended, this report has been signed by the following persons in the  capacities
and on the dates indicated.

     Signature                Title                         Date


STEPHEN V. CLARK      Chief Executive Officer,         March 29, 2000
  Stephen V. Clark    President and Director
                      (Principal Executive Officer)


DAVID G. LLOYD        Senior Vice President - Finance, March 29, 2000
   David G. Lloyd     Chief Financial Officer,
                      Secretary and Treasurer
                      (Principal Financial and
                      Accounting Officer)


WILLIAM J. NIMMO      Director                         March 29, 2000
  William J. Nimmo


ROD SANDS             Director                         March 29, 2000
  Rod Sands


CECIL SCHENKER        Director                         March 29, 2000
  Cecil Schenker


RICHARD SHERMAN       Director                         March 29, 2000
  Richard Sherman


LIONEL SOSA           Director                         March 29, 2000
  Lionel Sosa




EXHIBIT INDEX


Exhibit
  No.

10.20 Fifth Amended  Loan  Agreement with  International  Bank of
      Commerce.

21.   Subsidiaries of the Registrant

23.   Consent of Deloitte & Touche LLP

27.   Financial Data Schedule




EXHIBIT 21

                           Subsidiaries of Registrant



TP Acquisition Corp., a Texas corporation

Get Real, Inc., a Delaware corporation

Texas Taco Cabana, L.P., a Texas limited partnership

T. C. Management Inc., a Delaware corporation

T.C Lease Holdings III, V and VI, Inc., a Texas corporation

Taco Cabana Multistate, Inc., a Delaware corporation

Colorado Cabana, Inc., a Colorado corporation

Taco Cabana Atlanta, Inc., a Delaware corporation

Taco Cabana Investments, Inc., a Delaware corporation

Taco Cabana Management, Inc., a Texas corporation





EXHIBIT 23










INDEPENDENT AUDITORS' CONSENT




We consent to the incorporation by reference in Registration Statements No. 33-
56438 and No. 33-98124 of Taco Cabana, Inc. on Form S-8 of our report dated
February 1, 2000 appearing in this Annual Report on Form 10-K of Taco Cabana,
Inc. for the year ended January 2, 2000.



DELOITTE & TOUCHE LLP



San Antonio, Texas
March 29, 2000













               This page intentionally left blank.


































TACO CABANA, INC.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                               Page

Consolidated Financial Statements:
 Independent Auditors' Report                                  F-2
 Consolidated Balance Sheets at January 3, 1999
  and January 2, 2000                                          F-3
 Consolidated Statements of Operations for the Years Ended
  December 28, 1997, January 3, 1999, and January 2, 2000      F-4
 Consolidated Statements of Stockholders' Equity for the Years
  Ended December 28, 1997, January 3, 1999 and January 2, 2000 F-5
 Consolidated Statements of Cash Flows for the Years Ended
  December 28, 1997, January 3, 1999 and January 2, 2000       F-6
 Notes to Consolidated Financial Statements                    F-8












INDEPENDENT AUDITORS' REPORT


To the Board of Directors
Taco Cabana, Inc.

We have audited the accompanying consolidated balance sheets of Taco Cabana,
Inc. and subsidiaries ("the Company" ) as of January 2, 2000 and January 3,
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended January 2,
2000.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Taco Cabana, Inc. and subsidiaries
at January 2, 2000 and January 3, 1999, and the results of their operations and
their cash flows for each of the three years in the period ended January 2, 2000
in conformity with accounting principles generally accepted in the United States
of America.


DELOITTE & TOUCHE LLP


San Antonio, Texas
February 1, 2000










TACO CABANA, INC.

CONSOLIDATED BALANCE SHEETS


                                              January 3,    January 2,
ASSETS                                           1999          2000

CURRENT ASSETS:
Cash and cash equivalents                    $   719,000   $  1,303,000
Receivables, net                                 438,000        507,000
Inventory                                      2,273,000      2,413,000
Prepaid expenses                               3,128,000      3,237,000
Federal income taxes receivable                  200,000        200,000
                                             -----------   ------------
  Total current assets                         6,758,000      7,660,000

PROPERTY AND EQUIPMENT, net                   72,250,000     82,616,000
NOTES RECEIVABLE                                 258,000        278,000
INTANGIBLE ASSETS, net                        10,724,000     10,139,000
OTHER ASSETS                                     212,000        312,000
                                             -----------   ------------
TOTAL ASSETS                                 $90,202,000   $101,005,000
                                             ===========   ============
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable                             $ 5,362,000   $  4,962,000
Accrued liabilities                            5,265,000      6,063,000
Current maturities of long-term debt and
  capital leases                               5,704,000      5,251,000
Line of credit                                 3,550,000      1,000,000
                                             -----------   ------------
  Total current liabilities                   19,881,000     17,276,000

LONG-TERM OBLIGATIONS, net of current
  maturities:
Capital leases                                 2,140,000      1,901,000
Long-term debt                                18,930,000     31,756,000
                                             -----------   ------------
  Total long-term obligations                 21,070,000     33,657,000

ACQUISITION AND CLOSED RESTAURANT
  LIABILITIES                                  7,713,000      6,330,000
DEFERRED LEASE PAYMENTS                          761,000        744,000
STOCKHOLDERS' EQUITY:
Preferred stock, series A; $.01 par value,
  100,000 shares authorized                            -              -
Common stock; $.01 par value, 30,000,000
  shares authorized - 15,907,937 and
  13,435,575 shares issued at January 3,
  1999 and January 2, 2000, respectively         159,000        134,000
Additional paid-in capital                    98,056,000     84,731,000
Retained deficit                             (43,544,000)   (30,427,000)
Treasury stock, at cost - 2,576,937 shares
  at January 3, 1999 and 1,354,600 shares
  at January 2, 2000                         (13,894,000)   (11,440,000)
                                             -----------   ------------
  Total stockholders' equity                  40,777,000     42,998,000
                                             -----------   ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $90,202,000   $101,005,000
                                             ===========   ============
See notes to consolidated financial statements.





TACO CABANA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



                                               Year Ended
                                --------------------------------------
                                December 28,   January 3,    January 2,
                                    1997          1999          2000
                                 (52 Weeks)    (53 Weeks)    (52 Weeks)
REVENUES:
Restaurant sales               $  131,857,000 $ 142,592,000 $ 159,241,000
Franchise fees and royalty
  income                              346,000       358,000       359,000
                               -------------- ------------- -------------
  Total revenues                  132,203,000   142,950,000   159,600,000
                               -------------- ------------- -------------
COSTS AND EXPENSES:
Restaurant cost of sales           40,668,000    43,347,000    47,764,000
Labor                              36,169,000    38,185,000    43,715,000
Occupancy                           8,185,000     7,840,000     8,302,000
Other restaurant operating
  costs                            25,418,000    24,739,000    26,790,000
General and administrative          6,964,000     7,829,000     7,907,000
Depreciation, amortization and
  restaurant opening costs          9,659,000     7,990,000     9,581,000
Special charge (reversal)          78,738,000    (2,665,000)            -
                               -------------- ------------- -------------
  Total costs and expenses        205,801,000   127,265,000   144,059,000
                               -------------- ------------- -------------
INCOME  (LOSS) FROM OPERATIONS    (73,598,000)   15,685,000    15,541,000

INTEREST EXPENSE, NET              (1,137,000)   (1,951,000)   (2,424,000)
                               -------------- ------------- -------------
INCOME  (LOSS) BEFORE INCOME
  TAXES                           (74,735,000)   13,734,000    13,117,000

BENEFIT FOR INCOME TAXES            1,537,000             -             -
                               -------------- ------------- -------------
NET INCOME (LOSS)              $  (73,198,000) $ 13,734,000  $ 13,117,000
                               ============== ============= =============
BASIC EARNINGS (LOSS) PER
  SHARE                        $        (4.78) $       0.96  $       0.99
                               ============== ============= =============
DILUTED EARNINGS (LOSS) PER
  SHARE                        $        (4.78) $       0.95  $       0.97
                               ============== ============= =============

See notes to consolidated financial statements.






TACO CABANA, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                  Preferred
                                   Stock             Common Stock       Additional      Retained           Treasury Stock
                               ------------     ---------------------     Paid-in        Eanings    ----------------------------
                                   Amount         Shares      Amount      Capital       (Deficit)       Shares        Amount
<S>                              <C>            <C>          <C>         <C>           <C>              <C>        <C>
BALANCE, December 30, 1996       $ -            15,706,537   $157,000    $97,095,000   $15,920,000            -     $          -

Purchase of stock                  -                     -          -              -             -      871,937       (3,561,000)
Net loss                           -                     -          -              -   (73,198,000)           -                -
                                 -----          ----------   --------    -----------   -----------   ----------    -------------
BALANCE, December 28, 1997         -            15,706,537    157,000     97,095,000   (57,278,000)     871,937       (3,561,000)

Options exercised                  -               201,400      2,000        961,000             -            -                -
Purchase of stock                  -                     -          -              -             -    1,705,000      (10,333,000)
Net income                         -                     -          -              -    13,734,000            -                -
                                 -----          ----------   --------    -----------   -----------   -----------   -------------
BALANCE, January 3, 1999           -            15,907,937    159,000     98,056,000   (43,544,000)   2,576,937      (13,894,000)

Options exercised                  -               104,575      1,000        543,000             -            -                -
Purchase of stock                  -                     -          -              -             -    1,354,600      (11,440,000)
Retirement of treasury stock       -            (2,576,937)   (26,000)   (13,868,000)            -   (2,576,937)      13,894,000
Net income                         -                     -          -              -    13,117,000            -                -
                                 -----          ----------    -------    -----------   -----------   ----------    -------------
BALANCE, January 2, 2000         $ -            13,435,575   $134,000    $84,731,000  $(30,427,000)   1,354,600    $ (11,440,000)
                                 =====          ==========    =======    ===========   ===========   ==========    =============
</TABLE>


See notes to consolidated financial statements.



TACO CABANA, INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                  Year Ended
                                    --------------------------------------
                                    December 28,   January 3,    January 2,
                                       1997          1999           2000

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                  $(73,198,000) $13,734,000   $13,117,000
Adjustments to reconcile net income
  (loss) to net cash provided by
  operating activities:
  Depreciation and amortization       9,659,000    7,385,000     8,761,000
  Deferred income taxes              (1,818,000)           -             -
  Special charge (reversal)          78,738,000   (2,665,000)            -
  Capitalized interest                 (147,000)    (117,000)     (151,000)
  Deferred income and lease
    payments                           (157,000)      59,000       (17,000)
  Decrease (increase) in assets:
    Receivables                         634,000      150,000       (89,000)
    Inventory                          (656,000)    (168,000)     (140,000)
    Prepaid expenses                 (1,018,000)  (1,424,000)     (109,000)
    Federal income taxes receivable     163,000            -             -
    Other assets                         58,000       21,000      (100,000)
 (Decrease) increase in
    liabilities:
    Accounts payable and accrued
      liabilities                     2,328,000     (103,000)      398,000
    Acquisition and closed
      restaurant liabilities         (1,656,000)  (1,194,000)   (1,348,000)
                                    -----------  -----------   -----------
Net cash provided by operating
activities                           12,930,000   15,678,000    20,322,000
                                    -----------  -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
  equipment                         (16,812,000) (21,259,000)  (19,763,000)
Proceeds from sales of property
  and equipment                       1,379,000    4,330,000     1,337,000
                                    -----------  -----------   -----------
Net cash used by investing
activities                          (15,433,000) (16,929,000)  (18,426,000)
                                    -----------  -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
  debt and draws on line of credit   18,423,000   14,469,000    20,045,000
Principal payments under long-
  term debt and line of credit      (11,074,000)  (3,276,000)  (10,246,000)
Principal payments under capital
  leases                             (1,694,000)    (192,000)     (215,000)
Purchase of treasury stock           (3,561,000) (10,333,000)  (11,440,000)
Exercise of stock options                     -      963,000       544,000
                                    -----------  -----------   -----------
Net cash (used) provided by
financing activities                  2,094,000    1,631,000    (1,312,000)
                                    -----------  -----------   -----------
NET (DECREASE) INCREASE IN CASH        (409,000)     380,000       584,000

CASH AND CASH EQUIVALENTS,
  beginning of period                   748,000      339,000       719,000
                                    -----------  -----------   -----------
CASH AND CASH EQUIVALENTS, end of
  period                               $339,000     $719,000    $1,303,000
                                    ===========  ===========   ===========
                                                                (Continued)















TACO CABANA, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS



SUMMARY OF NON-CASH TRANSACTIONS:

During 1999, assets having  a net book  value of $439,000  were disposed of  and
charged to acquisition and closed restaurant liabilities.


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

                                                  Year Ended
                                    ---------------------------------------
                                    December 28,   January 3,     January 2,
                                        1997          1999           2000

Cash paid for interest, net of
interest capitalized                $1,171,000    $1,848,000     $2,092,000
Cash received for income taxes           4,000         9,000          -
Cash paid for income taxes              74,000         -              2,000


                                                                 (Concluded)
See notes to consolidated financial statements.





TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS

   Nature of Operations -  Taco Cabana, Inc. (the " Company" ) operates a  chain
   of Tex-Mex  patio style quick  service restaurants located  primarily in  the
   Southwestern United  States.   At  January 2,  2000,  the Company  owned  and
   operated a total  of 109 units.   There were also  10 Taco Cabana  franchised
   units.

   Principles of Consolidation -  The consolidated financial statements  include
   all  accounts  of  the  Company  and  its  wholly-owned  subsidiaries.    All
   significant inter-company balances and transactions have been eliminated.

   Fiscal Year - The Company's accounting period is  based upon a 52 or 53  week
   fiscal year ending on  the Sunday closest to  December 31.  The fiscal  years
   1997, 1998 and 1999 were comprised of  the 52 weeks ended December 28,  1997,
   the 53 weeks ended January 3, 1999 and the 52 weeks ended January 2, 2000.

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

   Liquor  Sales  - To  conform  to  state  liquor  laws,  liquor  licenses  are
   maintained  and  liquor  sales  are  accounted  for  by  a  separate   liquor
   corporation.  The liquor corporation pays the Company a management fee  based
   on liquor  sales, reimburses the  Company for its  share of operating  costs,
   and pays base and  additional rent based on liquor sales.   In order to  more
   accurately reflect restaurant operations, all revenues and expenses  relating
   to liquor sales have  been included in the consolidated financial  statements
   of the Company.

   Inventory -  Inventory is stated  at the lower  of cost  using the  first-in,
   first-out  method  or  market,  and  consists  primarily  of  food  products,
   beverages and paper supplies.

   Property and Equipment - Property and equipment is stated at cost.  Equipment
   and buildings under  capital leases are  stated at the  lower of the  present
   value of  minimum lease payments  or fair market  value of the  asset at  the
   inception of the lease. Depreciation and amortization are provided using  the
   straight-line method  over the estimated  useful lives of  the assets or  the
   applicable lease term, if less.

   The estimated useful  lives used in  computing depreciation and  amortization
   are as follows:

        Furniture, fixtures and equipment            2-10 years
        Buildings                                   20-30 years
        Leasehold improvements                       5-30 years

   Maintenance and  repairs are  charged to  expense as  incurred;  improvements
   which increase  the value  of the  property and  extend the  useful life  are
   capitalized.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
   (Continued)

   Intangible Assets  - Goodwill, or  the excess of  acquisition costs over  the
   fair  market  value of  the  assets  acquired  and  liabilities  assumed,  is
   amortized using  the straight-line method  over 10 to  40 years.   The  trade
   name  and the  rights  to  the  Taco Cabana  name  are  amortized  using  the
   straight-line method over 40 years.

   Franchise Income - The Company has sold franchises that give the  franchisees
   the right to operate Taco Cabana restaurants in specified areas.   Generally,
   each franchisee  acquires the right  to open three  or more  restaurants.   A
   development fee is recognized as  income when the agreement is signed,  while
   the franchise fee  on each restaurant  is deferred until  the opening of  the
   franchised restaurant.    In addition,  the  franchise agreement  requires  a
   franchise royalty fee and  an advertising fee on  gross sales; such fees  are
   recorded  as  income when  earned.    The  Company  has  not  recognized  any
   franchise fees in the fiscal years 1997, 1998 or 1999.

   Concentrations  of  Credit Risk  -  Financial  instruments  that  potentially
   subject the Company  to concentrations of  credit risk consisted  principally
   of amounts  due from  franchisees  and receivables  from credit  card  sales.
   These risks are limited due to their geographic dispersion.  The Company  has
   no significant concentrations of credit risk.

   Income Taxes  - Deferred income  taxes are recognized  by applying  statutory
   tax rates  in effect at  the balance sheet  date to  differences between  the
   financial statement basis and the tax  basis of assets and liabilities.   The
   resulting  deferred  tax assets  and  liabilities  are  adjusted  to  reflect
   changes in tax laws  or rates at the time such  changes occur.  Deferred  tax
   assets are reported net of an allowance that management believes reduces  net
   deferred tax assets to the amount that is more likely than not realizable.

   Earnings (Loss) Per Share - Basic earnings per share is computed by  dividing
   income available  to common stockholders  by the weighted  average number  of
   common shares  outstanding for the  reporting period.   Diluted earnings  per
   share reflects  the potential  dilution  that could  occur if  securities  or
   other  contracts to  issue  common stock  were  exercised or  converted  into
   common stock.  Outstanding stock options issued by the Company represent  the
   only dilutive effect reflected in diluted weighted average shares.

   Statements of Cash Flows - For purposes of reporting cash flows, the  Company
   considers all  highly liquid debt  instruments with a  remaining maturity  at
   the date of purchase of three months or less to be cash equivalents.





TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
   (Continued)

   Commitments and Contingencies  - The Company does  not subscribe to  worker's
   compensation insurance in its Texas  market.  The Company accrues for  claims
   based on  historical actual payments  made for such  claims and expenses,  as
   well as an evaluation  of current and anticipated  claims and expenses.   The
   Company does maintain an excess liability coverage which management  believes
   is adequate to cover any substantial claims.

   Stock-Based Compensation - The Company accounts for stock-based  compensation
   using the intrinsic  value method prescribed  in Accounting Principles  Board
   ( "APB")  No. 25,  Accounting for  Stock  Issued to  Employees,  and  related
   interpretations.    Accordingly,  compensation  cost  for  stock  options  is
   measured as the excess, if any, of  the quoted market price of the  Company's
   common stock at  the date of grant  over the amount an  employee must pay  to
   acquire the stock.   The Company has  adopted the disclosure requirements  of
   Statement of  Financial Accounting  Standards ( "SFAS" ) No. 123,  Accounting
   for Stock-Based Compensation, as included in Note 12.

   Reclassifications - Certain reclassifications have been made to the 1997  and
   1998 consolidated  financial statements to  conform to  the presentation  and
   classification used in fiscal 1998 and 1999.


2. SPECIAL CHARGE (REVERSAL)

During fiscal  1997 and  1998, the  following special  charge and  reversal  are
included in the Company's consolidated financial statements:

                                               December 28,    January 3,
                                                   1997           1999

   Special charge (reversal)                  $78,738,000     $(2,665,000)
   Pro forma income tax (benefit) provision    (3,018,000)        986,000
   Decrease (increase) on net income           75,720,000      (1,679,000)
   Decrease (increase) per share                 $   4.94     $     (0.12)

Fiscal 1998 - As part of the special  charges recorded in the fourth quarter  of
1996 and 1997, the Company reduced the carrying value of assets and  established
reserves for the  estimated lease liabilities  associated with restaurants  that
were closed.  During 1998, the  company successfully completed sales of  several
of these properties to third parties or negotiated favorable lease terminations.
The amount of the proceeds in excess of the carrying value of the assets and the
remaining lease  liabilities was  approximately $2.7  million. This  amount  was
recorded as a special charge reversal during the fourth quarter of 1998.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2. SPECIAL CHARGE (REVERSAL) (Continued)

Fiscal 1997 -  During the  fourth quarter of  fiscal 1997,  management made  the
decision to close  the seven restaurants  in its Colorado  market.  The  Company
committed substantial resources  to this  market during  1997 in  an attempt  to
reverse trends  of  poor  sales  and  losses.   The  desired  results  from  the
implementation of  the plan  were not  achieved and  the decision  to close  the
market was made.  These seven restaurants had total sales of approximately  $3.0
million and operating  losses of $2.1  million during  the approximately  eleven
months of 1997 that they were in operation.
Additionally, the  Company  continued  to experience  unfavorable  sales  trends
during 1997,  concluding the  year with  comparable restaurant  sales  declining
2.9%.  However, during the first six months of 1997, comparable restaurant sales
declined 4.8%.  This  trend compelled management to  continue its evaluation  of
the operating  model  of  the  Company.    During  this  evaluation,  management
concluded that certain volumes must be  achieved in order to operate  individual
restaurants in accordance with Company standards.  These standards include  food
quality, cleanliness, speed of service, and profitability.  Management  reviewed
all existing restaurants to determine which restaurants could not reasonably  be
expected to achieve these volume levels,  generally annual revenues of at  least
$1 million.  This led to the decision to close an additional ten restaurants.

Due to the significance of the closures described above, management performed an
evaluation of  the  recoverability  of all  remaining  assets  as  described  in
Statement of Financial Accounting  Standards No. 121 ( "SFAS 121" ),  Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of.  Management concluded from the results of this evaluation that a significant
impairment of  intangible  as well  as  long-lived  assets was  required  to  be
recognized.  The impairment  was reflective of a  market value determined to  be
less than the carrying value of  approximately 40 restaurants, 31 of which  were
acquired.  The assets  were tested for impairment  by projecting cash flows  for
individual restaurants  based on  recent results  and  trends specific  to  that
restaurant.   The undiscounted  projected cash  flows for  each restaurant  were
compared  to  the  carrying  value  for  that  restaurant,  including  allocated
goodwill, where applicable.  If the  undiscounted cash flows were less than  the
carrying value, an impairment was  deemed to have occurred.   The amount of  the
impairment was  determined by  calculating the  difference between  the  present
value of the  projected cash flows  and the carrying  value attributable to  the
specific restaurant.  The  cash flows were discounted  using the rate of  return
the Company utilizes for approving new restaurant construction.  Such discounted
cash flows are, in management's opinion, the best estimate of the assets current
value.   Considerable  management  judgment  is  necessary  to  estimate  future
discounted cash flows.   Accordingly,  actual results  could vary  significantly
from management's estimates.

The process described above resulted in the Company's recording a special charge
during the fourth quarter of 1997 of $78.7 million pre-tax, $75.7 million after-
tax, or $4.94 per share.  This amount had the following components:

   . Impairment of intangible assets of $33.1 million and impairment of long-
     lived assets of $22.1 million for restaurants that will continue in
     operation, based on the SFAS 121 analysis described above;




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



  2. SPECIAL CHARGE (REVERSAL) (Continued)

   . A provision of $23.3 million for the closure of seventeen restaurants,
     including all of the restaurants in the Colorado market.  The amount was
     determined in accordance with FAS 121 and was comprised of:
     .  $13.3 million for the carrying value of the assets, net of estimated
        proceeds of $1.5 million for the sale of restaurant properties;
     .  $9.0 million to record the estimated lease related obligations for
        closed restaurants.  This amount was determined as the lesser of the
        present value of the monthly lease commitments, net of expected
        sublease receipts, or lease termination provisions;
     .  $500,000 for severance and relocation benefits paid to employees
        displaced by the restaurant closures;
     .  $500,000 for the probable settlement of a franchisee lawsuit related to
        the Colorado market.
   . The write-off of other assets totaling $200,000.

During 1997, the seventeen  restaurants contributed a total  of $9.6 million  in
sales, and had operating losses totaling  $2.5 million.  In addition, the  total
amount of  depreciation  recorded during  1997  relating to  assets  which  were
impaired was approximately $2.5 million.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3. ACCOUNTS AND NOTES RECEIVABLE

   Accounts and notes receivable consisted of the following:

                                                January 3, January 2,
                                                   1999       2000

    Trade receivables:
      Royalties                                  $ 97,000   $ 75,000
      Other                                       365,000    505,000
    Notes receivable - current portion             78,000     26,000
                                                 --------   --------
        Total                                     540,000    606,000
    Less allowance for doubtful accounts         (102,000)   (99,000)
                                                 --------   --------
    Receivables, net                             $438,000   $507,000
                                                 ========   ========
    Notes receivable - noncurrent:
      Franchisees                                $258,000   $278,000
                                                 ========   ========

    Notes  receivable  from  franchisees  approximate  fair  value  because  the
    underlying  instruments have  an  interest rate  that  approximates  current
    market rates.   The Company's allowance  for doubtful accounts is  reflected
    as a reduction of receivables in the consolidated balance sheets.



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4. PROPERTY AND EQUIPMENT, NET

   Property and equipment, net, consisted of the following:

                                                January 3,    January 2,
                                                   1999          2000

    Property and equipment:
      Land                                     $20,384,000   $21,635,000
      Furniture, fixtures and equipment         48,245,000    56,416,000
      Leasehold improvements                    13,820,000    18,272,000
      Buildings                                 17,322,000    21,355,000
      Construction in progress                     920,000       616,000
                                               -----------   -----------
                                               100,691,000   118,294,000
    Less accumulated depreciation and
      amortization                             (31,424,000)  (39,007,000)
                                               -----------   -----------
        Total                                   69,267,000    79,287,000
                                               -----------   -----------
    Property and equipment held under
      capital leases:
      Buildings                                  4,401,000     4,915,000
      Less accumulated amortization             (1,418,000)   (1,586,000)
                                               -----------   -----------
        Total                                    2,983,000     3,329,000
                                               -----------   -----------
    Property and equipment, net                $72,250,000   $82,616,000
                                               ===========   ===========

   At January 2, 2000, the Company had two properties held for sale.  The  total
   carrying amount of  these assets is $600,000,  which management estimates  to
   be the net proceeds from the disposition of these assets.  See Note 2.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



5. INTANGIBLE AND OTHER ASSETS

   Intangible and other assets consisted of the following:

                                                January 3,      January 2,
                                                   1999            2000

    Intangible assets:
      Goodwill                                 $16,154,000   $16,154,000
      Trade name                                 1,576,000     1,576,000
                                               -----------   -----------
                                                17,730,000    17,730,000
    Less accumulated amortization               (7,006,000)   (7,591,000)
                                               -----------   -----------
    Intangible assets, net                     $10,724,000   $10,139,000
                                               ===========   ===========
    Other assets:
      Deposits                                 $   177,000   $   184,000
      Other                                         35,000       128,000
                                               -----------   -----------
    Other assets                               $   212,000   $   312,000
                                               ===========   ===========

6. ACCRUED LIABILITIES

   Accrued liabilities consisted of the following:

                                                January 3,    January 2,
                                                   1999          2000

    Payroll related                            $2,380,000    $2,807,000
    Closed restaurant obligations                 740,000       798,000
    Property taxes                                557,000       583,000
    Restaurant expenses                           433,000       472,000
    Interest                                       36,000       306,000
    Employee injury                               271,000       297,000
    Legal                                         168,000       157,000
    Other                                         680,000       643,000
                                               ----------    ----------
    Total                                      $5,265,000    $6,063,000
                                               ==========    ==========




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



7. LEASES

   Operating  Leases -  The  Company  leases restaurant  facilities  under  non-
   cancelable operating  leases with initial  terms ranging from  ten to  twenty
   years with options to renew.  The future minimum lease commitments under  all
   non-cancelable operating  lease obligations  as of  January 2,  2000 were  as
   follows:

   Years ending:
     2000                                             $ 7,710,000
     2001                                               7,879,000
     2002                                               7,671,000
     2003                                               7,587,000
     2004                                               7,459,000
     Thereafter                                        34,889,000
                                                      -----------
     Total                                            $73,195,000
                                                      ===========

   The total rental expense for operating leases was approximately $6.6  million
   for  1997, $6.2  million  for  1998 and  $6.7  million  for  1999,  including
   additional rents of approximately  $291,000, $185,000 and $215,000 for  1997,
   1998 and 1999, respectively.

   The Company remains contingently liable on eight operating leases which  were
   assigned  to the  purchasers  of  units previously  sold  or  closed.  Future
   minimum  lease commitments  under  these contingent  obligations  approximate
   $669,000  in 2000,  and  a  total  of $2.4  million  in  2001  through  2004.
   Thereafter,  the  total  minimum  lease  payments  are  approximately  $  2.0
   million.   The  Company assesses  the probability  of  its having  to  assume
   primary liability under these assignments on an annual basis.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



7. LEASES (Continued)

   Capital Leases  - The Company  leases certain buildings  under capital  lease
   agreements with  third parties.   The  leases have  fifteen and  twenty  year
   terms.  Future minimum  lease payments under the  capital leases and the  net
   present value of the minimum lease payments at January 2, 2000 were:

   Years ending:
     2000                                              $   445,000
     2001                                                  446,000
     2002                                                  446,000
     2003                                                  439,000
     2004                                                  368,000
     Thereafter                                            846,000
                                                       -----------
   Total minimum lease payments                          2,990,000
   Less amount representing interest at 9% to 13%          851,000
                                                       -----------
   Net present value of minimum lease payments           2,139,000
   Less current portion                                    238,000
                                                       -----------
   Long-term portion of capital leases                 $ 1,901,000
                                                       ===========

   In addition  to the  minimum lease  payments, several  of the  leases have  a
   contingent rental based on  5% to 6% of gross  sales, if such amounts  exceed
   minimum  rent.    No   payments  have  been  made  under  these   agreements.
   Furthermore, certain leases have been guaranteed by a former employee of  the
   Company.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8. LONG-TERM DEBT

   Long-term debt consisted of the following notes payable:

                                              January 3,    January 2,
                                                 1999          2000

   Notes payable to a bank, bearing interest
     at the lessor of prime or LIBOR plus
     2.25% (8.25% at January 2, 2000),
     collateralized by certain restaurant
     assets, due in installments of principal
     and interest through December 2006      $23,054,000    $35,815,000

   Note payable to a bank, bearing interest
     at prime (8.50% at January 2, 2000),
     unsecured, due in monthly installments of
     principal and interest through
     April 2000                                1,365,000        954,000
                                             -----------    -----------
       Total                                  24,419,000     36,769,000
   Less current maturities                     5,489,000      5,013,000
                                             -----------    -----------
   Long-term debt, net                       $18,930,000    $31,756,000
                                             ===========    ===========

   The future minimum payments of long-term debt outstanding at January 2,  2000
   were as follows:

   Years ending:
     2000                                             $     5,013,000
     2001                                                   4,157,000
     2002                                                   4,519,000
     2003                                                   4,515,000
     2004                                                  11,000,000
     Thereafter                                             7,565,000
                                                      ---------------
     Total                                            $    36,769,000
                                                      ===============

   The  amounts  stated  in  the  Company's  consolidated  balance  sheets   for
   long-term debt  approximate fair value  because the  underlying note  payable
   balance  fluctuates frequently  or  it is  at  a rate  approximating  current
   market rates.



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



9. LINE OF CREDIT

   During 1999 the Company had  in place two secured credit facilities  totaling
   $40 million, including a  $5 million revolving line  of credit.  On  December
   20, 1999 the credit facilities were amended  and increased to a total of  $50
   million.   As  part  of  the amendment,  the  commitments  were  extended  to
   December 31,  2001.   Interest on  funds borrowed  under the  facilities  are
   charged at the prime rate or, at the Company's choice, 2.25% over the  London
   Interbank Offered Rate  (LIBOR), adjusted quarterly.   The credit  facilities
   are  secured by  property  and equipment.    The facilities  contain  certain
   covenants, including  cash flow to  fixed charges ratio,  minimum net  worth,
   debt to tangible net  worth ratio, and intangible  assets to net worth  ratio
   requirements.   During the year  ended January 2,  2000, the  Company was  in
   compliance with  all such covenants.   At January  2, 2000,  the Company  had
   approximately $9.0 million available  for cash borrowings under these  credit
   facilities.



10.ACQUISITION AND CLOSED RESTAURANT LIABILITIES

   The Company establishes acquisition liabilities, as necessary, in  connection
   with the  purchase method  of accounting  for restaurants  and  other  assets
   it acquires.  Such liabilities are primarily  related to  leases that were at
   terms  less  favorable  than  market  rates  prevailing at  the   acquisition
   date  and anticipated restaurant closure costs, if any.

   The liability established for leases in excess of the  prevailing market were
   based  on current market rental rates at the date of acquisition as  compared
   to the terms of the leases acquired.   This liability is being amortized as a
   reduction  of occupancy  expense over the  remaining  term of the  applicable
   leases.   The total amount of this reserve was $1.2 million and $1.0 million,
   at  January 3, 1999 and January 2, 2000, respectively.  During 1998 and 1999,
   approximately  $181,000  and  $170,000,  respectively,  of  the  balance was
   amortized  in  this manner.

   Acquisition  liabilities include  reserves established  for the  closure  of
   certain acquired  restaurants.  These  restaurants  were  anticipated to  be
   closed at  the time of acquisition.  The amounts reserved  were equal to the
   value assigned  to the building and equipment acquired, less any anticipated
   salvage value, plus an amount estimated to terminate the lease prior to its
   expiration date.  The total amount of this reserve was $261,000 and $175,000
   at January 3, 1999 and January 2, 2000, respectively.  During 1998  and 1999,
   approximately  $1.0 million  and $86,000,  respectively,  of  this  reserve
   was  utilized  in  the closure of restaurants. As  part of the special charge
   reversal  recorded in  1998,  the Company reversed $200,000 of this reserve.



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10.ACQUISITION AND CLOSED RESTAURANT LIABILITIES (continued)

   In 1997, as part of  the special  charge, the Company  reserved amounts for
   closed restaurant liabilities. The  amounts reserved were equal to the lesser
   of  the present value  of  the  monthly lease  commitments,  net  of expected
   sublease  receipts, or lease  termination provisions.   These reserves  were
   approximately  $6.2 million  and  $5.5  million  at  January  3,  1999  and
   January  2,  2000, respectively.  It is currently anticipated that  payments
   of  approximately  $800,000 will be  made under lease  and other obligations
   during 2000.  During  1998 and 1999, approximately $2.7 million and $754,000,
   respectively, of  this   reserve was utilized in  the closure of restaurants.
   During 1998 and 1999, the  Company received  proceeds  of  approximately $4.3
   million and $1.3  million, respectively, from the sales  of closed restaurant
   properties.   As part of  the   special charge  reversal  recorded  in  1998,
   the  Company  re-evaluated  lease   obligations for closed  restaurants and
   reversed approximately $2.5 million  of the lease liability reserves for such
   restaurants.


11.EARNINGS PER SHARE

   The following table sets forth the computation of basic and diluted earnings
   per share:

                                                  Year Ended
                                  -----------------------------------------
                                     December 28,  January 3,    January 2,
                                       1997          1999           2000
   Numerator for basic and
    diluted earnings per
    share - net income (loss)     $(73,198,000)   $13,734,000  $  13,117,000

   Denominator:
      Denominator for basic
       earnings per share -
       weighted-average shares      15,314,665     14,336,526     13,199,044
      Effect of dilutive securities -
       Employee stock options                -        140,067        366,806
                                  ------------    -----------  -------------
      Denominator for diluted
       earnings per share -
       adjusted weighted-average
       and assumed conversions      15,314,665     14,476,593     13,565,850
                                  ============    ===========  =============
   Basic earnings (loss)
    per share                     $      (4.78)   $      0.96  $        0.99
                                  ============    ===========  =============
   Diluted earnings (loss)
    per share                     $      (4.78)   $      0.95  $        0.97
                                  ============    ===========  =============

   For additional disclosures regarding outstanding employee stock options, see
   Note 12.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



12.STOCKHOLDERS' EQUITY AND STOCK OPTIONS

Stock Options  -  The  Company  has  stock  option  plans  (the  " Plans" )  for
employees, outside directors,  and advisors  of the  Company covering  2,750,000
shares of the Company's common stock.  Options under such plans generally become
exercisable ratably over a two to five year  period.  All options expire at  the
earlier of termination of employment or ten  years after the date of grant.  The
Plans terminate in 2000 and in 2004.  The Plans are administered by a  committee
of outside members of  the Board of Directors.   In addition, certain  directors
were awarded  non-qualified stock  options pursuant  to  the terms  of  separate
compensation agreements.  At January 2, 2000, there were no shares available for
issuance.  Options outstanding are as follows:

                                                                Weighted
                                                                Average
                                               Total Options    Exercise
                                                Outstanding      Price

   Options outstanding, December 29, 1996        1,111,500     $    6.18
     Granted                                       379,750          4.63
     Exercised                                         -              -
     Expired or canceled                          (140,375)         8.57
                                                 ---------
   Options outstanding, December 28, 1997        1,350,875     $    5.64
     Granted                                       480,050          6.17
     Exercised                                    (201,400)         4.78
     Expired or canceled                          (125,000)         5.24
                                                 ---------
   Options outstanding, January 3, 1999          1,504,525     $    5.76
     Granted                                       218,908          8.75
     Exercised                                    (104,575)         5.20
     Expired or canceled                           (39,675)         7.05
                                                 ---------
   Options outstanding, January 2, 2000          1,579,183     $    6.17
                                                 =========
   Options exercisable, January 2, 2000            838,304     $    5.82
                                                 =========


TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



12.STOCKHOLDERS' EQUITY AND STOCK OPTIONS (Continued)

   For  the  options outstanding  at  January  2,  2000,  the  weighted  average
   remaining  life and  exercise  price of  these  outstanding options  were  42
   months and $6.12, respectively.   In addition, the weighted average  exercise
   price of options granted during 1999 was $8.75.

   SFAS No. 123,  Accounting for  Stock-Based Compensation,  allows entities  to
   continue  to  use  Accounting  Principles  Board  (" APB")  Opinion   No. 25,
   Accounting for  Stock Issued  to Employees.  The Company  has evaluated  SFAS
   No. 123 and intends to continue following APB Opinion No. 25.  The  pro-forma
   compensation expense, net income  (loss) and earnings (loss) per share  which
   were calculated as if SFAS No. 123 had been applied are as follows:

                                                Year Ended
                              -----------------------------------------
                               December 28,    January 3,     January 2,
    Pro Forma                      1997            1999          2000

    Compensation expense      $   555,000     $  329,000     $  380,000
    Net income (loss)         (73,548,000)    13,405,000     12,737,000
    Basic earnings
     (loss) per share         $     (4.80)    $     0.94     $     0.96
    Diluted earnings
     (loss) per share         $     (4.80)    $     0.93     $     0.94

   The Black-Scholes option pricing model  was used to determine the above  pro-
   forma information. The calculations  relied upon estimates of the  volatility
   of the Company's stock and  expected dividends, as well as determinations  of
   a risk-free interest  rate and expected  life of the  options.  A  volatility
   rate of 49.0% was used for options granted prior to 1994, 37.5% was used  for
   options granted during 1994, 36.0%  was used for options granted during  1995
   through 1996, 34.0% was used for options granted during 1997, 33.0% was  used
   for options granted during 1998, and 26% was used for options granted  during
   1999.  Dividends were estimated at zero.  The discount rate charged on  loans
   to depository institutions by the Federal Reserve Bank was used as the  risk-
   free interest  rate.  The  discount rate was  approximately 5.0%  for all  of
   1999.   The  Company's options  have  a ten  year  life and  vesting  periods
   ranging from two to five years.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



12.STOCKHOLDERS' EQUITY AND STOCK OPTIONS (Continued)

   Preferred Stock  Purchase  Rights -  In June  1995,  the Company's  Board  of
   Directors declared a distribution  of one preferred stock purchase right  for
   each share of  the Company's common  stock.  The  rights were distributed  on
   June 20, 1995 to stockholders of record as  of the close of business on  that
   day.  Each right will entitle the holder to buy 1/1000 of a share of a  newly
   authorized Series  A  preferred stock  at an  exercise  price of  $37.50  per
   right.    The rights  become  exercisable  on  the  tenth  day  after  public
   announcement  that a  person  or  group  has acquired  15%  or  more  of  the
   Company's common stock.  The rights may  be redeemed by the Company prior  to
   becoming exercisable  by action  of the Board  of Directors  at a  redemption
   price of $0.01 per  right.  If the Company is  acquired in a merger or  other
   business  combination  transaction   in  which  it   is  not  the   surviving
   corporation, each  right will  entitle its holder  to purchase  stock of  the
   acquiring company having a market value of twice the exercise price.  In  the
   event that the Company is the surviving corporation, each right will  entitle
   its holder to purchase  the Company's common stock  having a market value  of
   twice the  exercise price  of each right.   At  January 2,  2000, there  were
   12,080,975 rights outstanding.

   Preferred Stock - In June 1995, in connection with its implementation of  the
   stockholders' rights  plan discussed  above, the  Company authorized  100,000
   shares of Series  A, preferred stock with  a par value of   $0.01 per  share,
   which would become issuable only at such time, if ever, as the rights  become
   exercisable.  As of January 2, 2000 there were no shares outstanding.

   Treasury Stock - The  Company's Board of Directors previously authorized  the
   purchase in  the open  market of  up  to 4,500,000  shares of  the  Company's
   outstanding common stock. Through the first quarter of 1999, the Company  had
   repurchased  2,585,000  shares with  an  aggregate  cost  of  $13.9  million.
   During the  first quarter, the  Company retired all  shares held as  treasury
   shares.  The cost of retired shares in  excess of par value has been  charged
   to additional paid in capital.  Subsequent to the first quarter, the  Company
   repurchased an  additional 1,354,600  shares at  an aggregate  cost of  $11.4
   million,  which  as  of  January  2,  2000  were  held  as  treasury   stock.
   Subsequent to January  2, 2000, the Company  purchased an additional  510,400
   shares of the Company's common stock at an average price of $6.93.



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13.INCOME TAXES

   The provision  (benefit) for income  taxes differs from  the amount  computed
   using statutory rates as shown below:

                                               Year Ended
                             -------------------------------------------
                               December 28,    January 3,      January 2,
                                  1997            1999           2000

    Federal income tax at
     starting date            $(25,410,000)   $4,670,000    $ 4,460,000
    State income taxes              48,000             -              -
    Goodwill and other           4,819,000       (15,000)      (339,000)
    Change in valuation
     allowance                  19,006,000    (4,655,000)    (4,121,000)
                              ------------    ----------    -----------
      Total                   $ (1,537,000)   $        -    $         -
                              ============    ==========    ===========
   The provision (benefit) for income taxes is comprised of the following:

                                               Year Ended
                              ------------------------------------------
                              December 28,    January 3,      January 2,
                                  1997            1999           2000

    Current                   $    281,000    $        -     $        -
    Deferred                    (1,818,000)            -              -
                              ------------    ----------     ----------
      Total                   $ (1,537,000)   $        -     $        -
                              ============    ==========     ==========



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13.    INCOME TAXES (Continued)

   Deferred income taxes and  benefits are provided for differences between  the
   financial statement carrying  amount of existing  assets and liabilities  and
   their respective tax bases.  Significant deferred tax assets and  liabilities
   are as follows:

                                             January 3,      January 2,
                                                1999            2000
    Current:
    Deferred Federal Tax Assets:
      Workmen's compensation claims         $   337,000     $   101,000
      Accounts receivable                        35,000          34,000
      Accrued vacation                           21,000          30,000
                                            -----------     -----------
    Net Current Deferred Tax Asset          $   393,000     $   165,000
                                            ===========     ===========
    Noncurrent:
    Deferred Federal Tax Assets:
      Net operating loss carryforward       $ 6,955,000     $ 4,672,000
      General business tax credit
       carryforward                             590,000         655,000
      Closed stores and lease liabilities     1,400,000       2,435,000
      Alternative minimum tax credit
       carryforward                           1,277,000         997,000
      Deferred rent                           2,416,000         766,000
      Other - Special charge                    378,000         266,000
      Charitable Contributions                   51,000         149,000
      Intangible Assets                       1,857,000       1,591,000
      Other                                           -         159,000
                                            -----------     -----------
    Total                                    14,924,000      11,690,000
                                            -----------     -----------
    Deferred Federal Tax Liabilities:
      Fixed assets                             (966,000)     (1,625,000)
                                            -----------     -----------
    Total                                      (966,000)     (1,625,000)
                                            -----------     -----------
    Net Noncurrent Deferred Tax Asset        13,958,000      10,065,000
                                            -----------     -----------
    Net Deferred Tax Asset before
     valuation allowance                     14,351,000      10,230,000
    Valuation Allowance                     (14,351,000)    (10,230,000)
                                            -----------     -----------
    Net Deferred Tax  Asset                 $         -     $         -
                                            ===========     ===========


TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13.INCOME TAXES (Continued)

   At January 2, 2000, the  Company had net operating loss, alternative  minimum
   tax  and general  business  tax  credit carry-overs  of  approximately  $13.7
   million, $997,000 and $655,000, respectively.  A portion of the above  carry-
   overs resulted from a prior  acquisition; the Company was allowed to  utilize
   the  net operating  loss  of  $5.4 million  and  tax  credit  carry-overs  of
   $178,000 that existed at  the date of acquisition.   However, because of  the
   change  in  ownership, the  net  operating  loss  carry-over  utilization  is
   further  limited to  approximately  $953,000 per  year,  and the  tax  credit
   carry-over acquired from a prior acquisition is limited each year to the  tax
   equivalent of  any remaining portion  of the net  operating loss  limitation.
   The net operating  loss and tax  credit carry-overs begin  to expire in  2003
   and 2000, respectively.

   The alternative  minimum  tax credit  carry-over  and the  remaining  general
   business  credit carry-overs  are  available  to offset  future  regular  tax
   liabilities.   The general business  credit begins to  expire in  2007.   The
   alternative minimum tax credit has no expiration date.


14.LITIGATION SETTLEMENT AND LEGAL PROCEEDINGS

The Company is a party to routine negligence or employment-related litigation in
the ordinary course of its business.   No such pending matters, individually  or
in the aggregate,  are deemed to  be material to  the results  of operations  or
financial condition of the Company.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



15.QUARTERLY FINANCIAL DATA (Unaudited)

                                         Quarter Ended
                     ----------------------------------------------------
                       March 29,     June 28,    September 27,  January 3,
                         1998         1998          1998         1999 (1)

   Total revenues    $ 32,407,000   $36,292,000  $36,270,000   $37,981,000
   Gross profit        22,615,000    25,463,000   25,168,000    26,357,000

   Net income applicable
    to common stock     1,857,000     3,297,000    2,895,000     5,686,000

   Basic earnings
    per share        $       0.13   $     0.22   $      0.20   $      0.42

   Diluted earnings
    per share        $       0.12   $     0.22   $      0.20   $      0.41

                                         Quarter Ended
                     -----------------------------------------------------
                        April 4,     July 4,     October 3,      January 2,
                         1999         1999          1999           2000

   Total revenues    $ 36,910,000   $41,417,000  $41,449,000   $39,824,000
   Gross profit        25,983,000    28,908,000   28,910,000    28,035,000

   Net income applicable
    to common stock     2,764,000     3,857,000    3,655,000     2,840,000

   Basic earnings
    per share        $       0.21   $     0.29   $     0.27    $      0.22

   Diluted earnings
    per share        $       0.20   $     0.28   $     0.27    $      0.22


   (1)    See Note 2 for discussion of the special charge reversal recorded in
          this quarter.