UNITED STATES
               SECURITIES AND EXCHANGE COMMISSION
                        Washington, D. C.
                                
                                
                            FORM 10-Q

(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934

For the quarterly period ended June 29, 1997

                               OR

[ ] Transition report pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934


                Commission File Number:  0-20716


                        TACO CABANA, INC.

     (Exact name of registrant as specified in its charter)

            DELAWARE                       74-2201241
(State or other jurisdiction of         (I.R.S. Employer
 incorporation or organization)      Identification Number)

                  8918 Tesoro Drive, Suite 200
                   San Antonio, Texas   78217
            (Address of principal executive offices)
                                
                 Telephone Number (210) 804-0990
      (Registrant's telephone number, including area code)

     
           Indicate by check mark whether the registrant (1)
     has  filed all reports required to be filed by  Section
     13  or  15(d)  of the Securities Exchange Act  of  1934
     during  the  preceding 12 months (or for  such  shorter
     period  that 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 the number of shares of each of the
     issuer's classes of common stock as of the latest
     practicable date:

                 Class        Outstanding at August 8 , 1997
             Common Stock           14,826,537 shares



                        TACO CABANA, INC.
                              INDEX


                                                          Page
                                                         Number

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at June 29, 1997     2
  and December 29, 1996
                                                            
Condensed Consolidated Statements of Operations for the    3
  Thirteen Weeks Ended June 29, 1997 and June 30, 1996
                                                           
Condensed Consolidated Statements of Operations for the    4
  Twenty-Six Weeks Ended June 29, 1997 and June 30, 1996
                                                           
Condensed Consolidated Statements of Cash Flows for the    5
  Twenty-Six Weeks Ended June 29, 1997 and June 30, 1996
                                                           
Notes to Condensed Consolidated Financial Statements       6
                                                            
                                                            
Item 2.  Management's Discussion and Analysis of          7-14
Financial Condition and Results of Operations


PART II.  OTHER INFORMATION


Items 1 through 5 have been omitted since the             
  registrant has no reportable events in relation to the
  items
                                                          
Item 6. Exhibits and Reports on Form 8-K                 15
                                                          
Signature                                                 
                                                          
                                
                        TACO CABANA, INC.
              CONDENSED CONSOLIDATED BALANCE SHEETS
                           (UNAUDITED)


                                       December 29,     June 29,
                                           1996           1997
                                       ------------     ---------              
ASSETS                                                      
CURRENT ASSETS:                                             
Cash and cash equivalents               $    748,000   $     26,000
Receivables, net                             792,000        603,000
Inventory                                  1,858,000      2,131,000
Prepaid expenses                           1,353,000      1,377,000
Pre-opening costs, net                       129,000        266,000
Federal income taxes receivable              363,000        520,000
Deferred income taxes                      1,827,000      1,457,000
                                          ----------      ---------
  Total current assets                     7,070,000      6,380,000
                                                            
PROPERTY AND EQUIPMENT, net               88,963,000     90,921,000
NOTES RECEIVABLE, net                        738,000        703,000
INTANGIBLE ASSETS, net                    45,394,000     44,657,000
OTHER ASSETS                                 541,000        512,000
                                         -----------     ----------            
TOTAL                                   $142,706,000   $143,173,000
                                         ===========    ===========
                                                                   
LIABILITIES AND STOCKHOLDERS' EQUITY                               
CURRENT LIABILITIES:                                               
Accounts payable                        $  4,181,000   $  3,986,000
Accrued liabilities                        3,171,000      2,422,000
Current maturities of long-term debt                                
 and capital leases                        2,409,000      2,637,000
Line of credit                               625,000      3,039,000
                                          ----------     ----------
  Total current liabilities               10,386,000     12,084,000
                                                                   
LONG-TERM OBLIGATIONS, net of current                              
  maturities:                                                      
Capital leases                             4,041,000      3,929,000
Long-term debt                             6,593,000      5,299,000
                                          ----------      ---------
Total long-term obligations               10,634,000      9,228,000
                                                                   
ACQUISITION LIABILITIES                    4,212,000      4,017,000
DEFERRED LEASE PAYMENTS                      657,000        513,000
DEFERRED INCOME TAXES                      3,645,000      4,176,000
                                                                   
STOCKHOLDERS' EQUITY:                                              
Common stock                                 157,000        157,000
Additional paid-in capital                97,095,000     97,095,000
Retained earnings                         15,920,000     17,352,000
Less:  Treasury stock at cost
  (360,000 shares)                                -      (1,449,000)
                                         -----------     ----------
Total stockholders' equity               113,172,000    113,155,000
                                         -----------    -----------            
TOTAL                                   $142,706,000   $143,173,000
                                         ===========    ===========

                                                                                
    See notes to Condensed Consolidated Financial Statements.




                        TACO CABANA, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                           (UNAUDITED)



                                      For the Thirteen Weeks Ended
                                      ----------------------------
                                      June 30,      June 29,
                                        1996          1997
                                      -------       ---------
                                                  
REVENUES:                                                     
Restaurant sales                     $35,174,000   $34,104,000
Franchise fees and royalty income        134,000        96,000
                                     -----------    ----------
                                                              
  Total revenues                      35,308,000    34,200,000
                                     -----------    ----------
                                                              
COSTS AND EXPENSES:                                           
Restaurant cost of sales              11,074,000    10,572,000
Labor                                  9,064,000     9,292,000
Occupancy                              2,045,000     2,052,000
Other restaurant operating costs       6,284,000     6,276,000
General and administrative             1,585,000     1,782,000
Depreciation and amortization          2,216,000     2,570,000
Litigation Settlement                  3,400,000             -
                                      ----------    ----------
                                                              
  Total costs and expenses            35,668,000    32,544,000
                                     -----------    ----------
                                                              
INCOME (LOSS) FROM OPERATIONS           (360,000)    1,656,000
                                     -----------    ----------
                                                              
INTEREST EXPENSE, NET                   (356,000)     (265,000)
                                     -----------    ----------
                                                              
INCOME (LOSS) BEFORE INCOME TAXES       (716,000)    1,391,000
                                                              
BENEFIT (PROVISION) FOR INCOME
  TAXES                                  163,000      (515,000)
                                     -----------     ---------
                                                             
NET INCOME (LOSS)                    $   553,000   $   876,000
                                      ==========    ==========
                                                              
NET INCOME (LOSS) PER SHARE          $      0.04   $      0.06
                                      ==========    ==========
                                                              
WEIGHTED AVERAGE SHARES OUTSTANDING   15,687,689    15,680,713
                                      ==========    ==========
                                                              
    See notes to Condensed Consolidated Financial Statements.





                          TACO CABANA, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                           (UNAUDITED)




                                    For the Twenty-Six Weeks Ended
                                    ------------------------------          
                                     June 30,       June 29,
                                       1996           1997
                                     --------       ---------      
REVENUES:                                                     
Restaurant sales                    $ 66,293,000   $64,204,000
Franchise fees and royalty income        280,000       182,000
                                     -----------    ----------
                                                              
  Total revenues                      66,573,000    64,386,000
                                     -----------   -----------                 
COSTS AND EXPENSES:                                           
Restaurant cost of sales              20,777,000    19,734,000
Labor                                 17,239,000    17,378,000
Occupancy                              4,096,000     4,099,000
Other restaurant operating costs      11,942,000    11,751,000
General and administrative             3,317,000     3,575,000
Depreciation and amortization          4,584,000     5,060,000
Litigation settlement                  3,400,000             -
                                      ----------    -----------
                                                              
  Total costs and expenses            65,355,000    61,597,000
                                      ----------    ----------
                                                              
INCOME FROM OPERATIONS                 1,218,000     2,789,000
                                      ----------    ----------
                                                              
INTEREST EXPENSE, NET                  (768,000)     (516,000)
                                      ----------    ----------
                                                              
INCOME BEFORE INCOME TAXES               450,000     2,273,000
                                                              
PROVISION FOR INCOME TAXES             (269,000)     (841,000)
                                      ----------    ----------
                                                              
NET INCOME                            $  181,000    $1,432,000
                                       =========     =========
                                                              
NET INCOME PER SHARE                  $     0.01    $    (0.09)
                                       =========     =========
                                                              
WEIGHTED AVERAGE SHARES
OUTSTANDING                           15,952,239    15,693,625
                                      ==========    ==========
                                                              
      See notes to Condensed Consolidated Financial Statements.





                        TACO CABANA, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (UNAUDITED)



                                           For the Twenty-Six Weeks Ended
                                           -----------------------------       
                                            June 30,      June 29,
                                              1996          1997
                                            ----------    ---------
            
CASH FLOWS FROM OPERATING ACTIVITIES:                               
Net income                                 $   181,000  $  1,432,000
Adjustments to reconcile net income to                              
 net cash provided by operating activities:                            
    Depreciation and amortization            4,584,000     5,060,000
    Litigation Settlement                    2,950,000             -
    Deferred income taxes                      846,000       901,000
    Capitalized interest                             -       (45,000)
    Deferred lease payments                   (199,000)     (144,000)
    Changes in operating working capital
      items                                 (2,167,000)     (993,000)
                                            ----------      ---------
                                                                    
Net cash provided by operating
 activities                                  6,195,000     6,211,000
                                            ----------     ---------
                                                                    
CASH FLOWS FROM INVESTING ACTIVITIES:                               
Purchase of property and equipment          (2,753,000)   (6,720,000)
Investment in joint venture                   (250,000             -
                                           -----------    -----------          
Net cash used for investing activities      (3,003,000)   (6,720,000)
                                                                    
CASH FLOWS FROM FINANCING ACTIVITIES:                               
Proceeds from issuance of notes payable                             
  and draws on line of credit                        -     2,414,000
Principal payments under long-term debt
  and line of credit                        (3,047,000)   (1,073,000)
Principal payments under capital leases        (98,000)     (105,000)
Purchase of treasury stock                            -   (1,449,000)
Exercise of stock options                       42,000             -

Net cash used by financing activities       (3,103,000)     (213,000)
                                                                    
NET INCREASE (DECREASE) IN CASH                 89,000      (722,000)
                                                                    
CASH AND CASH EQUIVALENTS, beginning of
  period                                     2,749,000       748,000
                                            ----------      --------
                                                                    
CASH AND CASH EQUIVALENTS, end of period  $  2,838,000     $  26,000
                                           ===========      ========            
                                                                    
    See notes to Condensed Consolidated Financial Statements.





                        TACO CABANA, INC.
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                
                                
1.  Basis of Presentation

Principles   of   Consolidation  -  The  consolidated   financial
statements  include  all accounts of Taco Cabana,  Inc.  and  its
wholly-owned   subsidiaries   (the  Company).   All   significant
intercompany balances and transactions have been eliminated.

The unaudited Condensed Consolidated Financial Statements include
all  adjustments, consisting of normal, recurring adjustments and
accruals,  which  the  Company  considers  necessary   for   fair
presentation of financial position and the results of  operations
for  the  periods  presented. Certain  information  and  footnote
disclosures normally included in financial statements prepared in
accordance  with  generally accepted accounting  principles  have
been  condensed  or  omitted.  The interim  financial  statements
should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 29, 1996.

Recently Issued Accounting Pronouncements - In February 1997, the
Financial  Accounting  Standards  Board  issued  SFAS   No.   128
"Earnings  Per  Share,, which is required to be  adopted  by  the
Company  in  the reporting period ending December 28,  1997.   At
that  time,  the  Company will be required to change  the  method
currently  used to compute earnings per share and to restate  all
prior  periods.  Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will  be
excluded.  The Company has determined there would be no impact of
SFAS  128  on  the  calculation of earnings  per  share  for  the
thirteen weeks and the twenty-six weeks ended June 29, 1997.

2.  Earnings per Share

Net income per share has been computed by dividing net income  by
the  weighted average number of common shares outstanding  during
each  period.  Common stock equivalent shares,  which  relate  to
stock  options,  are included in the weighted  average  when  the
effect is dilutive.

3.  Supplemental Disclosure of Cash Flow Information


                                          Twenty-Six Weeks Ended
                                          ----------------------
                                          June 30,       June 29,
                                            1996           1997
                                         (Unaudited)   (Unaudited)
                                         -----------   -----------
Cash paid for interest                      $879,000   $   604,000
Interest capitalized on construction
  costs                                         -           45,000
Cash paid for income taxes                    20,000        62,000
Cash received for income taxes               413,000         4,000





             MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                
Introduction

The  Company commenced operations in 1978 with the opening of the
first Taco Cabana restaurant in San Antonio. As of August 1, 1997
the Company had 107 company-owned, one joint-venture owned and 13
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 first six months of the 1997 fiscal year.

During  the  twenty-six weeks ended June 29,  1997,  the  Company
opened  one  free-standing  restaurant  and  two  non-traditional
restaurants located within the H-E-B grocery stores. The  Company
also  converted  two free-standing Sombrero Rosa restaurants  and
two  Two  Peso mall units to the Taco Cabana concept  during  the
same period. Additionally, a franchisee of the Company closed one
restaurant and a franchisee of the Company, in which the  Company
has a joint venture interest, closed two restaurants.
The  following  table  sets forth for the periods  indicated  the
percentage  relationship  to  total  revenues,  unless  otherwise
indicated,  of certain operating statement data. The  table  also
sets forth certain restaurant data for the periods indicated.


                              13 Weeks Ended       26 Weeks Ended
                              --------------       --------------              
                              June 30,  June 29,   June 30,  June 29,
                              1996      1997       1996      1997
                             --------   -------   -------    -------           

Operating Statement Data:                                      
REVENUES:                                                  
Restaurant sales               99.6%     99.7%     99.6%      99.7%
Franchise fees and royalty
 income                         0.4       0.3       0.4        0.3
                              -----      -----     -----      -----
                                                           
Total revenues                100.0%    100.0%    100.0%     100.0%
                              ======    ======   =======     ======
                                                           
COSTS AND EXPENSES:                                        
  Restaurant cost of sales (1)  31.5%     31.0%     31.3%      30.7%
  Labor (1)                     25.8      27.2      26.0       27.1
  Occupancy (1)                  5.8       6.0       6.2        6.4
  Other restaurant operating   
   costs (1)                    17.9      18.4      18.0       18.3
  General and administrative
   costs                         4.5       5.2       5.0        5.6
  Depreciation and             
   amortization                  6.3       7.5       6.9        7.9
  Litigation settlement          9.6         -       5.1         -
                                -----     -----     -----      -----           
INCOME (LOSS) FROM OPERATIONS   (1.0)      4.8       1.8        4.3

INTEREST EXPENSE, net           (1.0)     (0.8)     (1.2)      (0.8)
                                -----     -----     -----      ------          
INCOME (LOSS) BEFORE INCOME 
  TAXES                         (2.0)     4.1        0.7        3.5

BENEFIT (PROVISION) FOR     
  INCOME TAXES                   0.5      (1.5)     (0.4)      (1.3)
                               -----     ------     -----      -------
                                                               
NET INCOME (LOSS)              (1.6)%      2.6%      0.3%       2.2%
                              =======     =====     =====      =======
                                                               
Restaurant Data:                                               
Company-owned restaurants:                                     
  Beginning of period          104       106       106        104
  Opened                         -         1         -          3
  Closed                         -         -        (2)         -
                               ---       ---       ---        ---
  End of period                104       107       104        107
                                                               
Franchised (2) and joint- 
 venture owned restaurants:     22        14        22         14
                               ---       ---       ---        ---
Total restaurants:             126       121       126        121
                               ===       ===       ===        ===
                                                               
(1) Percentage is calculated based upon restaurant sales.
(2) Excludes Two Pesos licensed restaurants.



The Thirteen Weeks Ended June 29, 1997 Compared to the Thirteen
Weeks Ended June 30, 1996

Restaurant Sales.  Restaurant sales decreased by $1.1 million, or
3.0%,  to $34.1 million for the second quarter of 1997 from $35.2
million  for the second quarter in 1996. Comparable store  sales,
defined as Taco Cabana restaurants that have been open 18  months
or  more  at  the  beginning  of  the  quarter,  decreased  5.4%.
Comparable  store  sales in the Company's  core  markets  of  San
Antonio, Austin, Houston and Dallas, which represent over 90%  of
the Company's sales volume, decreased 4.3%. Management attributes
much of the decline in sales in its core markets to the increased
competitive environment in the quick-service restaurant industry.

Franchise  Fees and Royalty Income.  Franchise and  royalty  fees
decreased  by $38,000 to $96,000 for the second quarter  of  1997
compared  to  the  second quarter of 1996,  due  primarily  to  a
decrease  in  franchise royalties. This decrease  was  due  to  a
decrease  in the number of franchise restaurants open during  the
second quarter in 1997 compared to the second quarter in 1996.

Cost  of  Sales.   Restaurant  cost of  sales,  calculated  as  a
percentage of restaurant sales, decreased to 31.0% in the  second
quarter  of 1997 from 31.5% for the second quarter of 1996.   The
decrease  was  due  primarily  to the  continued  negotiation  of
favorable  commodity  prices  as well  as  continued  operational
emphasis on this area.

Labor.   Labor costs increased slightly during the second quarter
of  1997 compared to the second quarter of 1996, primarily due to
the  greater  number  of  restaurants  in  operation  during  the
quarter. As a percentage of sales, labor costs increased to 27.2%
in  the  second quarter of 1997 compared to 25.8% in  the  second
quarter  of  1996.  The  increase is due to  lower  average  unit
volumes. Management has committed to not reduce labor dollars  at
the restaurant level in the face of declining sales.

Occupancy.  Occupancy costs increased slightly during the  second
quarter  of  1997 compared to the second quarter of 1996.   As  a
percentage of restaurant sales, occupancy costs increased to 6.0%
in  the  second  quarter of 1997 compared to 5.8% in  the  second
quarter of 1996, due to decreased sales at the restaurant level.

Other  Restaurant  Operating Costs.  Other  restaurant  operating
costs  remained relatively constant during the second quarter  of
1997 as compared to the same period of 1996.  As a percentage  of
restaurant  sales, other restaurant operating costs increased  to
18.4%  compared  to 17.9% in the second quarter of  1996  due  to
decreased sales at the restaurant level.

General  and Administrative.  General and administrative expenses
increased to $1.8 million from $1.6 million, and increased  as  a
percentage  of total revenues to 5.2% for the second  quarter  of
1997  from 4.5% for the comparable period in 1996. This  increase
was  primarily attributable to the addition of corporate  support
staff,  as well as an increased level of expenditures to  support
the Company's operations.

Depreciation  and  Amortization.  Depreciation  and  amortization
expense consisted of the following:

                                        Thirteen Weeks Ended
                                   ------------------------------
                                   June 30, 1996    June 29, 1997
                                   -------------    -------------
                                    (Unaudited)      (Unaudited)
Depreciation of property   
  and equipment                      $ 1,689,000   $ 2,102,000
Amortization of  intangible assets       416,000       396,000
Amortization of  pre-opening costs       111,000        72,000

Depreciation expense increased by approximately $413,000 for  the
quarter ended June 29, 1997 compared to the quarter ended June 30
1996.  The increase was primarily due to capital expenditures  at
existing restaurants during the past twelve months.

Interest   Expense,  net.   Interest  expense,  net  of  interest
capitalized on construction costs, decreased to $265,000  in  the
second quarter of 1997 from $356,000 in the same period in  1996,
primarily  as a result of average debt outstanding being  reduced
by $2.1 million during the second quarter of 1997 compared to the
second  quarter  of  1996.  In addition the  Company  capitalized
$24,000  of  interest  during  the second  quarter  of  1997.  No
interest  was capitalized during the second quarter of 1997.  The
Company  earned  $13,000 of interest income during  the  thirteen
weeks ended June 29, 1997, compared to $47,000 of interest income
earned  during  the  thirteen weeks  ended  June  30,  1996.  The
decrease was due to a reduction in short-term investments  during
the twelve months ended June 29, 1997.

Net  Income(Loss)  and Net Income (Loss) Per Share.   Net  income
increased to $876,000 for the second quarter of 1997 from  a  net
loss of $553,000 for the same period in 1996. Net income was 2.6%
of  total revenues for the second quarter of 1997 compared  to  a
net  loss of 1.6% for the same period in 1996. Earnings per share
was  $0.06 for the second quarter of 1997 compared to a loss  per
share  of  $0.04  in  the same period of 1996.  Disregarding  the
litigation  settlement, recorded in the second quarter  of  1996,
the  Company would have reported net income of $1,691,000 for the
second  quarter  of 1996, equal to $0.11 per share.  Disregarding
the  litigation settlement, management believes that the decrease
is largely due to lower sales at Company-owned restaurants.
The  Twenty-Six Weeks Ended June 29, 1997 Compared to the Twenty-
Six Weeks Ended June 30, 1996

Revenues.  Restaurant sales decreased by $2.1 million,  or  3.1%,
to  $64.2  million for the twenty-six weeks ended June  29,  1997
from  $66.3 million for the comparable period in 1996. Comparable
store  sales, defined as Taco Cabana restaurants that  have  been
open  18  months or more at the beginning of the year,  decreased
4.8%  during the twenty-six weeks ended June 29, 1997. Management
attributes much of this decline in sales to increased  levels  of
competition  in the Company's core markets and inclement  weather
during  the  first  quarter of 1997. Franchise and  royalty  fees
decreased  by $98,000 to $182,000 for the twenty-six weeks  ended
June  29, 1997 compared to the same period of 1996, due primarily
to  a decrease in the number of franchise restaurants open during
the  twenty-six  week ended June 29, 1997 compared  to  the  same
period in 1996.

Cost  of  Sales.   Restaurant  cost of  sales,  calculated  as  a
percentage of restaurant sales, decreased to 30.7% in the twenty-
six weeks ended June 29, 1997 from 31.3% for the twenty-six weeks
ended  June  30,  1996.  The decrease was due  primarily  to  the
continued  negotiation of favorable commodity prices as  well  as
continued operational emphasis on this area.

Labor. Labor costs increased slightly during the twenty-six weeks
ended  June  29,  1997  compared to  the  same  period  of  1996,
primarily  due to the greater number of restaurants in  operation
during  the  period.  As  a  percentage  of  sales,  labor  costs
increased  to  27.1% in the twenty-six week ended June  29,  1997
compared to 26.0% in the same period of 1996. The increase is due
to  lower average unit volumes. Management has committed  to  not
reduce  labor  dollars at the restaurant level  in  the  face  of
declining sales.

Occupancy.  Occupancy costs increased slightly during the twenty-
six  weeks  ended June 29, 1997 compared to the  same  period  in
1996.  As  a  percentage  of restaurant  sales,  occupancy  costs
increased  to  6.4% in the twenty six weeks ended June  29,  1997
compared  to  6.2% in the same period of 1996, due  to  decreased
sales at the restaurant level.

Other  restaurant  operating  costs. Other  restaurant  operating
costs  remained  relatively constant during the twenty-six  weeks
ended  June 29, 1997 compared to the same period of 1996.   As  a
percentage of restaurant sales, other restaurant operating  costs
increased  to  18.3% during the twenty-six weeks ended  June  29,
1997  compared  to  18.0%  in the same  period  of  1996  due  to
decreased sales at the restaurant level.

General  and Administrative.  General and administrative expenses
increased to $3.6 million from $3.3 million, and increased  as  a
percentage  of  total revenues to 5.6% for the  twenty-six  weeks
ended  June 29, 1997 from 5.0% for the comparable period in 1996.
This  increase  was  primarily attributable to  the  addition  of
corporate  support  staff,  as well  as  an  increased  level  of
expenditures to support the Company's operations.
Depreciation  and  Amortization.  Depreciation  and  amortization
expense consisted of the following:

                                                Twenty-Six Weeks Ended
                                             -----------------------------
                                             June 30.1996     June 29,1997
                                             ------------    -------------
                                             (Unaudited)     (Unaudited)

Depreciation of property and equipment      $ 3,337,000       $ 4,137,000
Amortization of intangible assets               820,000           812,000
Amortization of pre-opening costs               427,000           111,000


Depreciation expense increased by approximately $800,000 for  the
twenty-six  weeks ended June 29, 1997 compared to the  twenty-six
weeks ended June 30, 1996. The increase was due primarily to four
restaurant  openings during the most recent twelve month  period,
as  well  as capital expenditures at existing restaurants  during
the   past  twelve  months.  Amortization  of  pre-opening  costs
decreased by approximately $316,000 in the twenty-six weeks ended
June  29,  1997 compared to the twenty-six weeks ended  June  30,
1996,  due to the decrease in the number of stores opened  during
the  most recent twelve-month period compared to the twelve-month
period ended June 30 1996.

Interest   Expense,  net.   Interest  expense,  net  of  interest
capitalized on construction costs, decreased to $516,000  in  the
twenty-six weeks ended June 29, 1997 from $768,000 in the twenty-
six  weeks ended June 30, 1996, primarily as a result of  average
debt outstanding being reduced by $3.4 million during the twenty-
six  weeks  ended June 29, 1997 compared to the  same  period  in
1996.  In  addition, the Company capitalized $45,000 of  interest
during the twenty-six weeks ended June 29, 1997. No interest  was
capitalized  during the same period of 1996. The  Company  earned
$42,000 of interest income during the twenty-six weeks ended June
29,  1997, compared to $102,000 of interest income earned  during
the twenty-six weeks ended June 30, 1996. The decrease was due to
a  reduction  in short-term investments during the twelve  months
ended June 29, 1997.

Net  Income(Loss)  and Net Income (Loss) Per Share.   Net  income
increased to $1,432,000 for the twenty-six weeks ended  June  29,
1997  from  $181,000 for the same period in 1996. Net income  was
2.2%  of  total revenues for the twenty-six weeks ended June  29,
1997  compared  to 0.3% for the twenty-six weeks ended  June  30,
1996. Earnings per share was $0.09 for the twenty-six weeks ended
June 29, 1997 compared to earnings per share of $0.01 in the same
period  of 1996. Disregarding the litigation settlement  recorded
in  the  second quarter of 1996, the Company would have  reported
net  income of $2,425,000 for the twenty-six weeks ended June 30,
1996,  equal  to  $0.15  per share. Disregarding  the  litigation
settlement, management believes that the decrease in  net  income
is largely due to lower sales at Company-owned restaurants.
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,  long-term  debt   and
capital  leases.  The Company maintains loan facilities  totaling
$20.0 million, including a $5.0 million unsecured revolving  line
of credit. As of August 8, 1997 $11.1 million had been used under
these facilities.

Net  cash  provided by operating activities was $6.2 million  for
each  of the twenty-six week periods ended June 29, 1997 and June
30,  1996. Net cash used in investing activities was $6.7 million
for  the  twenty-six  weeks  ended June  29,  1997,  representing
primarily  capital  expenditures  for  improvements  to  existing
restaurants, the construction of one free-standing and  two  non-
traditional restaurants, and the conversion of two Sombrero  Rosa
and  two  Two  Pesos  restaurants to  the  Taco  Cabana  concept,
compared to $3.0 million for the twenty-six weeks ended June  30,
1996,    representing   primarily   capital   expenditures    for
improvements to existing restaurants.

Net cash used by financing activities was $213,000 for the twenty-
six  weeks  ended  June  29,  1997,  representing  primarily  the
purchase of treasury stock, which was offset by borrowings  under
the  Company's  debt facilities, compared to  net  cash  used  by
financing activities of $3.1 million in the same period of  1996,
representing repayment of the Company's line of credit and  long-
term debt.

On  April  16, 1997, the Company's Board of Directors approved  a
plan to repurchase up to 1,500,000 shares of the Company's common
stock.  As  of June 29, 1997 the Company had repurchased  360,000
shares  at  an average cost of $4.03 per share. As of  August  8,
1997,  the  Company had repurchased 880,000 shares at an  average
cost  of $4.09 per share. The timing, price, quantity and  manner
of remaining purchases, if any, will be made at the discretion of
management  and  will  be dependent upon market  conditions.  The
Company has funded the repurchases through available bank  credit
facilities,  as  well as the liquidation of the  Company's  short
term  investment portfolio. Remaining purchases, if any, will  be
funded  through a combination of cash provided by  operations  or
through available bank credit facilities.

The  special  charge recorded during the fourth quarter  of  1996
included  an  accrual  of  approximately  $1.0  million  for  the
estimated  lease  obligations, legal and professional  costs  and
other  costs  associated with the closing of  two  of  the  three
restaurants operated by a joint venture in which the Company  has
a   50%  interest.  Cash  requirements  for  this  accrual   were
approximately  $25,000 in the twenty-six  weeks  ended  June  29,
1997.

The  special  charge  recorded in  the  second  quarter  of  1995
included  an accrual of approximately $1.2 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
$280,000 in the twenty-six weeks ended June 29, 1997. Several  of
the  restaurants which have been closed, as well as the Company's
previous  corporate  offices, are currently  for  sale.  Although
there can be no assurance of the particular price at which any of
such properties will be sold, the Company will receive funds upon
the  actual disposition of these properties. In addition, certain
acquisition  and  accrued liabilities related to  the  Two  Pesos
acquisition  were  reduced by payments of approximately  $522,000
during the twenty-six weeks ended June 29, 1997.

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 1998, including the planned opening of  five
to six free-standing restaurants during the remainder of 1997 and
twelve to fifteen free-standing restaurants during 1998.

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 and closing of  stores.  Therefore,
quarterly  results  cannot be used to indicate  results  for  the
entire year

Forward-Looking Statements

Statements in this quarterly report, including those contained in
the foregoing discussion and other items herein, concerning the
Company which are (a) projections of revenues, capital
expenditures or other financial items, (b) statements of plans
and objectives for future operations, (c) statements of future
economic performance, or (d) 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 Act of
1934.  The ultimate accuracy of forward-looking statements is
subject to a wide range of business risks and changes in
circumstances, and actual results and outcomes often differ 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; actions of our customers and
competitors; state and federal environmental, economic, safety
and other policies and regulations, any changes therein, 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 or the areas in
which the Company's products are marketed; natural disasters
affecting operations; and adverse rulings, judgments, or
settlements in litigations or other legal matters.  The Company
undertakes no obligation to publicly release the result of any
revisions to any such forward-looking statements that may be made
to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

Item 6. Exhibits and Reports on Form 8-K

No reports on Form 8-K were filed during the period covered by
this report.


Signature

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

Dated:  August 13, 1997  Taco Cabana, Inc.
                         
                         
                         
                         
                         /s/  David G. Lloyd
                         --------------------------------  
                         David G. Lloyd
                         Vice President, Chief Financial
                         Officer, Secretary and Treasurer
                         
                         
                         
                         
                         Signing on behalf of the registrant
                         and as the principal financial and
                         accounting officer